Inflation Reduction Act: Tax Incentives to Accelerate Fleet Electrification

Medium- and light-duty trucks are the fastest-growing fuel users and greenhouse gas producers in the United States, according to the U.S. Energy Department. The Inflation Reduction Act amended a few tax incentives to accelerate adoption of electric cars, trucks and other vehicles. The provisions essentially make the vehicles less expensive to buy, provide tax credits for alternate fueling infrastructure and extend incentives to store renewable energy using battery energy storage. While Internal Revenue Services (IRS) is finalizing the forms to claim the credits, purchasing an electric vehicle, charging equipment and energy storage systems can be planned using the following overview of relevant tax credits.

Commercial Electric Vehicle and Fuel Cell Electric Vehicle Tax Credit

A tax credit became available Jan. 1, 2023, to businesses for the purchase of new electric vehicle (EVs) and fuel cell electric vehicle (FCEVs). Vehicles with a gross vehicle weight rating (GVWR) below 14,000 pounds must have a battery capacity of at least 7 kWh. Vehicles with a GVWR of 14,000 pounds or more must have a battery capacity of 15 kWh. The tax credit amount is equal to the lesser of 15% of the vehicle purchase price for plug-in hybrid electric vehicles (PHEV), 30% of the vehicle purchase price for EVs and FCEVs, and the incremental cost of the vehicle compared to an equivalent internal combustion engine vehicle.

Maximum tax credits may not exceed $7,500 for vehicles under 14,000 pounds and $40,000 for vehicles above 14,000 pounds The business may not combine this tax credit with the Clean Vehicle Tax Credit. Leased vehicles, regardless of weight or leasing entity, are considered commercial vehicles.

Alternative Fuel (Charging) Infrastructure Tax Credit

Fueling equipment for natural gas, propane, hydrogen, electricity, E85 or diesel fuel blends containing a minimum of 20% biodiesel is eligible for a tax credit beginning of January of 2023. A tax credit of 30% of the cost — or 6% in case of property subject to depreciation — should not exceed $100,000. Permitting and inspection fees are not included in covered expenses.

To qualify, equipment must be installed in a census tract that is not in an urban area, then also meet one of two other requirements: be in a population census tract where the poverty rate is at least 20%, or be in a metropolitan and non-metropolitan area census tract where the median family income is less than 80% of the state medium family income level.

Eligible projects must also meet requirements for apprenticeships and prevailing wages. Consumers who purchase qualified residential fueling equipment between Jan. 1, 2023, and Dec. 31, 2032, may receive a tax credit of up to $1,000.

Stand-Alone Energy Storage

The Inflation Reduction Act of 2022 includes an extension and expansion of both the Production Tax Credit (PTC) and Investment Tax Credit (ITC) for clean energy technologies. These technologies include solar, energy storage, wind, geothermal, fuel cells and microgrid controllers. This also includes a 10-year extension of the 30% federal ITC on the cost of eligible installed equipment.

For energy storage system (ESS) projects specifically, this would apply whether the ESS is co-located with solar or in a stand-alone application. Microgrid controllers and interconnection property are ITC eligible. ESS projects with a minimum capacity of 5 kWh are ITC eligible. Project must also have prevailing wages and meet apprenticeship requirements.

Certain tax-exempt customers, including state and local governments, can receive a direct cash payment in lieu of tax credits.