The IRS on Wednesday provided a safe harbor under the Sec. 45W commercial clean vehicle credit for commercial vehicles placed in service in 2024 (Notice 2024-5). Under the safe harbor, the credit will not be limited for eligible vehicles that have a gross vehicle weight rating of less than 14,000 pounds, and vehicle owners will not have to calculate the vehicle’s incremental cost. A similar safe harbor was provided by Notice 2023-9 for vehicles placed in service in 2023.

Sec. 45W allows a credit for the purchase of each qualified commercial clean vehicle placed in service by a taxpayer during the tax year. The credit is effective for vehicles acquired after Dec. 31, 2022, and before Jan. 1, 2033. The amount of the credit is the lesser of (1) 30% of the taxpayer’s basis in the vehicle, for vehicles not powered by a gas or diesel internal combustion engine (15% for hybrid vehicles), or (2) the vehicle’s incremental cost. The “incremental cost” is defined as the excess of the clean vehicle’s purchase price over the price of a gas- or diesel-powered vehicle that is comparable in size and use.

The maximum credit is $7,500 for eligible vehicles that have a gross vehicle weight rating of less than 14,000 pounds and $40,000 for all other eligible vehicles.

The U.S. Department of Energy (DOE) has analyzed the incremental costs of all street electric vehicles (except for compact car plug-in electric hybrid vehicles) and determined that the incremental costs of vehicles with a gross vehicle weight rating of less than 14,000 pounds will be more than $7,500.

The DOE analysis determined that the incremental cost for some plug-in electric hybrid vehicles is less than $7,500. In that case, the IRS says it will allow taxpayers to use the incremental cost published by the DOE for that vehicle when calculating their credit for vehicles placed in service in 2024.

The DOE has also provided an incremental cost analysis for several types of street electric vehicles that have a gross vehicle weight rating of 14,000 pounds or more. The IRS says it will allow taxpayers to use the incremental cost published by the DOE for those vehicles, if placed in service in 2024.

The IRS is also requesting comments on whether any additional classes or types of vehicles should be considered for future safe harbors.