EPA, Treasury Disseminate Electric School Bus Tax Credit Information

January 16, 2025

File photo of an electric school bus operated by Ocean View School District in Oxnard, California.

A joint U.S. Environmental Protection Agency and U.S. Department of Treasury webinar shared ways electric school buses could be more affordable using new tax credits under the Inflation Reduction Act.

The first tax credit discussed Thursday relates to the vehicle itself. The Qualified Commercial Clean Vehicle Credit (45W) provides an income tax credit to a taxpayer who purchased and placed into a service a qualified commercial clean vehicle during the taxable year. The 45W rule, established by the Biden administration’s Inflation Reduction Act, was published in the federal register on Tuesday.

45W credit amount for the lesser amount of either 30 percent of basis of the qualified vehicle, or the incremental cost of the vehicle up to a credit maximum of $40,000, in the case of a vehicle with a GVWR of 14,000 pounds or more. The incremental cost is the excess of the purchase price of a clean vehicle compared to a comparable gas or diesel internal combustion engine. The 45W Notice of Proposed Rulemaking would provide pathways for taxpayers to determine the incremental cost.

In order for the vehicle to qualify, it must be made by a qualified manufacturer (a list of qualified manufacturers is on the IRS website), is acquired for use or lease, treated as a motor vehicle for use on public roads, has a battery capacity of at least 15 kWh, used predominantly in the 50 states plus Washington, D.C., and be either electric, plug-in hybrid or hydrogen fuel cell vehicles.

Meanwhile, Alternative Fuel Vehicle Refueling Property Credit (30C), published in the Federal Register in September 2024, allows an income tax credit equal to 30 percent for individuals and up to 30 percent for businesses for the purchase and installation cost of any qualified alternative fuel vehicle refueling property that was placed into service by the taxpayer during the taxable year. This applies to all aspects of electric charging infrastructure as well as CNG, propane or hydrogen fueling centers.

Each charging point is considered a single item and therefore the credit is limited to $100,000 per business use property and $1,000 for personal use property. Electric panels, conduit/wiring, smart charge management system installed in different tax years are only credible in the year the functionally interdependent or integral part property is placed into service.

The webinar explained a special section of the tax credit rule, which relates to vehicles funded by grants and forgivable loans. The webinar noted, “if an investment-related credit property is funded by a tax-free grant or forgivable loan, entities get the same value of eligible tax credit as if the investment were financed with taxable funds, provided the credit plus the restricted tax-exempt amounts do not exceed the cost of the investment.”

This means if a school district receives a tax-exempt grant of $300,000 to purchase an electric school bus, in which the total cost of the bus came out to $400,000, the 45W credit is $40,000. Since the amount of the grant and the credit ($340,000) is less than the cost of the school bus, the credit is not reduced.

One attendee asked if these credits are at risk from the presidential administration change. A Department of Treasury representative noted that they will remain in effect unless changed by Congress.