IRS releases proposed regulations for 30C tax credits, implications for EV charging infrastructure

Tax credits for EV charging infrastructure

On September 18, 2024, the IRS released proposed regulations for the 30C alternative fuel vehicle refueling tax credit. These tax credits are available to support refueling infrastructure for vehicles powered by clean fuels such as hydrogen or E85 and for electric vehicle (EV) charging infrastructure.

The 30C tax credit was originally enacted in 2005, and was expanded under the Inflation Reduction Act in 2022. The value of the tax credit for depreciable property was increased to up to $100,000. The IRA also modified the 30C tax credit to be calculated based upon a per-item basis instead of a per-location basis. The proposed regulations address several important areas where guidance has been requested by the industry, including the method of calculating the tax credit and the “per-item” definition.

The IRA also restricted the EV tax credit availability to certain locations — low income community census tracts and non-urban census tracts. The IRS has previously published guidance determining which census tracts are eligible for investment under the 30C program. In practice, about 99% of the land area of the US qualifies. Importantly, however, there are slightly different census tract designations for facilities built before and after September 1, 2024. Facilities built before September 1, 2024 are permitted to use either the 2015 census tract boundaries, while facilities built after that time are directed to use the 2020 census tract boundaries.

Argonne National Laboratories map of 30C eligible census tracts

Source: ANL mapping tool

Proposed per-item definition

The IRS proposes defining each item of eligible property for EV charging as each charging port or each unit of energy storage property for electric vehicle recharging facilities. A charging port would mean the system within a charger that charges one motor vehicle. The IRS notes that a charging port may have multiple connectors, but cannot charge multiple vehicles at its rated output at the same time. For charging stations with multiple ports (which can simultaneously charge at the port’s rated output), the companies would need to allocate the cost of the charging station across each port to calculate the per-item credit amount.

Associated property

Many EV charging companies have sought clarification on how to allocate the costs of equipment associated with the eligible charging infrastructure, such as power conduits or switchgear. The IRS proposes that associated property which is functionally interdependent with the charging infrastructure, or which is an integral part of the charging infrastructure.

Costs from associated property could be allocated to the costs of the charging infrastructure or energy storage property to the extent that it is directly attributable and traceable to each qualifying item. If a piece of associated property supports multiple items, the IRS proposes that the costs should be allocated to each item on a percentage basis proportional to the costs of that item. The cumulative allocation of the associated property should not exceed the costs of the property.

Energy storage

Energy storage property that supports the charging infrastructure can be treated as a separate item for the basis of claiming the 30C tax credit. The IRS clarifies that a piece of energy storage property that receives the 30C tax credit cannot also qualify for the Section 48 or Section 48E ITC. However a project owner can elect to claim either the 30C or the 48/48E ITC for an energy storage system if the property meets the requirements for either tax credit.

Calculating the EV charging tax credit

The 30C tax credit is calculated as a percentage of investment in qualifying infrastructure up to $100,000 for businesses (or $1,000 for consumers). The base tax credit rate is 6%, or 30% for companies that meet prevailing wage and apprenticeship standards. The tax credit has a three year recapture period, meaning that if the equipment is removed from service (or ceases to function as refueling property) within the first three years of being placed in service, a portion of the tax credit can be recaptured.

In practice, while recapture is rare, Crux has typically observed that insurance is obtained to cover the cost of recapture for tax credits that are subject to those risks. Alternatively, some tax credit transfer deals include a parent guarantee to indemnify the tax credit buyer against the risk of recapture.

The impact of guidance on tax credit markets

Crux has observed that guidance can be a valuable catalyst in the tax credit market. For example, data from Crux’s Mid-Year Market Intelligence Report shows that 45X advanced manufacturing tax credits, a new credit category  created by the IRA, saw higher average pricing after proposed regulatory guidance was published in December 2023. The guidance helped settle any uncertainties regarding claiming 45X credits. Prior to the release of guidance, 45X credits averaged around 89 cents on the dollar in the market (an 11% discount to their face value). After the release of guidance, credits average 92.8 cents (just over a 7% discount to face value).

Average 45X tax credit pricing before and after release of proposed guidance

Source: Crux Mid-year Market Intelligence Report

Transferring 30C tax credits

30C tax credits claimed by businesses are transferable under the IRS tax credit transferability regulations. Transferability allows a company to receive cash for their tax credits by selling them to an unrelated third party. Tax credits are paid for in the year in which they are generated, and typically trade at a modest discount to the face value of the tax credit. Get in touch with Crux today to learn more about the opportunity to sell or purchase 30C tax credits.