Truckers across America collectively travel around 450 billion miles annually. These professionals contributed to 27% of the total U.S. greenhouse gas (GHG) emissions in 2020. Since heavy-duty truck transportation is an essential service that carries the products we use, these figures are likely to grow as consumerism continues rising.

Luckily, establishing the Inflation Reduction Act (IRA) will help electrify heavy-duty trucking through electric truck incentives. With this legal development, experts believe that the industry of fleet owners and managers can drastically reduce its GHG emissions by 59% in 2035. This figure is almost twice the number that it would achieve without this law.

Generally, the IRA offers tax credits for clean vehicle usage, urging truck companies to invest in eligible vehicles for their operations. Here’s a closer look at how this law will benefit the environment and the people:

What Is the Inflation Reduction Act?

The IRA is an advancement in environmental justice. Its provisions include:

  • Pollution Reduction: According to the Act, its research shows how many frontline communities face most of the impact of ongoing environmental hazards. These include tribal communities, low-income communities, and communities of color. As such, the IRA invests in programs that aim to reduce pollution of communities on the frontlines, such as monitoring initiatives and community-led projects.
  • Clean Transit Improvement: The Act also targets communities that are exposed to transportation corridors, which have higher chances of developing respiratory issues. The IRA aims to provide healthier and more sustainable transportation options to clean up its systems. Its projects include diesel emission reduction, port clean-up initiatives, and affordable transportation access.
  • Clean Energy Accessibility: In line with the previous initiative, this Act aims to bring all American communities along through its growing energy economy. To ensure that no community gets left behind, it will spur solar project development in communities by offering bonuses, creating programs for improving energy efficiency, and bringing clean energy to homes that have previously had no access to such.
  • Climate Change Resilience: The IRA will support communities in areas that are most vulnerable to the effects of climate change. Among its projects are resilience-boosting initiatives for tribal and Native Hawaiian communities, targeting its fishery sector and landscapes. It will also enable the U.S. Department of Housing and Urban Development to improve its affordable housing initiatives. Finally, it aims to expand green spaces in cities to combat climate change.

What Are the Tax Credits Available Through the IRA?

The IRA modified past tax credits for fuel cell vehicles and electric vehicles (EVs). It also implemented new tax credits for used and commercial clean vehicles. Essentially, the IRA highlighted existing provisions that qualifying vehicles could have benefited from before this new law was passed. These tax credits help support the deployment of electric trucks and buses, urging individuals and businesses to adopt greener plans. Here is a summary of the tax credits and their conditions:

Plug-In EV Credit

  • Maximum Amount: Owners of plug-in EVs can obtain up to $7,500 in credit. It starts with a base amount of $2,500 and adds $417 for each kWh of capacity above 5 kWh (up to $5,000).
  • Qualifying Vehicles: These are only EVs that use a battery with 4 kWh of capacity and are compatible with external charging.
  • Manufacturer Limitations: Only vehicles acquired before April 2019 are eligible. This limitation follows the phaseout after a manufacturer crossed the 200,000 plug-in EVs sold threshold.
  • Eligible Taxpayers: Individuals and businesses can claim the credit. Tax-exempt entities are also eligible, as long as the seller claims credit.
  • Transferability: Only tax-exempt entities can seek transferability.

Fuel Cell Vehicle Credit

  • Maximum Amount: Owners can claim up to $8,000 or $40,000 in tax credit. With a base amount of $4,000, this amount can grow by $4,000 more based on fuel economy. Meanwhile, heavy vehicles that run on fuel cells can get a credit of up to $40,000.
  • Qualifying Vehicles: Vehicles propelled by fuel cells are eligible.
  • Eligible Taxpayers: Individuals and businesses can seek this tax credit. Like plug-in EVs, sellers can claim the tax credit on behalf of their tax-exempt entity.
  • Transferability: Only tax-exempt entities can seek transferability.
  • Expiration: December 31, 2021

