IRS Updates on 30C Tax Credits: A Game-Changer for EV Charging & Alternative Fuels

Key Changes Proposed in 30C Tax Credits (09/18/2024 Updates)

On September 18, 2024, the IRS released proposed regulations for 30C Tax Credits on Alternative Fuel Vehicle Refueling Properties. These proposed regulations aim to better define the  requirements for eligibility for 30C tax credits in which we, at Concentro, believe is a great step ahead in the attractiveness of these credits and, thus in the investment for EV charging and alternative fuel refueling property.

In a nutshell, the key changes from the notice of proposed rulemaking (NPR) and why we believe they are favorable are the following:

1. The $100,000 cap applies on a per-single item basis, which virtually allows for all of eligible property to qualify for the credit, without the cap being a limiting factor. We expand below on the definitions of a single item and associated property, but essentially a single item is a system that charges/refuels one motor vehicle. This was one of the key items that were unclear and were changes have come on the most favorable end.
2. Location is key! The property must be placed in an Eligible Census Tract to be eligible… but, fortunately, 95%+ of the US land is included and we provide a map below for further guidance.
3. PW&A is required to claim 30% credit or the credit will be reduced to 6%, so documentation on these projects is key too. This is the only downside we see in the proposed regulations, as there are no exceptions as e.g. the <1MW exception for solar properties. However, PW&A requirements do not apply after a section 30C project is placed in service.
4. The recapture period is 3 years (unlike the 5 years for a 48 credit), where essentially as long as the property is not modified to not be eligible for a credit nor ceases to be used predominantly in a trade or business, you should be fine and you can even transfer the property (some nuances apply which we explain below).

30C Tax Credits 101

1. What is the 30C Tax Credit?

The 30C tax credit offers a 30% incentive for installing alternative fuel vehicle refueling properties, such as electric vehicle (EV) chargers and hydrogen refueling stations. The credit caps are set at $1,000 for personal use and $100,000 per property for business use.

2. What Are Alternative Fuels? What Technologies Are Included?

Alternative fuels covered under 30C include:

1. Any fuel at least 85% of the volume which consists of one or more of the following: ethanol, natural gas, compressed natural gas (CNG), liquified natural gas (LNG), liquified petroleum gas (LPG).
2. Any mixture that consists of 2 or more of the following: biodiesel, diesel fuel, or kerosene, and at least 20% of the volume of which consists of biodiesel determined without regard to any kerosene in such mixture.
3. Electricity
4. Any transportation fuel (see Section 45Z(d)(5)) that is produced after 12/31/2024.

3. Eligible Census Tract

The proposed regulation states: “Section 30C, as amended by the IRA, requires that property be placed in service in an eligible census tract in order to qualify for the credit.” This makes the eligibility based on location to be binary (either the location is eligible or not), but as it can be seen on the image below, eligibility is quite extensive with more than 95% of the US territory being eligible.

See the Argonne National Laboratories map to explore what regions qualify for 30C credits.

‍4. Tax Credit Amount

1. For Individuals: 30% of eligible costs, capped at $1,000 per single item. For lack of doubt, individual credits are not transferrable.
2. For Businesses: 30% of eligible costs (6% if PW&A requirements are not met), capped at $100,000 per single item.

If a unit has a mixed use (e.g. 40%/60% of the time is used for personal/business), then the cost basis for the tax credit will be split (in the previous example 40% will have a 30% tax credit capped at $400 per single item, and 60% will have a 6%/30% tax credit (non-PW&A/PW&A) capped at $60,000 per single item.‍

5. What Is a Single Item for 30C?

A single item of 30C property is defined as each charging port for recharging property, each fuel dispenser for refueling property, or each qualified alternative fuel storage property or electrical energy storage property.

1. A port for recharging would mean the system that can charge one motor vehicle. It may have multiple connectors, but it can provide power at its rated electrical output to charge only one motor vehicle through one connector at a time.
2. A fuel dispenser (similar to a port for charging) should be capable of fueling at or above the dispenser's minimum rate of fueling and has at least one hose and nozzle.
3. A qualified alternative fuel storage property or electrical energy storage property must be placed at the same or an immediately adjacent physical address as the location of the refueling/recharging system. Electric energy storage systems that are claimed for 30C TC cannot be claimed for 48 and 48E TC.

This definition of a single item, to us, is one of the most important updates, since it virtually allows for all of eligible property to qualify for the credit, without the $100,000 cap being a limiting factor. We had seen deals not move forward because of uncertainty around this definition, and we expect now a much larger traction on them.

