[Event] Ask the Experts: Tax Law Changes - One Big Beautiful Bill

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.

• 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. 

• 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.

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