Clean Vehicles Credit

  • Maximum Amount: Owners can obtain up to $7,500. The base amount is $3,750 for vehicles meeting the requirement for critical minerals in clean vehicles. An additional $3,750 for vehicles meeting the battery components requirement is available.
  • Qualifying Vehicles: These include vehicles featuring a battery with 7 kWh of capacity with external charging. Vehicles propelled by fuel cells also count. Meanwhile, there will be no credit available for vehicles after 2023 if their batteries come with components sourced from a foreign entity of concern. Likewise, for vehicles after 2024, no credits are allowed for batteries with critical minerals sourced from a foreign entity of concern.
  • Manufacturing Location Requirements: Final assembly of the clean vehicles must occur within North America. This provision was effective August 16, 2022.
  • Eligible Taxpayers: Individuals and businesses can obtain this tax credit.
  • Price Limits: No credit is allowed for vans, SUVs, or pickup trucks with a Manufacturer’s Suggested Retail Price (MSRP) greater than $80,000. Other vehicles with an MSRP greater than $55,000 are also ineligible.
  • Income Limits: If the person’s modified adjusted gross income (MAGI) is greater than $300,000 (married filing jointly), then there’s no credit. Heads of the household whose MAGI is greater than $225,000 are also not creditable. Finally, singles with a MAGI greater than $150,000 can get no tax credit. These income thresholds apply to the lesser of the current year or prior year MAGI.
  • VIN Reporting Requirements: Sellers must report their vehicle identification number (VIN) to the Treasury. Meanwhile, taxpayers must report VIN upon tax return.
  • Transferability: Taxpayers can elect to transfer credit to dealers, which goes into effect after December 31, 2023.
  • Expiration: December 31, 2032

Previously-Owned Clean Vehicles Credit

  • Maximum Amount: Those with used clean vehicles can obtain up to $4,000 limited to 30% of the sales price.
  • Qualifying Vehicles: Previously-owned clean vehicles with a model year that is two years earlier than the calendar year qualify. Note that credit can only be claimed on the first transfer of the vehicle. In addition, the vehicle must have been purchased from a dealer.
  • Eligible Taxpayers: Individuals can claim this tax credit, which is limited to one credit every three years.
  • Price Limits: No credit is allowed if the sales price of the vehicle in question is $25,000 or more.
  • Income Limits: No credit is given if MAGI is greater than $150,000 (married filing jointly). Heads of households with a MAGI greater than $112,500 are also not allowed. Finally, singles with a MAGI greater than $75,000 cannot claim the tax credit. These income thresholds apply to the lesser of the current year or prior year MAGI.
  • VIN Reporting Requirements: Sellers must report VIN to the treasury. Likewise, taxpayers must report VIN on the tax return.
  • Transferability: Taxpayers can elect to transfer credit to a dealer, which goes into effect after December 31, 2023.
  • Expiration: December 31, 2032

Commercial Clean Vehicles Credit

  • Maximum Amount: Clean vehicles for commercial purposes are eligible for up to $7,500 or $40,000 in credit. However, credit is limited to the lesser of 15% of the vehicle’s cost (30% for vehicles that are not gasoline or diesel powered) or the incremental cost of the vehicle, as compared to vehicles powered with a gasoline or diesel ICE. Heavy vehicles can get a credit of up to $40,000.
  • Qualifying Vehicles: Clean vehicles and mobile machinery are eligible. Larger EVs required to have a battery with 15 kWh of capacity also count. These vehicles must be subject to a depreciation allowance (i.e., for business use), except in the case of vehicles used by tax-exempt entities, to qualify for credit.
  • Eligible Taxpayers: Only businesses and tax-exempt entities are eligible. Tax-exempt entities could receive credit as direct payments.
  • VIN Reporting Requirements: Taxpayers must report VIN upon tax return.
  • Expiration: December 31, 2032

Significance of The IRA’s Tax Credit

Through the Act’s tax credits — particularly the lesser-known one that targets qualified commercial clean vehicles — companies have an incentive to adopt electric-powered trucks. Regardless of whether they have medium- or heavy-duty vehicles, the owners can obtain up to a $40,000 tax credit.

By electrifying their fleet, companies can make significant savings on fuel. Essentially, tax credits make owning electric trucks a more cost-effective strategy than diesel trucks. Likewise, urban and regional electric trucks would follow this superiority by 2023.

Final Words: The Inflation Reduction Act Offers Electric Truck Incentives Go Address Climate Change

The IRA is a law signed in August 2022 with the primary goal of improving America’s approach to the undeniable climate changes. Although the law has many provisions, the ones that seem lesser-known but have the potential for making a drastically positive change are the IRA’s tax credits.

These credits offer electric truck incentives, which may fast-track the adoption of electric-powered trucks to run a company’s operations. Companies that opt for greener solutions can seek tax credits, making it more affordable to own electric trucks than traditional diesel-powered heavy-duty vehicles.

The Inflation Reduction Act is a timely development that would give America a fighting chance against climate change while also providing economic benefits. Hopefully, with more awareness, businesses and citizens alike can put the provisions under the law to good use.