Accounting and Tax Tips Blog

alternative motor vehicle credit

The federal government wants businesses to adopt sustainable energy, and they’re offering tax breaks to incentivize business owners. Businesses who make the leap can get tax credits, rebates, and more. The alternative motor vehicle credit helps offset some of the costs associated with switching to sustainably fueled vehicles, but it’s only available for certain vehicles. Keep reading to find out how you can qualify for this credit.

What is an Alternative Motor Vehicle Credit?

The alternative motor vehicle credit incentivizes business owners to replace gas vehicles with sustainable alternatives. US regulators instituted the credit in hopes of spurring reductions in carbon emissions.

At first, the alternative motor vehicle credit was open to hybrid, fuel cell, and other alternative fuel vehicles.  However, the government recently tightened its criteria.  As of today, you can only get the credit for four-wheeled vehicles powered by fuel cells.

Unfortunately, federal authorities are slowly phasing out the credit.  It was supposed to end in 2021, but it was extended for through 2022 at the las tminute. However, the alternative motor vehicle tax credit will phase out at the end of the 2022 tax year.

How Much Can I Save?

The alternative vehicle credit provides dollar-for-dollar tax savings for business owners who buy fuel-cell vehicles. IRS Notice 2008-33 states:

“The base amount of the credit is applicable to vehicles having a gross vehicle weight of not more than 8,500 pounds is $8,000 for vehicles placed in service on or before December 31, 2009, and $4,000 for vehicles placed in service after that date.”

If you purchased a fuel cell-powered vehicle in 2021, you could qualify for a $4,000 credit if you meet the criteria outlined below.

However,  the alternative vehicle tax credit is non-refundable. So, you won’t get any cashback from this credit. If your credit exceeds your total tax bill, you won’t receive an IRS refund for the difference!

What Cars Qualify for the Alternative Vehicle Credit in 2021?

As of 2021, you can only earn an alternative motor vehicle credit for purchasing a fuel cell-powered vehicle. The IRS criteria for a fuel-cell vehicle is a “vehicle propelled by power derived from one or more cells that convert chemical energy directly into electricity by combining oxygen with hydrogen fuel, and that meets certain additional requirements.”  Only a few vehicles satisfy this requirement, including the Hyundai Excient Fuel Cell, the Hyundai Nexo, and the Toyota Mirai II.

However, purchasing one of these vehicles isn’t enough. You also have to meet other requirements to qualify for the alternative motor vehicle tax credit.

For example, your vehicle’s manufacturer must certify the vehicle’s eligibility to the IRS. You also have to be the vehicles’ first owner, and leases do not qualify. Additionally, you must also primarily use the vehicle in the United States, and you must either use it personally or lease it out. Futhermore, vehicles purchased for resale don’t qualify for the credit.

Who Can Claim the Alternative Motor Vehicle Tax Credit?

The credit is open to individual taxpayers and businesses.  However, the process varies depending on your status. Either way, you have to fill out Form 8910 and attach it to your return.  We’ll cover the business-versus-individual specifics in the next section.

How to Claim

All taxpayers must use Form 8910 to calculate and claim their credit. The form requires the vehicle’s year, make, model, VIN, and other details.

If the vehicle is a depreciable business asset, you must also submit IRS Form 3800, General Business Credit. Conversely, individuals must attach their complete Form 8910s to their 1040 tax returns.

Closing Thoughts

If you are in the market for a fuel-cell-powered vehicle, you should act fast. The alternative motor vehicle tax credit expires at the end of 2022. Plus, you can get a cool new vehicle and reduce your carbon footprint too!

Get Professional Tax Help Now

The tax pros at Shared Economy Tax can help you take advantage of all the credits available to your business. Sign up for a one-on-one strategy session to see how much you can save.