Topic G — Frequently asked questions about Qualified Commercial Clean Vehicle Credit

Updated FAQs were released to the public in Fact Sheet 2024-26 PDF, July 2024.

The Inflation Reduction Act of 2022 (IRA) makes several changes to the tax credit provided in section 30D of the Internal Revenue Code (Code) for qualified plug-in electric drive motor vehicles, including adding fuel cell vehicles to the section 30D tax credit. The IRA also added a new credit for previously owned clean vehicles under section 25E of the Code.

These FAQs provide detail on how the IRA revises the credit available under section 30D (New Clean Vehicle Credit) for individuals and businesses, and information on the credit available under section 25E (Previously Owned Clean Vehicle Credit) for individuals, and the new credit for qualified commercial clean vehicles under section 45W of the Code.

Q1. Who is eligible to claim a credit under section 45W of the Code for purchasing a qualified commercial clean vehicle (Qualified Commercial Clean Vehicle Credit)? (added Dec. 29, 2022)

A1. A taxpayer can claim a Qualified Commercial Clean Vehicle Credit for purchasing and placing in service in the taxpayer’s business a “qualified commercial clean vehicle” during the taxable year. The taxpayer must use the vehicle for a “business use.” See FAQ 9.

Q2. What is a “qualified commercial clean vehicle”? (added Dec. 29, 2022)

A2. A2. A “qualified commercial clean vehicle” is defined as any vehicle of a character subject to the allowance for depreciation that is:

• Made by a qualified manufacturer (See Topic A, FAQ 9),
• Acquired for use or lease by the taxpayer and not for resale,
• Updated FAQs were released to the public in Fact Sheet 2024-26, July 2024.
  The Inflation Reduction Act of 2022 (IRA) makes several changes to the tax credit provided in section 30D of the Internal Revenue Code (Code) for qualified plug-in electric drive motor vehicles, including adding fuel cell vehicles to the section 30D tax credit. The IRA also added a new credit for previously owned clean vehicles under section 25E of the Code.
  These FAQs provide detail on how the IRA revises the credit available under section 30D (New Clean Vehicle Credit) for individuals and businesses, and information on the credit available under section 25E (Previously Owned Clean Vehicle Credit) for individuals, and the new credit for qualified commercial clean vehicles under section 45W of the Code.
• Propelled to a significant extent by an electric motor which draws electricity from a battery that has a capacity of not less than 15 kilowatt hours (or, in the case of a vehicle that has a gross vehicle weight rating of less than 14,000 pounds, 7 kilowatt hours) and is capable of being recharged from an external source of electricity, or satisfies the requirements under section 30B(b)(3)(A) and (B) of the Code for being a new qualified fuel cell motor vehicle.

Q3. What is the amount of the Qualified Commercial Clean Vehicle Credit a taxpayer can claim? (added Dec. 29, 2022)

A3. The amount of the Qualified Commercial Clean Vehicle Credit is the lesser of (1) 15% of the taxpayer’s tax basis in the vehicle (30% in the case of a vehicle not powered by a gasoline or diesel internal combustion engine) or (2) the incremental cost of the vehicle.

The credit is limited to $7,500 in the case of a vehicle that has a gross vehicle weight rating of less than 14,000 pounds, and $40,000 for all other vehicles.

Q4. How is “incremental cost” determined? (updated Oct. 6, 2023)

A4. The incremental cost is the excess of the purchase price of a qualified commercial clean vehicle over the price of a comparable vehicle. A comparable vehicle is a vehicle powered solely by a gasoline or diesel internal combustion engine that is comparable in size and use to the qualified commercial clean vehicle. Refer to Notice 2023-9 for a non-exhaustive estimate that may be used to determine incremental cost for taxable year 2023.

Q5. Is a taxpayer that leases clean vehicles to customers as its business eligible to claim the Qualified Commercial Clean Vehicle Credit? (added Dec. 29, 2022)

A5. Whether a taxpayer can claim the Qualified Commercial Clean Vehicle Credit in its business depends on who is the owner of the vehicle for federal income tax purposes. The owner of the vehicle is determined based on whether the lease is respected as a lease or recharacterized as a sale for federal income tax purposes.

Q6. What factors are used to determine if a transaction is a “lease” for tax purposes? (updated February 3, 2023)

A6. Based on longstanding tax principles, the determination whether a transaction constitutes a sale or a lease of a vehicle for tax purposes is a question of fact. Features of a vehicle lease agreement that would make it more likely to be recharacterized as a sale of the vehicle for tax purposes include but are not limited to:

• A lease term that covers more than 80% to 90% of the economic useful life of the vehicle.
• A bargain purchase option at the end of the lease term (that is, the ability to purchase the vehicle at less than its fair market value at the end of the term) or other terms/provisions in the lease that economically compel the lessee to acquire the vehicle at the end of the lease term.
• Terms that result in the lessor transferring ownership risk to the lessee, for example, a terminal rental adjustment clause (TRAC) that requires the lessee to pay the difference between the actual and expected value of the vehicle at the end of the lease. (Note that special rules exist under section 7701(h) for qualified motor vehicle operating agreements that contains a TRAC.)

Q7. What happens if the clean vehicle lease agreement is recharacterized as a sale for tax purposes? (added Dec. 29, 2022)

A7. In the event the clean vehicle lease is recharacterized as a sale, the lessee would need to determine if they are eligible to claim either a Clean Vehicle Credit or a Qualified Commercial Clean Vehicle Credit. The lessor would not be eligible to claim either credit because they would have engaged in a resale of the vehicle.

Q8. What does “of a character subject to the allowance for depreciation” mean for purposes of the Qualified Commercial Clean Vehicle Credit? (added Dec. 29, 2022)

A8. In general, property is subject to the allowance for depreciation if it is used in a trade or business of the taxpayer or for the production of income (business use).

Q9. How does a taxpayer determine if a vehicle is used in a “business use”? (added Dec. 29, 2022)

A9. Generally, the term business use means any use in a trade or business of the taxpayer.

Q10. Can I claim a Qualified Commercial Clean Vehicle Credit for a vehicle for which I or another taxpayer claimed a New Clean Vehicle Credit? (added March 31, 2023)?

A10. No. A Qualified Commercial Clean Vehicle Credit is not allowed with respect to a vehicle for which a New Clean Vehicle Credit was allowed.