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Maximize tax credits from electric vehicle charging stations

Nov 08, 2021
By: Abby Liebergen
Dealerships

Public and private initiatives related to expanded electric vehicle offerings are fueling demand for charging station installations. As a result, dealerships and individuals alike have the opportunity to benefit from initial-year federal tax credits. The Taxpayer Certainty and Disaster Tax Relief Act of 2020 extended the alternative fuel vehicle refueling property credit to cover such properties placed in service in 2021.

To qualify for the credit, the property needs to be operational in the tax year and used predominately inside the United States. The property’s use has to have originated with the taxpayer. Bear in mind these limits, under current law, when claiming the tax credit:

  • For business property subject to a depreciation allowance, an income tax credit for all property placed in service at each location is the lessor of 30% of the cost of the property or $30,000.
  • For property not subject to a depreciation allowance and placed in service at your main home, the income tax credit is equal to the lessor of 30% of the cost of the property placed in service or $1,000. Yes, you can qualify for the tax credit by having a charger at your own house.

The total cost of the property placed in service includes the cost of the charger as well as the installation needed to place it in service. Some of the larger, faster chargers are requiring substantial structural and electrical retrofits to the dealership, but it is yet to be defined whether any portion of those expenses could be considered part of the installation cost.

The benefit of this credit is it provides a direct reduction of taxes versus a deduction in income which is then multiplied by the tax rate. The initial cost of the property is reduced by the amount of the credit, and then the remaining basis is depreciated over the useful life of the asset. Unless your asset cost is over $100,000, you should not elect to apply accelerated initial year expensing with Section 179 on this asset, as it reduces the cost basis before the credit is calculated.

For example, let’s look at the benefit of installing a charger with a total cost of $40,000 between the charger and the electrical installation work. The amount of the credit will be $12,000. The adjusted depreciable basis is $28,000, which will then be depreciated over the next five years. So instead of accelerating depreciation in the first year and getting a $40,000 deduction, you could now get a possible net reduction in income of $60,432 over the life of the asset. The $60,432 comes from the $12,000 credit, which at a 37% tax rate would cover $32,432 of income as well as the remaining $28,000 basis.

Wipfli’s dealership practice has the experience to help you determine your eligibility for this extended tax benefit. If you’d like to learn more about the alternative fuel vehicle refueling property credit,contact us today.

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Author(s)

Abby Liebergen, CPA
Senior Manager
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