@fanfare wrote:
ChatGPT says:
"the federal tax credit for EVs does not directly reduce the basis for depreciation."
ChatGPT also prepared a legal brief complete with made up citations, causing the lawyer who submitted the brief to be sanctioned by the court. I would rather see a direct citation to the code or regulation.
Note that depreciation is based on the fair market value when the vehicle is placed in service, or the adjusted cost basis, whichever is less. Tax credits and discounts always reduce the cost basis when we are talking about any other credit (such as energy efficient improvements), and there is nothing in the code to suggest the EV credit is different.
There is also a new credit for clean commercial vehicles which specifically says that the basis for depreciation is reduced by the credit amount.
https://www.irs.gov/credits-deductions/commercial-clean-vehicle-credit
If you purchase the vehicle directly for the business, you must reduce your basis by the amount of the credit. Therefore, it follows that if you purchase a vehicle personally and then place it into service with your business, you must also reduce your basis. Unless you can find affirmative statement to the contrary.
Publication 946:
"If you depreciate your property under MACRS, you may also have to reduce your basis by certain deductions and credits with respect to the property. For more information, see What Is the Basis for Depreciation? in chapter 4."
I would not trust ChatGPT.
