Tax Tip – Two-wheeled Plug-in Electric Vehicle Credit

Tax Tips provided by Don Fitch, CPA

The credit available for acquiring a qualified two-wheeled plug-in electric drive motor vehicle, which was set to expire on December 31, 2020, is extended and now applies to vehicles acquired before January 1, 2022.

Amount of Credit: The amount of the qualified plug-in electric vehicle credit generally is equal to 10 percent of the cost of the vehicle (Code Sec. 30(a)). However, the amount of this credit is limited to $2,500 (Code Sec. 30(b)).

  • Example 1) In December 2020, Joey Bagadonuts acquires a qualified plug-in electric vehicle for $20,000 (expensive battery bike and/or motorcycle) and he immediately begins using the vehicle. Joey may take a credit of $2,000 ($20,000 x 10%) on his 2020 return.
  • Example 2) Assume the same facts as in the previous example, except that Joey pays $30,000 (expensive battery bike and/or motorcycle) for the vehicle and he does not begin using it until January 2021. Joey may take a credit of $2,500 on his 2021 tax return.

General Rules for Qualified Plug-in Electric Vehicle Credit: A taxpayer who acquires a qualified plug-in electric vehicle before January 1, 2012, is generally allowed a credit for the tax year it is placed in service (Code Sec. 30(a)). This qualified plug-in electric vehicle credit generally applies to two-wheel, three-wheel, and small four-wheel electric vehicles, while a separate credit applies to larger 4-wheel electric vehicles.

Observation:

The credit applies for the tax year in which the taxpayer places the qualified plug-in electric vehicle in service. In some cases, this might not be the same tax year in which the taxpayer acquires the vehicle.

Depending on the use of the vehicle, the credit may be treated as a nonrefundable personal credit and/or a general business credit.

Don Fitch, CPA Practice Tip: The qualified plug-in electric vehicle credit is computed and reported on Form 8834, Qualified Plug-in Electric and Electric Vehicle Credit.

A taxpayer may elect not to take the credit by not filing Form 8834 (Code Sec. 30(e)(6)). Unless a taxpayer elects not to claim the credit, the taxpayer must reduce his basis in the vehicle by the amount of the credit allowed (Code Sec. 30(e)(1)). If a vehicle ceases to meet the requirements of a qualified plug-in electric vehicle, the taxpayer may be required to recapture all or part of the credit (Code Sec. 30(e)(5)).

Observation:

The credit applies only to highway-capable plug-in motorcycles and three-wheeled vehicles. Thus, golf carts and other low-speed vehicles cannot qualify for the new credit.

Qualified Plug-In Electric Vehicle Defined: A qualified plug-in electric vehicle is a vehicle that is propelled to a significant extent by an electric motor that draws electricity from a battery.

A vehicle must meet the following requirements to be a qualified plug-in electric vehicle:

(1) The vehicle must be either:

(a) a four-wheel vehicle with a gross vehicle weight rating (GVWR) of less than 3,000 pounds that can reach a speed of more the 20 miles per hour but not more than 25 miles per hour after one mile on a paved level surface (a so-called low speed vehicle); or

(b) a two- or three-wheel with a gross vehicle weight rating (GVWR) of less than 14,000 pounds (Code Sec. 30(d)(1)(E) and (2)).

Observation:

A separate credit known as the qualified plug-in electric drive motor vehicle credit is available for large four-wheel vehicles.

(2) The battery of the vehicle must be capable of being recharged from an external source of electricity and must have a capacity of not less than:

(a) 4 kilowatt hours in the case of a low-speed vehicle; or

(b) 2.5 kilowatt hours in the case of a two- or three-wheel vehicle (Code Sec. 30(d)(1)(F)).

(3) The vehicle must be made by a manufacturer primarily for use on public streets, roads, and highways (Code Sec. 30(d)(1)(C) and (D)).

Don Fitch, CPA Practice Tip: Thus, the vehicle cannot be manufactured primarily for off-road use, such as use on a golf course.

(4) The vehicle must be acquired by the taxpayer for use or for lease and the original use of the vehicle must begin with the taxpayer (Code Sec. 30(d)(1)(A) and (B)). Generally, a taxpayer cannot claim the credit for a vehicle acquired for resale. However, there is an exception if the vehicle is resold to a tax-exempt organization, governmental unit, or a foreign person or entity, and the use of the vehicle is described in Code Sec. 50 (b)(3) or (4). In such a case, the taxpayer can claim the credit if he provides written disclosure to the purchaser of the amount of the tentative credit allowable for the vehicle (Code Sec. 30(e)(3)).

Don Fitch, CPA Practice Tip: The taxpayer must own the vehicle to claim the credit. A taxpayer cannot claim the credit for a vehicle it leases from another party. However, a taxpayer can claim the credit for a vehicle that it owns and leases to another party. In other words, the credit is available to lessors of vehicles, but it is not available to lessees.

(5) The vehicle must be used in the United States (Code Sec. 30(e)(4)).

Manufacturer’s certification: A taxpayer generally can rely on the manufacturer’s certification that a specific make, model, and model year vehicle qualifies for the credit. However, if the IRS publishes an announcement that the certification of any specific make, model, and model year vehicle has been withdrawn, the taxpayer cannot rely on the manufacturer’s certification if such vehicle is purchased after the date the withdrawal announcement was published. On the other hand, if a taxpayer purchases such a vehicle on or before the date the withdrawal announcement was published, he can rely on the manufacturer’s certification even if he had not placed the vehicle in service or claimed the credit on that date (Notices 2009-58, 2009-89, 2012-54).

Treatment as Personal Credit or General Business Credit: The qualified plug-in electric vehicle credit may be treated as a nonrefundable personal credit or a general business credit, depending on whether the use of the vehicle is attributable to business or non-business use.

Portion treated as personal credit: Any portion of the qualified plug-in electric vehicle credit that is attributable to non-business use (i.e., the portion attributable to non-depreciable property) is treated as a nonrefundable personal credit (Code Sec. 30(c)(2)(A)). A taxpayer’s total nonrefundable credits may not exceed the sum of:

(1) the taxpayer’s regular tax liability reduced by the foreign tax credit, and

(2) the taxpayer’s alternative minimum tax (Code Sec. 26(a)(2)).

Portion treated as general business credit: Any portion of the qualified plug-in electric vehicle credit that is attributable to business use (i.e., the portion attributable to depreciable property) is instead treated as a general business credit under Code Sec. 38 (Code Sec. 30(c)(1)).

DON FITCH, CPA
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This blog post is intended to serve solely as an aid in continuing tax education for Don Fitch Accountancy blog and email members. Due to the constantly changing nature of the subject of the materials, this product is not appropriate to serve as the sole resource for any federal tax, accounting opinion, tax return position, and must be supplemented for such purposes with other current authoritative materials. The information in this blog post has been carefully compiled from sources believed to be reliable, but its accuracy is not guaranteed. In addition, Don Fitch Accountancy is not engaged in rendering legal or other professional services and will not be held liable for any actions or suits based on this blog post, email, or comments made during the above presentation. If legal advice or other expert assistance is required, seek the services of a competent professional.

(Updated 02/19/2021 14:24)

Published by Don Fitch, CPA

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