On January 10, 2025, the Internal Revenue Service (IRS) and the U.S. Department of Treasury took a significant step in promoting environmental sustainability and cleaner energy solutions by releasing proposed rules for the Internal Revenue Code (IRC) Section 45W Qualified Commercial Clean Vehicles (Section 45W) credit.
This initiative is part of a broader effort by the federal government to encourage the adoption of cleaner technologies in the commercial transportation sector while aiming to reduce carbon emissions and enhance energy efficiency. The Section 45W credit is designed to provide substantial financial incentives for businesses investing in clean vehicle technologies, thereby supporting the transition toward a greener economy.
Learn more about this credit and its requirements to find out if your business could benefit from this update.
What Is the IRC Section 45W Tax Credit?
Under Internal Revenue Code Section 45W, businesses and organizations can claim this tax credit for up to $40,000 for the purchase of a qualified commercial clean vehicle. This tax credit was created by a provision (Section 45W) in the Inflation Reduction Act (IRA) of 2022 and applies to clean vehicles acquired after December 31, 2022, and before January 1, 2033.
Section 45W Proposed Rules Update
The IRS and U.S. Department of Treasury issued a Notice of Proposed Rulemaking for the commercial clean vehicles credit which would affect how much a taxpayer can claim.
Credit Determinations Before the Proposed Rules
Prior to the proposed rules, the determination of the credit amount a taxpayer was eligible to claim under the Section 45W tax credit was calculated as:
- The lesser of 30% of the taxpayer’s basis in the vehicle for vehicles not powered by a gasoline or diesel internal combustion engine, 15% in any other case.
- Or the incremental cost of the vehicle, which is the price of the vehicle in excess of the price of a comparable vehicle powered by gasoline or diesel internal combustion engine.
The maximum tax credit allowed is $7,500 for a qualified commercial clean vehicle with a gross vehicle weight rating of less than 14,000 pounds, and $40,000 for all other vehicles.
Rule Proposal Updates
The key point clarified in the proposal was how a taxpayer determines incremental cost. The proposed rules allow various approaches when determining the incremental cost, including:
- Continue to use the safe harbor provided by Notice 2023-9 and Notice 2024-5 to determine incremental cost.
- Rely on the manufacturer’s written statement for cost determination to determine the incremental cost.
- Calculate the incremental cost of a qualifying clean vehicle versus an internal combustion engine (ICE) vehicle based on the differing costs of the vehicle powertrains.
Announcement for IRC Section 30C Alternative Fuel Vehicle Refueling Property Credit
Additionally, on January 6, 2025, the IRS made another important announcement about advancing alternative fuel infrastructure by unveiling proposed rules for the IRC Section 30C Alternative Fuel Vehicle Refueling Property (Section 30C) credit. This initiative is part of a comprehensive strategy to support the development and widespread adoption of alternative fuel sources, such as electric, hydrogen and natural gas by providing tax incentives for the installation of refueling and recharging infrastructure.
Section 30C Alternative Fuel Vehicle Refueling Property Credit Public Hearing
Recognizing the critical role that accessible and efficient refueling options play in the transition to alternative fuel vehicles, the IRS scheduled a public hearing for February 12, 2025, to discuss these proposed rules in greater detail.
This hearing aims to gather feedback and insights from various stakeholders, including industry leaders, environmental advocates and the general public, to ensure that the final regulations effectively support the growth of alternative fuel infrastructure. By facilitating this dialogue, the IRS seeks to address any concerns and refine the rules to more effectively meet the needs of businesses and consumers alike, ultimately fostering a more robust and sustainable energy landscape.
Impact of Regulatory Freeze on Proposed Clean Energy Initiatives
On January 20, 2025, President Trump issued a memorandum titled Regulatory Freeze Pending Review, a directive with significant implications for pending federal regulations. This memorandum effectively halts the advancement of any new or pending regulatory actions, including the proposed rules for IRC Section 45 and IRC Section.
The regulatory freeze is a common practice for incoming administrations and is intended to provide an opportunity to review, modify or potentially rescind regulations implemented under previous leadership. As a result, this freeze is likely to delay the final rulings on these important clean energy initiatives, creating a period of uncertainty for stakeholders preparing to invest in commercial clean vehicles and alternative fuel infrastructure.
The delay could impact businesses planning to take advantage of these tax incentives, potentially slowing the adoption of greener technologies and infrastructure improvements.
Your Guide Forward
Cherry Bekaert’s Energy Tax Credit & Incentives professionals are here to help you evaluate how the proposed Section 45W tax credit rules and developments may affect your current and future projects. Our knowledgeable team has decades of experience working with energy tax credits. We can help determine your eligibility, find credits to buy, assess and provide due diligence on the tax credits, and ultimately file them on your annual federal tax return.
If you have significant federal tax liability, the sooner you reach out to us, the sooner we can help you monetize potentially a significant tax saving.
Related Insights
