How to Claim the 45W Credit for Commercial Vehicles

The Credit for Qualified Commercial Clean Vehicles, established under Internal Revenue Code Section 45W, offers a financial incentive for businesses and certain tax-exempt organizations to invest in vehicles that reduce emissions. This tax credit applies to qualifying vehicles acquired and placed in service after December 31, 2022, and before January 1, 2033.

Determining Business Eligibility

To qualify for the commercial clean vehicle credit, the vehicle must be acquired by a business or a tax-exempt organization. The vehicle must be intended for the taxpayer’s own use or for lease to others and cannot be acquired with the intent for resale. This ensures the credit is claimed by the end-user incorporating the vehicle into their operations.

A vehicle is considered “placed in service” in the taxable year that it is ready and available for its specific use in a trade or business. This means the credit is claimed for the year the vehicle begins its operational life, not necessarily the year it was purchased. There is no limit to the number of credits a business can claim.

For businesses, the credit is nonrefundable, meaning it cannot exceed the amount of tax owed. If the credit is larger than the tax liability, the unused portion can be carried over and applied to future tax years as part of the general business credit.

Qualified Vehicle Requirements

A vehicle must meet several criteria to be considered a qualified commercial clean vehicle. First, it must be made by a “qualified manufacturer.” A manufacturer achieves this status by entering into a written agreement with the IRS, and businesses can rely on the IRS’s published list of these manufacturers to confirm eligibility.

The vehicle must be subject to an allowance for depreciation, though an exception exists for tax-exempt organizations if they acquire a vehicle that is not subject to a lease. The vehicle must also be used primarily in the United States and cannot have already been claimed for a different clean vehicle credit.

The vehicle must be propelled to a significant extent by an electric motor. For vehicles with a gross vehicle weight rating (GVWR) of less than 14,000 pounds, the battery capacity must be at least 7 kilowatt-hours. For vehicles with a GVWR of 14,000 pounds or more, the minimum battery capacity increases to 15 kilowatt-hours.

Alternatively, a vehicle can qualify if it is a fuel cell motor vehicle that satisfies requirements in the tax code. The vehicle must also be classified either as a motor vehicle intended for use on public roads or as “mobile machinery,” which is a vehicle with a chassis and permanently mounted equipment for operations like construction or farming.

Calculating the Credit Amount

The calculation of the 45W credit is determined by finding the lesser of three specific amounts. The first is a percentage of the vehicle’s basis, which is its cost for tax purposes. The credit is 30% of the basis for a vehicle not powered by a gasoline or diesel engine and 15% of the basis for a plug-in hybrid.

The second component is the “incremental cost” of the vehicle. This is the excess of the purchase price of the clean vehicle over the price of a comparable vehicle powered by a gasoline or diesel engine. The Department of Energy provides incremental cost figures that can be used as a safe harbor. For vehicles with a GVWR of 14,000 pounds or more, the safe harbor amount is $40,000.

The third component is a maximum credit cap. For a qualified vehicle with a GVWR of less than 14,000 pounds, the maximum credit is $7,500. For any vehicle with a GVWR of 14,000 pounds or more, the maximum credit is $40,000.

For example, a business purchases a large electric truck over 14,000 pounds GVWR with a basis of $150,000. The first calculation is 30% of the basis ($45,000). The second is the incremental cost ($40,000 safe harbor). The third is the maximum credit ($40,000). The lesser of these amounts is $40,000, so the business can claim a $40,000 credit.

How to Claim the Credit

The required tax form for the commercial clean vehicle credit depends on the type of business entity. Partnerships and S corporations must file Form 8936, Clean Vehicle Credits, to calculate the credit. The credit is then passed through to the partners and shareholders to claim on their own tax returns.

All other taxpayers, such as C corporations, claim the credit directly on Form 3800, General Business Credit. At the time of sale, the seller of a qualified vehicle must provide the buyer with a report containing information needed for claiming the credit, including:

• The seller’s name and taxpayer identification number
• The vehicle identification number (VIN)
• The vehicle’s GVWR
• The vehicle’s battery capacity