6. What Else Is Eligible for 30C?

The cost of functionally interdependent property and, if applicable, any property that is an integral part of refueling or recharging property that is part of the 30C property placed in service by the taxpayer during the year.

These costs will be allocated among the single items that it applies to. More info here.

Note that 30C TCs apply only for the intent of recharging/refueling “motor vehicles”, which under Section 179A(e)(2) are defined as any vehicle that is manufactured primarily for use on public streets, roads, and highways that has at least 4 wheels (2-3 wheels also count). This means that e.g. a refueling/recharging station for a forklift truck will not qualify for 30C.

7. What Parts of a Project May Not Be Eligible for 30C?

Such costs that are not functionally interdependent with the chargers or an integral part of the chargers (e.g. land improvements, EV charger signals, permitting fees).

Consulting with a CPA firm or running a cost segregation study is advisable to understand the eligibility of each part of the property. Please, let us know if you need any help here, we will be more than happy to assist you.

8. Recapture Risks / Scenarios

Unlike for ITCs from solar projects (48), the recapture period for 30C TCs is 3 years. The recapture events are the following:

1. Modification of the property such that the property no longer qualifies as 30C property.
2. The depreciable property (other than apportioned-use property) ceases to be used predominantly in a trade or business (that is, 50% or more of the use of the 30C property in a taxable year is for use other than in a trade or business).
3. For apportioned-use property, the 30C property completely ceases to be used in a trade or business, but continues to be used for personal use.
4. The taxpayer claiming the section 30C credit sells or disposes of the 30C property and the taxpayer knows or has reason to know that the property will be used in a manner described in previous bullets. Note that any other sale or disposition (including a disposition by reason of an accident or other casualty) of 30C property is NOT a recapture event.

The recapture proportion of the total 30C TC will be three minus the number of years prior to, but not including, the recapture year, and the denominator of which is three. For example, if the project became operational on January 1st, 2025 and a recapture event triggered on 2026, the portion recaptured would be 67%; i.e. (3 years period - 1 operating year) / 3 = 0.67.

We believe this to be another key element that makes 30C credits increasingly attractive, since:

1. The recapture period is short - actually 2 years shorter than 48 solar ITCs for which there is a strong appetite from the market.
2. The recapture scenarios are very unlikely, including allowing for the property to be transferred - taking into account the aforementioned nuances.

Although recapture risks are small, we still believe recapture insurance to be essential to transfer these credits. We have even seen cases where the difference in price between an identical insured and an insured completely offsets the cost of insurance.

In all transactions, we help both sellers and buyers do the heavy lifting, and we will help you secure the right recapture insurance to maximize the value of your TCs.

Our Key Takeaways

At Concentro, we find the new proposed regulations favorable, potentially leading to a increase in demand (and investment) in the category. We believe it makes 30C TCs as attractive or even more than Solar ITCs, as we think recapture risks on 30C TCs are lower because of its 3-year recapture period and fewer - and less likely - recapture scenarios.

We are confident that this move by the IRS to clarify the key aspects of 30C TCs will increase the appetite by tax credit buyers for these credits, both in terms of certainty and attractive fundamentals, as we have seen with guidance in other categories and adders. We believe that this increase in appetite combined with the reduction in risk of recapture will inevitably increase the pricing of the credits.

At Concentro, we are specialized in mid and small projects (i.e., DG), where EV charging facilities typically fall within, and our broad expertise in similar size projects positions us perfectly to help you on assessing this opportunity to transact your 30C tax credits.

Let’s connect and explore how we can help you finance through tax credit transferability your next EV charging or alternative fuel refueling projects!

References

• Definition of Clean Burning Fuels: https://www.federalregister.gov/d/2024-20748/p-19
• Definition of non-SAF transportation fuel: https://www.irs.gov/pub/irs-drop/n-24-49.pdf
• Definition of Eligible Census Tract: https://www.federalregister.gov/d/2024-20748/p-22
• Credit Amount and Limitation: https://www.federalregister.gov/d/2024-20748/p-14
• Definition of a Single Item of 30C Property: https://www.federalregister.gov/d/2024-20748/p-48
• Definition of Associated Property and Calculating Credit: https://www.federalregister.gov/documents/2024/09/19/2024-20748/section-30c-alternative-fuel-vehicle-refueling-property-credit#p-55
• Recapture events: https://www.federalregister.gov/d/2024-20748/p-470