The Treasury Department and the Internal Revenue Service have issued guidance pertaining to the new credit for qualified commercial clean vehicles, established by the Inflation Reduction Act of 2022 ( P.L. 117-169). Notice 2023-9 establishes a safe harbor regarding the incremental cost of certain qualified commercial clean vehicles placed in service in calendar year 2023.
Credit for Qualified Commercial Clean Vehicles
The amount of the credit is equal to the lesser of (1) 15% of the basis of the vehicle (30% if the vehicle is 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 for a vehicle with a gross vehicle weight rating (GVWR) of less than 14,000 pounds, and $40,000 for other vehicles.
A qualified commercial clean vehicle’s incremental cost is the excess of the vehicle’s purchase price over the price of a comparable vehicle. A comparable vehicle is any vehicle that is powered solely by a gasoline or diesel internal combustion engine and is comparable in size and use to the qualified vehicle.
Under Code 45W(c), a qualified commercial clean vehicle includes a vehicle treated as a motor vehicle for purposes of title II of the Clean Air Act and manufactured primarily for use on public streets, roads, and highways (not including street vehicles); and mobile machinery (as defined by Code 4053(8)).
The Treasury Department reviewed a Department of Energy incremental cost analysis (DOE analysis) of current costs for all street vehicles in calendar year 2023. The DOE analysis determined and/or provided the following:
- the incremental cost of all street vehicles (other than compact car PHEVs) that have a gross vehicle weight rating of less than 14,000 pounds will be greater than $7,500;
- the incremental cost for compact car PHEVs, including mini-compact and sub-compact cars, will be less than $7,500;
- an incremental cost analysis of current costs for several representative classes of street vehicles with a gross vehicle weight rating of 14,000 pounds or more in calendar year 2023; and
- the incremental cost will not limit the available credit amount for vehicles placed in service in calendar year 2023.
Accordingly, the Treasury Department and IRS will accept a taxpayer’s use of the incremental cost published in the DOE Analysis to calculate the credit amount for compact car PHEVs placed in service during calendar year 2023, and for the appropriate class of street vehicle to calculate the credit amount for vehicles placed in service during calendar year 2023.
A taxpayer’s use of $7,500 as the incremental cost for all street vehicles (other than compact car PHEVs) with a gross vehicle weight rating of less than 14,000 pounds to calculate the credit for vehicles placed in service during calendar year 2023.