Federal Tax Incentives:
Alternative Fuel Vehicle Refueling Property Credit
Background
The Alternative Fuel Vehicle Refueling Property Credit (“Refueling Property Credit”) under IRC § 30C of the Internal Revenue Code is attributable to depreciable property (refueling property used for business or investment purposes) is treated as a general business credit. Qualifying property included electric charging infrastructure as well as other forms of clean-fuel refueling property. The credit may range from 6% (baseline) of the cost of the qualifying alternative fuel vehicle refueling property, to potentially 30% of the cost of qualified property if the taxpayer meets the prevailing wage and registered apprenticeship requirements of the Inflation Reduction Act (IRA) of 2022, with the credit limited to $30,000 (for businesses) at each separate location and $1,000 for property installed at a taxpayer’s primary residence (individuals). See also Pub. L. 117-169 ("Inflation Reduction Act of 2022") for recent amended changes as of present date, including the altering and extension of the Alternative Fuel Refueling Property Credit through 2032.
Among the changes pursuant to the IRA, the credit is applicable to bidirectional charging infrastructure, including charging equipment for 2 or 3 wheel electric vehicles, that will enable EVs that are plugged in to not only draw energy from the grid, but to supply energy to the grid. Furthermore, the IRA preserved the eligibility for EV charging infrastructure installed for (and owned by) a tax-exempt entity.
In general, the IRC § 30C credit incentives businesses that install electric and fuel cell vehicles (EV) charging or “alternative fuel” refueling equipment. Qualifying “alternative fuel” for this credit includes fuel mixtures that are at least 85% ethanol, natural gas, liquefied petroleum gas, or hydrogen; biodiesel or biodiesel mixtures; and electricity used in EV charging stations.
The IRC § 30C credit may be useful to operating fleets of commercial or government motor vehicles, including refueling or charging stations on their property for commercial or public use (e.g., convenience stores, refueling stations). Moreover, the Alternative Fuel Refueling Property Credit is transferable (potential to be traded in transactions). Starting in 2023, charging or refueling property must be installed in qualifying low-income communities or nonurban areas for taxpayers to be eligible to receive the credit.
For example, the EV charging station must be located in an “eligible census tract”, which definition creates two paths for eligibility: (1) charging stations located in a “low-income community” per IRC § 45D(e); or (2) a census tract that is “not an urban area”.
A “low-income community” is a census tract where
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(1) the poverty rate is at least 20%; or
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(2) (i) if the tract is not located in a metropolitan area, the median family income for such tract does not exceed 80%of the applicable statewide median family income or (ii) if the tract is located in a metropolitan area, the median family income for such tract does not exceed 80% of the applicable statewide or metropolitan area median family income.
IRC § 30C defines an "urban area" as a census tract, according to the most recent decennial census, that has been designated as an urban area by the U.S. Secretary of Commerce. The U.S. Census Bureau publishes the urban and rural classifications on its website.
For property sold to a tax-exempt entity, such as a school or a hospital, the seller of the property may have been able to claim the credit. If you are the seller of new refueling property to a tax-exempt organization, governmental unit, or a foreign person or entity, and the use of that property is described in IRC §§ 50(b)(3) or (4), you can claim the credit. However, when claiming the credit for the property sold to a tax-exempt entity, prior Form 8911 instructions required clear disclosure in writing to the purchaser the amount of the tentative credit allowable for the refueling property (included on line 7 of Form 8911). See also IRC § 30C(e)(2).
The Alternative Fuel Vehicle Refueling Property Credit allowed under IRC § 30C for any taxable year that is attributable to property of a character subject to an allowance for depreciation shall be treated as a general business credit listed in IRC § 38(b).
However, any credit not attributable to depreciable property is treated as a personal credit to pursuant IRC § 30C(d). Any personal credit attributable to non-depreciable property for any taxable year shall not exceed the excess (if any) of the regular tax liability (as defined in IRC § 26(b)) reduced by the sum of the credits allowable under subpart A and IRC § 27, over the tentative minimum tax for the taxable year.
IRC § 30C(c) provides that the Alternative Fuel Vehicle Refueling Property Credit refueling property has the same meaning as under IRC § 179A(d) but only with respect to the "alternative fuels" listed in IRC § 30C(c).
