The EV industry has been buzzing with excitement ever since President Joe Biden signed the Inflation Reduction Act in 2022. This act not only provided a $7,500 tax break for consumers who purchase a new electric vehicle but also opened up an interesting loophole for those who choose to lease instead.
While the $7,500 tax credit is typically claimed by buyers at the time of purchase, lessees can also benefit from this incentive. Many auto dealers are passing along the tax break to lessees through the “qualified commercial clean vehicles” tax credit. This loophole makes it easier for lessees to access the credit since it doesn’t have the same stringent requirements as the credit for buyers.
The so-called “leasing loophole” has significantly contributed to the surge in leasing uptake in 2024. According to Barclays analysts, about 35% of new EVs were leased in the first quarter of 2024, a substantial increase from 12% in 2023. This trend highlights the attractiveness of leasing an EV to take advantage of the tax credit.
To qualify for the full tax credit, certain requirements must be met, including the final assembly of the EV in North America and adherence to stipulations regarding battery components and minerals. The sticker price of the vehicle must also not exceed specific limits, making not all EV models eligible for the tax credit.
Leasing is considered a commercial sale under the Inflation Reduction Act, allowing carmakers to sell the vehicle to a leasing partner who then offers the vehicle to consumers. The U.S. Treasury Department issues the tax credit to the leasing partner, who may choose to pass on the savings to lessees. While many dealers are currently passing on the savings to drivers, it is not a requirement.
Consumers interested in leasing an EV should consider the financial implications, such as potential tax breaks, interest costs, total car payments, and resale value before making a decision. While leases may be more expensive than buying in some cases, there are nonfinancial benefits to consider, such as the ability to always have a new vehicle and the opportunity to test drive an EV without much risk.
However, experts caution that the leasing process may be a bit complex for consumers to untangle. With various factors that dealers can adjust in a lease contract, it’s essential for consumers to ensure that the $7,500 tax credit is reflected in the pricing. Asking upfront and reviewing the lease documents thoroughly is crucial to avoid any discrepancies.
The EV tax credit leasing loophole provides consumers with an alternative way to benefit from the $7,500 tax credit offered for electric vehicles. By understanding the qualifications, requirements, and leasing process, consumers can make informed decisions when considering leasing an EV to take advantage of this tax incentive.