Questions re EV Credits under IRC 45W (Commercial Clean Vehicle Credit), IRC 169 (Expenses), IRC 179 (Bonus Depreciation) and IRC 280F (Luxury Auto Depreciation Cap)

[Binoy1279]

Hi. I am looking to purchase a pre-owned EV vehicle for my LLC and take advantage of the $7,500 EV tax credit available under IRC 45W, the Commercial Clean Vehicle Credit.  Additionally I would like to Expense (IRC 179) or take 100% bonus deprecation (IRC 169) of the EV vehicles full purchase price in the same year.   The entity structure is a New Mexico Holding Company that has 100% ownership of a Texas LLC. -  Below are a few questions:

1. When does the EV Credit for Commercial vehicles expire?  As I understand it, EV vehicles need to be placed in service by Sept 30th, 2025 to be eligible.

2.  As this will likely create a Net Operating Loss (NOL), can I apply the NOL against my W2 income on my joint return if I materially participate in my TX LLC by passing the 100hr and more than anyone else test? - The vehicle will be purchased by my single member, Texas LLC and both the New Mexico Holding Company and Texas LLC will be treated as disregarded entities for tax filing purposes.

3. If I am able to use the NOL in my Texas LLC to offset W2 related taxes on my return, what forms do I need to use to take advantage of these credits and is their a way I can use my prior year's return on Turbo Tax to model what my projected tax saving would look like?  

4. When taking 100% bonus depreciation, do I need reduce my basis for the EV vehicle by the 7,500 EV credit?   - Asking because the GVWR for the EV vehicle I am considering is under 6,000 lb and will be capped at $20,400 bc of IRC 280F (Luxury Auto Deprecation Cap).  If I have to count the EV Credit against my basis, then I can theoretically purchase a vehicle with a basis of $27,900 and still take 100% bonus depreciation since my basis after EV credit is 20,400 right?

5.  Under IRC 45, the commercial EV credit, is the lower of either 30% of basis for EV vehicle,  incremental cost for a equivalent ICE (Internal Combustion Engine) vehicle, or $7,500.-  Is the incremental cost safe harbor amount of 7,500 still applicable or do I need to have support for a equivalent ICE vehicle?  

6.  As I will likely have a net operating loss, when/how do I use IRC 179(expensing) vs IRC 168 (bonus depreciation) for the EV vehicle to maximize tax saving by carrying net operating loss against my w2 income on my personal return?   

[Loretta P · Accepted solution]

The maximum credit for a previously-owned clean vehicle credit is $4,000.  The expiration of this credit was changed from 12/31/2032 to 09/30/2025; therefore, taxpayers may take the credit of up to $4,000 for the purchase of a qualified previously-owned clean vehicle before 10/1/2025.  

The $7,500 maximum credit was for the purchase of a qualified NEW clean vehicle.  The expiration of this credit was also changed from 12/31/2032 to 09/30/2025.  For this credit the vehicle must be purchased before 10/1/20205 and deliveries of vehicles after 09/30/2025 will not qualify for the credit.  

The Commercial Clean Vehicle Credit also expires on 09/30/2025.  For the Commercial Clean Vehicle Credit, the credit is the lesser of the maximum credit amount, percentage of basis and incremental cost.  The smallest of the three is the credit amount.  You must have support for an equivalent ICE vehicle.

• The maximum credit is based on Gross Vehicle Weight Rating (GVWR). 
  • Less than 14,000 pounds the maximum credit is $7,500
  • Over 14,000 pounds the maximum credit is $40,000
• The percentage of basis in the vehicle is based on engine type.
  • 30% of basis for a vehicle that is not powered by a gasoline or diesel internal combustion engine
  • 15% of basis for a vehicle that is powered (even partially) by a gasoline or diesel internal combustion engine
• The incremental cost of the vehicle is the excess of its purchase price over that of a comparable vehicle powered only by gas or diesel internal combustion.  
  • For electric vehicles placed in service in 2024, use the Department of Energy's incremental cost analysis for the appropriate class of vehicle.
    • $7,000 for compact plug-in hybrid electric vehicles (PHEVs) (includes minicompact and subcompact cars) with a GVWR of less than 14,000 pounds
    • $7,500 for all street electric vehicles, other than compact car PHEVs, with a GVWR of less than 14,000 pounds
    • $40,000 for all other vehicles with a GVWR of 14,000 pounds or more
  • For previous calendar years, please refer to the Department of Energy's Incremental Purchase Cost Methodology and Results for Electric Vehicles

To claim the Commercial Clean Vehicle Credit 

Partnerships and S corporations must file Form 8936, Clean Vehicle Credits.

All other taxpayers report this credit on line 1y in Part III of Form 3800, General Business Credit.

A single-member LLC (SMLLC) that's taxed as a sole proprietorship (disregarded entity) would typically claim the Commercial Clean Vehicle Credit (IRC 45W) by:

• Filing Form 8936, Clean Vehicle Credits: This form is used to calculate the credit amount for the qualifying commercial clean vehicle.
• Attaching Form 8936 (and Schedule A, if required) to their personal tax return (Form 1040): The credit calculated on Form 8936 will then be reported on Schedule 3 (Form 1040).
• Filing Form 3800, General Business Credit: This form is necessary to consolidate the Commercial Clean Vehicle Credit with other potential business credits the SMLLC may be claiming. The Commercial Clean Vehicle Credit, when applicable to business use, is treated as a general business credit. 

