The Inflation Reduction Act of 2022 (the "Act"), signed into law by President Biden this month, offers new or expanded tax incentives for buying electric vehicles ("EVs") and using or producing certain environmentally friendly fuels. This White Paper summarizes these tax incentives, as relevant to the EV industry and the transportation industry more generally.
The Act expands the existing tax credits under the Internal Revenue Code (the "IRC") for new EV purchases and creates two new EV tax credits, one for purchases of previously owned EVs and the other for purchases of EV for business use. These EV tax credits are poised to stimulate demand for EV technology. Individual consumers may claim up to $7,500 in credits for purchasing new EVs, so long as the EVs are assembled in North America and meet the legislation's requirements for sourcing certain "critical minerals" from the United States (or certain other countries) and for manufacturing battery components in North America. Individual consumers may also claim up to $4,000 in credits for purchasing used EVs. Business taxpayers may earn a credit for purchasing EVs for use in a trade or business, including up to $40,000 for heavy-duty EVs. The Act also makes credits available for installing charging stations and other qualifying refueling equipment.
Further, the Act renews several alternative fuel credits and institutes a one-time retroactive claim for the alternative fuel and alternative fuel mixture credits, which expired last year. The Act reinstates the tax credit for producing second generation biofuel and creates a new tax credit for producing sustainable aviation fuel. Taxpayers also may now claim a new clean hydrogen tax credit of $3.00 per kilogram of clean hydrogen produced, subject to several requirements (including that a facility that claims carbon capture credits may not claim clean hydrogen credits).
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