The Inflation Reduction Act (IRA) – Q&A
By Julie Leicester
September 22, 2022
The inflation reduction act is a broad piece of legislation that delivers benefits to Americans in multiple areas: healthcare, wage protection, incentives for American-made goods, credits for job creation in the sustainable energy sector and transportation electrification. How the IRA may impact your fleet remains an open question; however, here are the highlights of the new legislation pertaining to transportation electrification. The IRA reorganizes the tax credits for electric vehicles, now called clean vehicles, into three separate tax credits. It modified the existing electric vehicle credit into a general clean vehicle tax credit and it creates a previously owned clean vehicle tax credit and a commercial clean vehicle tax credit. Additionally, it extends benefits on the installation of charging stations. However, these new programs come with restrictive qualifications and eligibility requirements. So, what are they and who is eligible?
To help answer those questions, we’ve developed a list of Q&As to provide an overview of the Electric Vehicle Purchase, Refueling Property Credits and Commercial Vehicles sections of the IRA and what they might mean for you and your organization.
But first, we would like to emphasize that you should discuss tax credits and incentives with your corporate tax professionals. When you’re ready to discuss how Wheels Donlen can help to achieve your goals around electrification of your fleet, contact a member of your account team to discuss the options available to maximize the benefits of these incentives to your organization.
The purchase of Electric Vehicles (EV)
Are there new and improved credits or rebates for the purchase of EVs?
While through the media you’ve heard of the revised tax credits for both new and used EV purchases, these are largely consumer provisions (Clean Vehicle Tax Credit and Previously Owned Vehicle Tax Credit) and we do not believe these will have an impact on leased fleets. Even if eligible to fleets, strict manufacturing criteria exist for a vehicle to qualify, significantly limiting the number of vehicles eligible for the credit. To meet the criteria, EVs must have final assembly in North America and be placed into service after December 31st of this year.
Is there still a manufacturer cap on the number of vehicles qualifying for incentives?
The good news is that the 200,000-vehicle cap per manufacturer has been lifted. Previous to the IRA, federal tax credits were capped at 200,000 vehicles per manufacturer – a total number, not an annual one. At that point the incentives were incrementally reduced and eventually eliminated for buyers of EVs from that manufacturer. For instance, Tesla and Chevrolet quickly reached this threshold, with other manufacturers close behind them.
Where can we go to learn more details about the revised incentives?
For more information on the new regulations, the IRS has an informative FAQ document to address any specific tax questions that you may have. And, as mentioned before, you should always discuss your situation with your tax professional.
Section 30C – The Alternative Fuel Refueling Property Credit
What are the charging station incentives in the IRA?
Although expired at the end of 2021, there was an IRS tax credit for installation of charging stations for both businesses and residences intended to incentivize the building of EV infrastructure. This credit equaled 30% of the cost of installing chargers—capped at $30,000 per location. IRA section 30C extends and improves upon that expired tax credit provision. The new law increases the maximum credit from $30,000 to $100,000 per location.
What is the timeframe for the new infrastructure incentives?
The IRA extends the timeframe to take advantage of the credit to 2032. This IRS credit is available retroactively to the beginning of 2022, closing the time gap for installation credits left by the expired bill.
Are there any restrictions for the infrastructure incentives?
There are some qualifying details. For instance, the property must be in a “qualified census tract”. This condition includes areas impacted by pollution, low income or those lacking charging infrastructure.
Are there any other important infrastructure incentive details?
A bonus credit is available if wage and apprenticeship requirements are met. For depreciable property, the base credit is 6%. By meeting the wage and apprenticeship requirements, the credit increases to 30%. Of course, your tax advisor can tell you if you qualify.
Section 45W – Qualified Commercial Clean Vehicles
What is Section 45W in the IRA about?
Section 45W addresses the commercial market. While this is one of the lesser-known sections, it will have a large impact on service and heavy-duty fleets. The provisions could potentially make owning an EV truck cheaper than owning a diesel. These incentives, along with any potential state incentives, are meant to close the gap between the cost of a new EV, versus an ICE vehicle.
What are the incentives outlined in 45W?
For hybrid vehicles, the credit is up to 15% of the difference between the cost of a hybrid versus a comparable ICE vehicle. For vehicles not powered by gasoline or diesel, the credit is 30% of the excess amount.
Are there any caps or restrictions on these incentives?
Credit amounts are capped and come with many complicated calculations and requirements. The maximum credit is $7,500 for vehicles with a gross weight rating of less than 14,000 pounds and $40,000 for all others. In addition, the credit may not exceed the lesser of 30% of the purchase price or the incremental cost of the vehicle over a comparable internal combustion engine. Additionally, there are minimum battery efficiency requirements. Limitations may apply based on usage and credits will continue to be available to the owner of the vehicle.
When do the 45W tax credits expire?
The credit will apply to any vehicle placed in service after December 31, 2022, through the year 2032.
More to Come! We know this is just a start. There is much more detail behind this Act and your specific situation. We will be unpacking it further for you as we have more clarification. So, watch for additional updates on this important topic. In the meantime, if you have any questions, please reach out to a member of your Wheels Donlen Account Team or contact us here.