Calculation of the Credit
In general, the Refueling Property Credit is equal to the smaller of 30% of the cost of any property that the taxpayer "places in service" as "qualified alternative fuel vehicle refueling property" during the taxable year of $30,000 in the case of a property of a character subject to an allowance for depreciation. See IRC § 30C(a), (b).The year in which property is "placed in service" and whether the property is placed in service as qualified clean-fuel vehicle refueling property are determined under the principles of Treas. Reg. § 1.46-3(d). See IRS Notice 2022-56; Notice 2007- 43.
This credit limitation of $30,000 per property (subject to the allowance for depreciation) is further restricted to $1,000 per property for "other property" pursuant to IRC § 30C(b)(2). For example, property of a character not subject to an allowance for depreciation placed in service at your main home (personal use property), the credit for all "other property" placed in service at your main home is generally the smaller of 30% of the property’s cost or $1,000
In addition, the following general requirements must be met to qualify for the credit.
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You placed the refueling property in service during your tax year. IRC § 30C(a).
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The original use of the property began with you. IRC § 179A(d).
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The property isn’t used predominantly outside the United States. See IRC § 30C(e)(3).
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If the property isn’t business/investment use property, the property must be installed on property used as your principal residence ("main home"). IRC § 30C(c)(1).
Qualified Alternative Fuel Vehicle Refueling Property
Purusant to IRC § 30C(c) and IRC § 179A(d), the term “qualified clean-fuel vehicle refueling property” is any property (other than a "building or its structural components") that meets the following:
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(i) The property is not used predominantly outside the United States (or, in the case of property described in IRC § 168(g)(4)(G), is property used predominantly in a U.S. possession).
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(ii) The property is of a character subject to the allowance for depreciation (IRC § 179A(d)) or is installed on property that is used as the taxpayer’s principal residence (within the meaning of IRC § 121)).
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(iii) The original use of the property begins with the taxpayer (IRC § 179A(d)).
- (iv) The property is used for—
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for the storage or dispensing of a clean-burning fuel (aka "alternative fuel") into the fuel tank of a motor vehicle propelled by such fuel, but only if the storage or dispensing of the fuel is at the point where such fuel is delivered into the "fuel tank" of the motor vehicle [propelled by such fuel] (IRC § 179A(d)(3)(A)); or
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The "fuel tank" of a motor vehicle that is propelled by alternative fuel includes only the tank that supplies fuel to the propulsion engine of the vehicle. See Notice 2007- 43. IRC § 30C(c)(2) states the following are treated as clean-burning for purposes of IRC § 179A(d):
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Any fuel at least 85% of the volume of which consists of one or more of the following below (IRC § 30C(c)(2)(A));
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ethanol,
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natural gas,
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compressed natural gas,
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liquefied natural gas,
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liquefied petroleum gas, or
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hydrogen;
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Any qualifying biodiesel mixture (which consists of two or more of the following) (IRC § 30C(c)(2)(B)); and
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biodiesel (as defined in section 40A(d)(1)),
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diesel fuel (as defined in section 4083(a)(3)), or
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kerosene,
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and at least 20% of the volume of which consists of biodiesel determined without regard to any kerosene in such mixture. For this purpose, any kerosene in a mixture—
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(i) Is disregarded in determining whether the mixture is a mixture of biodiesel and diesel fuel; and
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(ii) Is taken into account in determining whether the mixture contains at least 20% biodiesel.
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Electricity (IRC § 30C(c)(2)(C)).
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for the recharging of motor vehicles propelled by electricity, but only if the property is located at the point where the motor vehicles are recharged (IRC § 179A(d)(3)(B)).
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Basis Reduction
Note, unless you elect not to claim the credit, you must reduce the basis of the property by the sum of the amounts for that property. See IRC § 30C(e)(1). Each property’s cost must first be reduced by any section 179 expense deduction (the Small Business Tax Deduction of immediately expensing property) taken for the property.
Recapture
If the property no longer qualifies for the credit, you may have to recapture part or all of the credit. For more details, see IRC § 30C(e)(5). Rules similar to the rules of IRC § 179A(e)(4) shall apply.