As transportation manufacturers continue to change and electrify their product mix, taxpayers now must consider whether to perform infrastructure upgrades to accommodate these new offerings. The Inflation Reduction Act of 2022 has retroactively extended, for 2022, the prior credit offering for qualified alternative fuel vehicle refueling property (“charging equipment”) while introducing several changes starting in 2023 that make the credit potentially more lucrative. Unfortunately, these changes will also make it more difficult to obtain the full benefit for some and may put it out of reach for others. The updated credit is effective as of January 1, 2023, meaning that any capital improvements undertaken and placed in service as of December 31, 2022, will fall under the old credit requirements (which have much more relaxed qualification standards, but the credit is capped at $30,000 per location for the year for depreciable property and $1,000 per location for all other property).
Learn more in our Transportation Tax Credits and Grants in the Inflation Reduction Act of 2022 webinar.
The chart below summarizes the general rules applicable to charging equipment placed in service after December 31, 2022 and before January 1, 2033.
||Alternative Fuel Vehicle Refueling Property Credit
||Businesses & Individuals
||Placed in service 1/1/2023–12/31/2032
Property must be placed in service within an eligible census tract which either:
- Meets the definition of IRC 45D(e)–low-income community
- Is not in an urban area as designated by the Secretary of Commerce based upon the most recent census
|Equipment Operational Requirements
||Property must store or dispense clean-burning fuel at the point fuel is dispensed into the tank of the motor vehicle OR recharge motor vehicles propelled by electricity at the point of recharge.
|Additional Requirements: Two-To Three-Wheel Vehicles
Includes depreciable electric charging stations for two-to three-wheel vehicles that:
- Are manufactured for use primarily on public streets, roads, or highways (and are not exclusively used on rail or rails)
- Have two or three wheels, and
- Are propelled by electricity
|Credit Amounts & Limits
Non-depreciable property, (i.e., individual personal use consumers)–30% of the cost up to $1,000 per item of property
Depreciable property – base credit of 6% of the cost with the potential for 30% if prevailing wages and apprenticeship requirements are met (max of $100,000 per item of property). See “Additional Requirements: Prevailing Wages & Apprenticeship” section below for standards to obtain the increased credit amount.
|Additional Requirements: Prevailing Wages & Apprenticeship
For depreciable property, the standard 6% of base cost credit amount can potentially be increased to 30% if one of the following requirements are met:
- Construction begins before 60 days after guidance is provided by the Secretary related to the prevailing wage and apprenticeship requirements below. (Note, the IRS published Notice 2022-61 in the Federal Register on November 30, 2022, which starts the 60-day period).
- Prevailing wage requirement (generally, any wage paid to a labor, mechanic, contractor, or subcontractor involved in the construction of the qualified alternative fuel vehicle refueling property will be at least equal to the "prevailing rates for construction, alteration, or repair of a similar character in the locality in which such project is located as most recently determined by the Secretary of Labor, in accordance with subchapter IV of chapter 31 of title 40, United States Code”) AND the apprenticeship requirement (generally, required percentage of labor hours to construct, alter, or repair is performed by a qualified apprentice, see below) are met.
|Percentage of Labor Hours for Apprenticeship Requirement
Construction & facility work must have a prescribed percentage of total hours performed by qualified apprentices (an individual participating in a registered apprenticeship program), subject to certain exceptions.
- Before 1/1/23: 10.0%
- 1/1/2023–12/31/2023: 12.5%
- 1/1/2024–12/31/2032: 15.0%
Tax credits implemented or amended with the Inflation Reduction Act of 2022 come at a vital time as trends continue to move towards green energy such as vehicle electrification. Infrastructure upgrades are becoming more necessary (or required in some instances) and the federal government has taken steps to try and ease the burden of those upgrades for taxpayers in non-metro, low-income locales. There are still areas of this legislation awaiting further guidance and technical clarification. We are aware that many taxpayers are factoring the tax implications of these buildouts into their decision-making process, and we are making it a priority to ensure that taxpayers have the most up-to-date information at their fingertips. Be on the lookout for future FORsight™ articles as new guidance or technical clarifications are made available.
If you would like more information or have questions, reach out to a FORVIS professional or submit the Contact Us form below.