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Complexities In Modified Energy Credits – Refueling Property As Example



Complexities In Modified Energy Credits - Refueling Property As Example

IRC §30C, Alternative Fuel Vehicle Refueling Property Credit has been a temporary provision for awhile and expired at the end of 2021. The Inflation Reduction Act of 2022 retroactively extended it to now expire after 2032. Starting after 12/31/22, it will work differently than it does for 2021. This is a significant credit. For 2021, it can be up to $30,000 where the property is depreciable (owned and used by a business) or $1,000 for anyone else. The business credit goes up to $100,000 for 2023 through 2032. The credit rate is 30%  – but only 6% for depreciable proprty if the new wage and apprenticeship requirements are not met (see new §30C(g)).

I created a track changes version of this §30C credit to help understand the changes – here. There are some changes that are complex to understand. For example, qualified alternative fuel vehicle refueling property will have to be located in eligible census tracts (see §30C(c)(3)). This requirement says property is only eligible if “placed in service” in an eligible census tract. Usually “placed in service” refers to depreciable property, but the description doesn’t say this requirement is only for depreciable property so likely applies to all such refueling property.

An “eligible census tract” means “any population census tract which is described in IRC §45D(e) or is not an urban area.”  An “urban area” means “a census tract (as defined by the Bureau of the Census) which, according to the most recent decennial census, has been designated as an urban area by the Secretary of Commerce.”

That all sounds confusing. I could only find information on the 2010 Urban Areas (perhaps 2020 data will be announced soon). The details on this state: “Urban areas – defined as densely developed residential, commercial and other nonresidential areas – now account for 80.7% of the U.S. population, up from 79.0 percent in 2000.”

So, it appears that refueling property (such as charging stations) will only qualify if located where 20% of the population resides. Why not allow them anywhere?

But the definition of “eligible census tract” seems to say (I wish it were worded more clearly), that it is permissible to have the property in a population census tract described in IRC §45D(e) (§45D is for the new markets tax credit). That is a long definition (I included it in the track changes doc). Basically, these tracts are where the poverty rate is at least 20% or if not located in a metropolitan area, the median family income does not exceed 80% of statewide median family income or ….” But that is just about one-quarter of the definition.

Hopefully the IRS can provide a zip code list of what areas qualify for placing property that will qualify for the credit.  But that is a significant task for the IRS in addition to all of the other guidance needed under the IRA 2022.

Seems the focus was to put the refueling property in rural and low-income communities. Is that the best investment for these areas? Will it create jobs that will remain after the property is placed in service?

Am I missing something here?

What do you think? Professor Annette Nellen, San Jose State University

Annette Nellen, CPA, Esq., is a professor in and director of San Jose State University’s graduate tax program (MST), teaching courses in tax research, accounting methods, property transactions, state taxation, employment tax, ethics, tax policy, tax reform, and high technology tax issues.

Annette is the immediate past chair of the AICPA Individual Taxation Technical Resource Panel and a current member of the Executive Committee of the Tax Section of the California Bar. Annette is a regular contributor to the AICPA Tax Insider and Corporate Taxation Insider e-newsletters. She is the author of BNA Portfolio #533, Amortization of Intangibles.

Annette has testified before the House Ways & Means Committee, Senate Finance Committee, California Assembly Revenue & Taxation Committee, and tax reform commissions and committees on various aspects of federal and state tax reform.

Prior to joining SJSU, Annette was with Ernst & Young and the IRS.

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