Important considerations:

• VIN Reporting: The Vehicle Identification Number (VIN) of the qualified commercial EV must be included on the taxpayer's tax return for the year the vehicle is placed in service to claim the credit.
• No Proration: The Commercial Clean Vehicle Credit can only be claimed by a single taxpayer and cannot be allocated or prorated if the vehicle is placed in service by multiple individuals who don't file a joint return.
• Manufacturer Certifications: Taxpayers can rely on the certifications and information provided by qualified manufacturers to the IRS to confirm vehicle eligibility.
• Pre-filing Registration: Before making an election to treat certain credits (including potentially this one) as tax payments or transferring them, a registration number must be obtained for the facility or property, according to the IRS.

In essence, the SMLLC will utilize:

1. Form 8936 (and Schedule A, if applicable) to calculate the specific credit for the clean vehicle.
2. The credit will then be reported on their personal income tax return (Form 1040, Schedule 3) and ultimately included in the calculations on Form 3800, along with any other general business credits they may qualify for. 

The Commercial Clean Vehicle Credit will reduce the basis for depreciation including for bonus depreciation.

• Basis Reduction: When you claim the IRC 45W credit, the amount of the credit directly lowers the vehicle's adjusted basis for tax purposes.
• Impact on Depreciation: Since depreciation, including bonus depreciation, is calculated on the adjusted basis of an asset, the reduction from the credit will consequently lower the amount you can deduct through depreciation.

Section 179 expenses versus Bonus Depreciation

• Limitations: Section 179 is limited by a dollar amount and taxable income, while bonus depreciation (now at 100%) has no annual limit on the deduction.
• Can Create a Loss: Bonus depreciation can be used to create a net operating loss for the business, whereas Section 179 cannot.
• Combining Deductions: Combining these deductions is often advantageous. TurboTax will guide you in applying Section 179 first, and then bonus depreciation to remaining eligible costs.

Helpful links:

Understanding the New Clean Vehicle Credit 

Commercial Clean Vehicle Credit 

[kclaywallace]

Let me answer this in the same order:
1) The OBBB eliminates the EV credit sooner than expected on September 30th, 2025 with the tax credit for installing an EV charger at home ending June 30, 2026. It is possible to claim bonus depreciation and Section 179 on the same vehicle.

2) It is possible that you can generate an NOL within your SMLLC and claim a deduction on your tax return potentially offseting wage income. However, the 100 hours of activity is just one of the tests of material participation. You would want to review the other rules.

3) You would use form 8936 and Sch A to calculate your EV credit. The vehicle must meet certain IRS qualifications and income limits could apply.

4) You're correct that a vehicle with GVW under 6,000 would be subject to the luxury auto limit. You're also correct that you will need to reduce your basis by the amount of the credit claimed, either $7,500 for new or $4,000 for used vehicle. The $7500/$4000 is taken as a credit before you calculate the luxury auto limit of $20,400 under IRC 280F.

5) The credit for used vehicles is calculated as up to $4,000 OR 30% of the sale price, whichever is less. Eligibility requirements:

• Purchase before September 30, 2025.
• Purchased from a licensed dealer at a sale price of $25,000 or less.
• The vehicle must be at least 2 model years older than the purchase year, have a GVWR under 14,000 pounds, and meet battery capacity requirements.
• It must be for use primarily in the U.S., not previously transferred after August 16, 2022, and you cannot be the original owner or claimed as a dependent.
• You cannot have claimed this credit in the past 3 years.

6) You cannot generate an NOL with Section 179 expense net of all your business income. In this situation, bonus depreciation would make more sense. The OBBB has also restored the 100% bonus depreciation. If you have some income, you could claim Sec 179 first and then bonus depreciation of the amounts the are below your net income. Another consideration is recapture of section 179 deduction if you sell or dispose of the vehicle before the end of it's useful life or if business use percent drops below 50%.

3m ago

[kclaywallace]

Let me answer this in the same order:
1) The OBBB eliminates the EV credit sooner than expected on September 30th, 2025 with the tax credit for installing an EV charger at home ending June 30, 2026. It is possible to claim bonus depreciation and Section 179 on the same vehicle.

2) It is possible that you can generate an NOL within your SMLLC and claim a deduction on your tax return potentially offseting wage income. However, the 100 hours of activity is just one of the tests of material participation. You would want to review the other rules.

3) You would use form 8936 and Sch A to calculate your EV credit. The vehicle must meet certain IRS qualifications and income limits could apply.

4) You're correct that a vehicle with GVW under 6,000 would be subject to the luxury auto limit. You're also correct that you will need to reduce your basis by the amount of the credit claimed, either $7,500 for new or $4,000 for used vehicle. The $7500/$4000 is taken as a credit before you calculate the luxury auto limit of $20,400 under IRC 280F.

5) The credit for used vehicles is calculated as up to $4,000 OR 30% of the sale price, whichever is less. Eligibility requirements:

• Purchase before September 30, 2025.
• Purchased from a licensed dealer at a sale price of $25,000 or less.
• The vehicle must be at least 2 model years older than the purchase year, have a GVWR under 14,000 pounds, and meet battery capacity requirements.
• It must be for use primarily in the U.S., not previously transferred after August 16, 2022, and you cannot be the original owner or claimed as a dependent.
• You cannot have claimed this credit in the past 3 years.

6) You cannot generate an NOL with Section 179 expense net of all your business income. In this situation, bonus depreciation would make more sense. The OBBB has also restored the 100% bonus depreciation. If you have some income, you could claim Sec 179 first and then bonus depreciation of the amounts the are below your net income. Another consideration is recapture of section 179 deduction if you sell or dispose of the vehicle before the end of it's useful life or if business use percent drops below 50%.