Businesses that purchase electric vehicles (EVs) for their fleet may be eligible for significant tax savings: up to $7,500 per vehicle for cars and smaller trucks, and up to $40,000 for larger vehicles. Since there is no limit to the number of tax credits your business may claim, the savings can quickly add up with each vehicle you buy.

Business demand for alternatives to combustion-engine vehicles is skyrocketing. According to data analysis from the Environmental Defense Fund, electric truck deployments by American companies increased fivefold in 2023.

Source: Electric Truck Deployments by US Companies Grew Five Times in 2023, Environmental Defense Fund, December 2023

Bloomberg NEF data reveals that the Inflation Reduction Act alone has attracted $100 billion in the North American EV supply chain. These investments include EV and battery manufacturing, as well as other areas like battery components and recycling.

You could qualify for one of two EV tax credits: the Clean Vehicle Credit, which is subject to an adjusted gross income (AGI) test, or a Qualified Commercial Clean Vehicle Credit, which is not subject to this test.

Option 1: Clean Vehicle Credit

The Clean Vehicle Credit (CVC) amount is $7,500 if the vehicle meets both the critical materials/battery components and USA assembly requirements. If it meets only one of these criteria, the credit is $3,750.

Eligibility for the Clean Vehicle Credit depends on the buyer’s modified AGI. If an S corp or partnership purchases the vehicle, the shareholder or partner will be subject to the AGI test. Here’s how it works:

• The buyer may claim the tax credit from the seller at the time of purchase or after purchase on their tax return.
• The AGI test will be conducted when the buyer files their tax return.
• If the buyer “fails” the AGI test and the credit was claimed at the time of purchase, the credit amount must be repaid—it is not refundable.

If not fully used in the current year, the Clean Vehicle Credit may be carried forward to a future tax year when it is claimed as a business credit on Form 3800.

Option 2: Qualified Commercial Clean Vehicle Credit

The amount of the Qualified Commercial Clean Vehicle Credit is equal to the lesser of:

• 15% of the basis for a hybrid car/30% of the basis for an all-electric car or
• The excess of the vehicle’s purchase price over the cost of a comparable non-electric car

The maximum amount of the credit is $40,000 if the vehicle weighs more than 14,000 pounds. The credit is limited to $7,500 for cars, small trucks, and SUVs weighing less than 14,000 pounds.

If an S corp or partnership claims the credit, it will flow to the shareholder/partner as a General Business Credit to be reported on Form 3800. The General Business Credit is not subject to an AGI test and may be carried forward if not fully used in the year generated.

Determining the best type of tax credit for your business is crucial: Which credit is better for your business? Generally, for cars, small trucks, and SUVs, the Qualified Commercial Clean Vehicle Credit is the simpler option because there is no AGI test, and the vehicle does not need to pass the components/USA assembly tests.

However, the Clean Vehicle Credit is better if the buyer can pass the AGI test and the amount of the Qualified Commercial Vehicle Credit is less than that of the Clean Vehicle Credit.

Be sure not to take a double benefit: Whichever credit you claim, a depreciable basis adjustment is required to prevent a double benefit (credit and depreciation expense). The basis reduction is equal to the credit amount.

EV charging equipment can yield a tax credit of up to $100,000: The purchase of EV charging equipment for a business, fleet, or tax-exempt entity may qualify for a tax credit. The credit’s value is 6% of the purchase price, subject to depreciation. The maximum credit is $100,00 for each item of property.

If you are considering purchasing electric vehicles for your business and want to take advantage of the tax credits, let’s talk.

• Credits for new clean vehicles purchased in 2023 or after
• Commercial Clean Vehicle Credit
• Used Clean Vehicle Credit
• IRS updates frequently asked questions related to New, Previously Owned, and Qualified Commercial Clean Vehicle Credits
• Federal Tax Credits for Plug-in Electric and Fuel Cell Electric Vehicles Purchased in 2023 or After