Breaking Down Clean Vehicle Tax Credits for Business Owners
If you own a business, you might be able to use one of these two new federal tax credits to help offset your cost to purchase certain clean vehicles (including electric, plug-in hybrid, and fuel cell vehicles). Both credits are nonrefundable if they exceed your tax liability, but an unused general business tax credit can be carried forward to a later year.
New clean vehicle tax credit
The new clean vehicle tax credit can be either a personal or a general business tax credit. If the vehicle is used 50% or more for business, the credit is treated as a general business tax credit; otherwise, the credit is allocated between personal and business use.
Up to $7,500 is available (in two parts) for the purchase of a new clean vehicle assembled in North America that weighs less than 14,000 pounds: $3,750 if a critical minerals requirement is met, and $3,750 if a battery components requirement is met. Fuel cell vehicles should qualify for the full $7,500 credit without regard to these two requirements.
The credit is not available for vehicles with a manufacturer’s suggested retail price higher than $80,000 for vans, sport utility vehicles, and pickups, or $55,000 for other vehicles. You can find out which vehicles are eligible for the credit at fueleconomy.gov.
The credit is not available if the purchaser’s modified adjusted gross income for the taxable year or the preceding taxable year (whichever is less) exceeds $150,000 ($300,000 for joint filers). In the case of a partnership or S corporation, the credit is allocated to the partners or shareholders, respectively, and the income limitation applies to those individuals. The income limitation does not apply to corporations subject to the corporate income tax.
The new clean vehicle tax credit can be either a personal or a general business tax credit.
Commercial clean vehicle credit
A general business tax credit of up to $7,500 ($40,000 for heavy vehicles weighing 14,000 or more pounds) is available for the purchase of a qualified commercial clean vehicle, including some types of “mobile machinery.”
The credit is equal to the lesser of (a) 15% of the tax basis (generally, the purchase price) of the vehicle (30% if the vehicle is not powered by a gasoline or diesel internal combustion engine), or (b) the incremental cost of the vehicle (the excess of the purchase price of the clean vehicle over the price of a comparable vehicle that is powered solely by a gasoline or diesel internal combustion engine).
For some business owners, this credit may be easier to take advantage of than the new clean vehicle credit, because it’s not subject to the income limits or the vehicle pricing, component, and final assembly requirements.