Tax

New Law: Business Tax Credits for Your Electric Vehicle Purchases

You may have heard that the newly enacted Inflation Reduction Act includes an expanded tax credit for electric vehicles.

Although this personal credit has gotten most of the publicity, the new law launched a new commercial clean vehicle credit—specifically for business-use electric vehicles. And it’s much better than the credit for personal-use electric vehicles.

The new law’s personal-use electric vehicle credit is now called the clean vehicle credit. It comes with many new restrictions:

• It is available only if your adjusted gross income is no more than $300,000 (married, filing jointly) or $150,000 (single).
• It applies only to electric vehicles with a manufacturer’s suggested retail price below $80,000 for vans, SUVs, and pickup trucks, or $55,000 for other vehicles.
• It must pass complex tax-law-defined North American assembly and sourcing requirements that prevent many electric vehicles from qualifying.

Luckily, if you purchase or lease an electric vehicle for business use in 2023 or later, none of the clean vehicle credit restrictions apply.

Instead, you can qualify for the business-use electric vehicle credit. The credit is available for fully electric cars, plug-in hybrid electric vehicles, and fuel cell vehicles.

The maximum credit is $7,500 for electric vehicles with a gross vehicle weight rating of less than 14,000 pounds and a whopping $40,000 for electric vehicles with a GVWR of 14,000 pounds or more.

If you want to discuss electric vehicles, please call me on my direct line at 408-778-9651.

• By Leon Clinton
• September 15, 2022

To date, 29 states have enacted pass-through entity (PTE) taxes that can enable owners of pass-through entities such as partnerships, multi-member LLCs, and S corporations to effectively get around the federal $10,000 limit on deducting state and local taxes (SALT).

The 29 states are Alabama, Arizona, Arkansas, California, Colorado, Connecticut, Georgia, Idaho, Illinois, Kansas, Louisiana, Maryland, Massachusetts, Michigan, Minnesota, Mississippi, Missouri, New Jersey, New Mexico, New York, North Carolina, Ohio, Oklahoma, Oregon, Rhode Island, South Carolina, Utah, Virginia, and Wisconsin. PTE tax legislation is pending in Iowa, Pennsylvania, and Vermont.

If your pass-through business is located in one of these states, you may be able to save thousands of dollars in federal income taxes by electing to have your PTE pay the state tax due on its income at the entity level instead of you paying your share of such taxes on your personal return. Reason: When your PTE pays such taxes, it may deduct them in full because it is not subject to the individual $10,000 SALT limit.

Unfortunately, every state’s PTE tax regime is different. Before your PTE makes a PTE tax election, all its owners must understand the issues involved. These include:

• Is your PTE eligible for a PTE tax election?
• What percentage of ownership is required to make the election?
• What’s the deadline for the election?
• Are estimated PTE taxes due?
• How much is the PTE tax?
• Does your state give electing PTE owners a tax credit or income exclusion?
• How are non-resident PTE owners treated?

If you want to discuss PTE taxes, please call me on my direct line at 408-778-9651.

• By Leon Clinton
• September 13, 2022

The President signed the Inflation Reduction Act into law on August 16, 2022. It contains some valuable tax credits for homeowners.

When it comes to taxes, nothing is better than a tax credit since it is a dollar-for-dollar reduction in the taxes you must pay (unlike a tax deduction that only reduces your taxable income). In other words, a $1,000 credit saves you $1,000 in taxes.

The new law extends and expands three tax credits intended to encourage homeowners to make their homes more energy efficient and facilitate the use of electric vehicles.

Energy Efficient Home Improvement Credit

The new law creates the 2023 Energy Efficient Home Improvement Credit that helps homeowners pay for various types of energy efficiency improvements, including

• exterior windows, skylights, and doors;
• home insulation;
• heat pumps, water heaters, central air conditioners, furnaces, and hot water boilers;
• biomass stoves and boilers; and
• electric panel upgrades.

The old credit contained a tiny $500 lifetime cap. Lifetime caps are gone beginning in 2023.

Instead, the new law gives you a $1,200 annual cap along with specific caps on some improvements. But overall, you can perform many energy efficiency projects over several years and collect a credit each year.

Residential Clean Energy Credit

Most taxpayers earn the Residential Clean Energy Credit by installing solar. Two good things here. First, the new law extends the credit through 2034. Second, the new law increases the credit from 26 to 30 percent for eligible property placed in service in 2022 through 2032.

There is no annual or lifetime cap on this credit. The average solar project cost on a home is over $20,000, so this credit can save you more than $6,000.

You can also apply this credit to the cost of storage batteries, solar water heaters, geothermal heat pumps, small residential wind turbines, and residential fuel cells.

Home Electric Vehicle Charger Credit

The new law extends through 2032 the tax credit for installing a home electric charger. The amount of credit remains the same: a non-refundable credit equal to 30 percent of the cost of a home charger, capped at $1,000. But starting in 2023, the credit will be available only for homeowners who live in low-income or rural areas.

If you would like to discuss any of these credits, please call me on my line at 408-778-9651.

• By Leon Clinton
• September 11, 2022