Lease-related EV tax credits renewed for 2024

Adapted from GCADA Newsletter

Good news! Following Significant advocacy by NADA, on December 20th, the U.S. Department of the Treasury renewed the "safe harbor" for Section 45W clean vehicle tax credits for commercial vehicle sales in 2024. This means that leasing companies will still be able to lease qualifying electric vehicles (EVs) in 2024 and pass on to consumers up to $7,500 from the tax credit they receive. Additionally, other commercial buyers will be able to continue claiming tax credits on their EV purchases.

This is important because Section 45W commercial clean vehicle tax credits are more flexible than 30D credits and are not subject to restrictive criteria such as where a vehicle’s battery components or minerals are sourced. This credit is available for almost any consumer lease of an EV, regardless of the lessee's adjusted gross income. The leasing company simply passes the value of the tax credit to the customer as a savings. Section 45W is the reason why EVs are leased at a much higher rate than other vehicles.

It's also worth noting that Section 45W applies to commercial vehicles above 14,000 GVWR and provides a credit of 30 percent of the cost basis up to $40,000 (15 percent for larger plug-in hybrid vehicles).

The good news is that nothing has changed. For cars sold in 2023, the IRS created a safe harbor that allowed both lessors of almost all EV leases and most other light-duty commercial EV purchasers to qualify for a $7,500 tax credit. Fortunately, the government is extending the safe harbor to 2024.

Lastly, the 30D tax credit for new vehicles will see changes in 2024 based on new criteria for eligible vehicles. NADA will continue to update its members on these developments.