The IRS issued safe harbor guidance on the new credit for qualified commercial clean vehicles under the Inflation Reduction Act of 2022 (2022 Inflation Act). The safe harbor provides the incremental cost of certain qualified commercial clean vehicles placed in service in calendar year 2023. The 2022 Inflation Act extended and modified tax credits for clean vehicles (which includes both plug-in electric vehicles and fuel cell vehicles) for vehicles purchased after December 31, 2022, and before January 1, 2033.

Background. Businesses and tax-exempt organizations that buy a qualified commercial clean vehicle may qualify for a clean vehicle tax credit. A qualified commercial clean vehicle includes a vehicle that is treated as a motor vehicle for purposes of title II of the Clean Air Act and is manufactured primarily for use on public streets, roads, and highways, not including a vehicle operated exclusively on a rail or rails (street vehicle) and mobile machinery. The qualified commercial clean vehicles credit amount is equal to the lesser of:

• 15 percent of the basis of the vehicle (30 percent in the case of a vehicle not powered by a gasoline or diesel internal combustion engine), or
• the incremental cost of the vehicle.

The credit is limited to $7,500 for a vehicle having a gross vehicle weight rating of less than 14,000 pounds, and $40,000 for other vehicles. There is no limit on the number of credits your business can claim. For businesses, the credits are nonrefundable. However, they can be carried over as a general business credit.

A qualified commercial clean vehicle’s incremental cost is the excess of the vehicle’s purchase price over the price of a comparable vehicle. A comparable vehicle is any vehicle powered solely by a gasoline or diesel internal combustion engine and comparable in size and use to the vehicle.

Safe harbor. The Department of Energy (DOE) calculated the incremental cost for compact cars with a gross vehicle weight rating less than 14,000 pounds and street vehicles with a gross vehicle weight rating of 14,000 pounds or more in calendar year 2023. The IRS reviewed the DOE analysis and will accept a taxpayer’s use of the incremental cost published by the DOE for all street vehicles placed in service during calendar year 2023.

The analysis shows that the incremental cost of all street vehicles (other than in the case of compact car plug-in electric hybrids) that have a gross vehicle weight rating of less than 14,000 pounds will be greater than $7,500 in calendar year 2023. Accordingly, the incremental cost will not limit the available credit amount for street vehicles that have a gross vehicle weight rating of less than 14,000 pounds and placed in service in calendar year 2023. For compact car plug-in electric hybrids for which the incremental cost is calculated to be less than $7,500, taxpayers may use the incremental cost published by the DOE.

Please call our office at 402-932-8815 if you would like to discuss reporting requirements and help to determine if you qualify for the commercial clean vehicle credit.