A $40,000 electric vehicle business tax credit could be easy to get.

Additionally, the tax credit for larger vehicles is more substantial — up to $40,000 for passenger cars and $7,500 for small commercial vehicles.

“I think it’s going to be a lot easier and easier to use than the light-duty-vehicle tax credit,” said Ingrid Malgren, director of policy at Plug In America, of the tax credit for commercial EVs. “It’s really a great opportunity for business owners to reduce emissions in a cost-effective way.”

Business owners may receive a tax credit for new vehicles purchased on or after January 1, 2023. It will be available for 10 years until the end of 2032.

Here are the basics of commercial vehicle loans.

The tax relief is available to business owners who purchase an electric vehicle or electric “mobile machinery” for construction, manufacturing, processing, farming, mining, quarrying or logging, including construction.

The vehicle must be subject to depreciation — that is, for commercial use, according to the Congressional Research Service.

“For example, if you have a flower shop and you want to get flower delivery vehicles, if you buy a lot of vans, you’ll be the one claiming the tax credit,” Malgren said.

There are two levels of business tax credits: Vehicles weighing less than 14,000 pounds qualify for up to $7,500. Those who weigh more than that qualify for up to $40,000.

The 14,000-pound limit includes commercial vehicles rated Class 4 and above, or mostly medium- and heavy-duty trucks and buses.

According to a 2019 U.S. Department of Energy report, medium- and heavy-duty trucks are “the fastest-growing fuel consumers and greenhouse gas producers in the United States.”

Class 3 through Class 8 trucks make up less than 5% of all US vehicles on the road, but account for 27% of on-road fuel consumption, according to the report. He added that gasoline and diesel account for more than 90 percent of the fuel used in medium and heavy duty vehicles.

While the electrified commercial vehicle market “lags behind” light-duty vehicles, battery performance has improved and battery costs have dropped significantly over the past decade, leading to the electrification of medium- and heavy-duty trucks and buses. ” says the Energy Department report.

Technically, the commercial-vehicle tax credit is worth the lesser of: (1) 30% of the vehicle’s purchase price; or (2) the “incremental cost” relative to an equivalent gasoline-powered vehicle. (Incremental cost is the net price difference between a commercial pure vehicle and a similar vehicle with an internal combustion engine.)

Regardless of this calculation, the final value is capped at $7,500 or $40,000 as previously stated.

Some aspects of the tax relief remain unclear until the U.S. Treasury Department and the IRS issue guidance on the new rules, experts said. For example, how do business owners determine the cost of an affordable gas-powered car to perform an “incremental cost” analysis?

Because the financial benefit is structured as a tax credit, business owners must have tax liability to take advantage. One caveat: Tax-exempt entities can still receive financial benefits in the form of direct checks from the government, says KPMG director Steven Schmoll.

Additionally, business owners cannot double dip by getting tax breaks on the consumer side (Tax Code Section 30D) and on the business end (Code Section 45W).

One key difference between the commercial and consumer tax credits for new clean vehicles is the absence of manufacturing and other commercial credit requirements.

To qualify for the “new clean vehicles” credit (ie, not for commercial owners), the car’s final assembly must now occur in North America. The Department of Energy has a list of vehicles that meet this requirement.

Some additional laws will take effect in 2023.

First, there are income restrictions. The tax credit is not available for single individuals with adjusted gross income of $150,000 or more. The rate is higher for others — $225,000 for heads of household and $300,000 for married couples filing a joint tax return. (The test applies to income for the current or previous year, whichever is less.)

And some cars may not qualify based on price. Sedans with a retail value of more than $55,000 do not qualify, nor do vans, SUVs or trucks with a retail value of more than $80,000.

Two other regulations apply to manufacturing: One contains the requirements for obtaining the critical minerals of the car battery. The second requires battery components to be manufactured and assembled in North America. Consumers lose half the value of the tax credit — up to $3,750 — if one of these requirements is not met; If they fail to meet both, they lose the entire $7,500.

The five requirements were added by the Inflation Reduction Act, and none of them apply to commercial clean vehicle credits, Schmoll said.