Can a Business Claim the Tax Credit for an Electric Vehicle?

With the growing emphasis on sustainability and reducing carbon footprints, businesses are turning to electric vehicles (EVs) for their fleets. This shift aligns with environmental goals and offers financial benefits through tax credits.

Eligibility Requirements

To claim the tax credit for electric vehicles, businesses must meet criteria set by the Internal Revenue Service (IRS). The business must be subject to U.S. federal income tax, as the credit offsets tax liabilities. Non-profits generally do not qualify unless they have unrelated business taxable income.

The vehicle must be acquired for use or lease (not resale) and primarily used within the United States to support domestic environmental goals. It must also be new, defined by the IRS as not previously titled or registered.

Additionally, the vehicle must come from an IRS-approved manufacturer and include a written certification confirming compliance with battery capacity and weight specifications. This certification is a key requirement for claiming the credit.

Qualifying Vehicles

Several factors determine whether a vehicle qualifies for the tax credit. Under Internal Revenue Code (IRC) Section 30D, vehicles must have a battery capacity of at least 7 kilowatt-hours (kWh) as of 2024, encouraging substantial electric capabilities.

Qualifying vehicles must meet the Clean Air Act’s definition of a motor vehicle, which typically includes passenger cars and light trucks but excludes certain heavy-duty vehicles. The gross vehicle weight rating (GVWR) must not exceed 14,000 pounds.

The credit amount also depends on the vehicle’s battery capacity and the manufacturer’s sales volume. If a manufacturer exceeds 200,000 qualifying vehicle sales, the credit begins to phase out. Businesses should track these sales to optimize their benefit.

Determining Credit Amount

The credit amount ranges from $2,500 to $7,500, depending on factors like battery capacity and vehicle origin. Vehicles manufactured in the U.S. or countries with free-trade agreements may qualify for an additional $2,500.

For every kWh beyond a 5 kWh baseline, the credit increases by $417, up to $5,000, incentivizing investment in vehicles with larger batteries. Businesses should also consider the sales thresholds of manufacturers, as exceeding these limits reduces available credits.

Filing Procedures

To claim the tax credit, businesses must follow IRS guidelines and file Form 8936, “Qualified Plug-in Electric Drive Motor Vehicle Credit,” including details such as the vehicle’s make, model, and VIN.

Corporations claim the credit on Form 1120, the U.S. Corporation Income Tax Return. Partnerships and S corporations pass the credit to partners or shareholders, who then claim it on individual returns. Clear communication with tax professionals ensures accurate filing and allocation.

Ownership Scenarios

Ownership and usage arrangements influence whether a business can claim the credit. For outright purchases, the credit applies if the vehicle is primarily used for business. In leasing scenarios, the lessor typically claims the credit, though benefits may be passed to the lessee through reduced lease payments.

If employees use the vehicle for personal purposes, only the business-use portion qualifies, requiring detailed usage records. Shared ownership arrangements distribute the credit based on ownership percentages or agreements, making clear documentation essential.

Record-Keeping Requirements

Accurate records are critical for claiming the tax credit. The IRS requires documentation to verify vehicle eligibility, usage, and the claimed credit amount. Without proper records, businesses risk audits or credit denial.

Key records include purchase documentation, such as invoices or sales contracts, identifying the vehicle as new and detailing its make, model, and VIN. The manufacturer’s certification of compliance with IRS standards must also be retained. For vehicles with mixed personal and business use, mileage logs or usage reports are necessary to demonstrate the business-use portion. These records should be kept for at least three years after filing the tax return, per IRS audit guidelines.

Leasing arrangements require lease agreements specifying credit-related terms, while shared ownership scenarios demand agreements outlining each party’s share of the credit. Using digital tools or accounting software can simplify record maintenance and ensure readiness in case of an audit.