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Buying a new electric vehicle isn’t the only way for consumers to get one $7,500 Federal Electric Vehicle Tax Credit. They can also get the money by leasing a car.
Presidential Inflation Reduction Act Joe Biden Signed in 2022, contains various rules related to consumer tax relief For electric vehicles.
Perhaps the most famous of these is “new cleaning vehicle“Tax Credit – Provides a $7,500 tax credit to consumers purchasing a new electric vehicle. Most qualifying buyers Choose to get The funds come directly from the car dealer at the time of purchase.
But many car dealers also offer a $7,500 tax break to lessees through a different (and, experts say, little-known) mechanism, the “qualified commercial clean vehicle” tax credit.
The upshot for consumers, experts say: It’s much easier to get credit than for new EV buyers because it doesn’t include requirements related to the car’s make, sticker price or the buyer’s income.
In other words, the $7,500 may be available to the renter, but not to the buyer.
Barclays Automotive analysts said in an equity research report released in June that this electric vehicle tax credit “lease loophole” may be a key driver of increased leasing volume in 2024.
About 35% of new electric vehicles rented By the first quarter of 2024, this number will be up from 12% in 2023, according to Experian.
Barclays said: “Looking for a good car deal today? Your best option may be to lease an electric car.”
What are the loopholes in electric car rentals?
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The conditions for receiving the full New Clean Vehicle Credit (section 30D of the Tax Act) are certain requirements For vehicles and buyers.
For example, final assembly of electric vehicles must take place in North America. There are also various sourcing and manufacturing rules for battery components and minerals. Cars cannot exceed a certain sticker price: $55,000 for a sedan or $80,000 for an SUV, for example.
Therefore, not all electric vehicles qualify for the tax credit. Some qualify, but only for half that amount ($3,750).
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Thirteen manufacturers Make a model Currently eligible for tax credits, according to the U.S. Department of Energy. The list is expected to grow over time as automakers shift production to comply with the new rules.
To qualify for the tax break, buyers also cannot exceed certain annual income thresholds: $300,000 for married couples filing jointly, for example, and $150,000 for single filers.
But consumers can avoid these requests Through leasing.
Barclays said this was because the lease qualifies as a commercial sale under the Inflation Reduction Act. With leasing, the automaker technically sells the vehicle to a leasing partner, the partner with whom the consumer does the transaction.
The U.S. Treasury Department issues tax credits (available through Section 45W of the tax code) to leasing partners, who can then pass the savings on to lessees.
Dealers are under no obligation to pass on the savings
The problem, experts say, is that they don’t have to pass on the savings to drivers.
However, Ingrid Malmgren, senior policy director at Plug In America, said “a lot” of people appear to be doing it right now.
Barclays wrote that the $7,500 tax credit, which allows dealers to charge lower monthly lease payments, could help “stimulate demand for electric vehicles.” Analysts say that by 2024, dealers will rely more heavily on such lease promotions, in the form of monthly subsidies.
Foreign automakers are among those struggling to meet the domestic manufacturing requirements of the Inflation Reduction Act.
“The larger EV ambitions of Asian (automakers) such as Toyota and Hyundai and Kia have also heavily exploited the leasing loophole, as their production outside of North America limits their access to consumer credit, but they are ineligible,” Barclays wrote. Obtain business credit.
Brian Moody, executive editor of auto shopping website Autotrader, predicts that most, if not all, dealers will use tax breaks to stay competitive.
“It’s unlikely that you would rent one and not enjoy this advantage,” Moody said.
Electric vehicle rental considerations for consumers
Experts say consumers may want to consider doing a back-of-the-envelope calculation of leasing versus buying before making their final choice, including calculating potential tax deductions, interest costs, total car payment and resale value.
Malmgren said that while leasing is often (but not always) more expensive than buying, leasing also brings non-financial benefits.
Leasing, for example, ensures car owners always have a new car and gives consumers “a good glide path” to determine whether an electric vehicle is right for them without too much risk, she said.
Barclays writes that buyers waiting for “next-generation EVs” from certain automakers around 2026 to 2028 can “remain flexible” while also providing opportunities for those “given the rapid pace of EV/software-defined vehicle development.” pace, wary of technological obsolescence” brings benefits. .
Still, figuring out how dealers offer tax credits to EV lessees (as opposed to buyers) may be more complicated for consumers, experts say.
“I think leasing is a bit of a scam,” Malmgren said. “There are a lot of variables that can affect your payments,” and dealers can make adjustments in the lease contract.
She encourages consumers to print out everything included in the lease to ensure the $7,500 tax credit is reflected in pricing.
“Frankly, I’m just asking ahead of time,” Moody said. “And it should be detailed in the (lease) documents as well.”
If it’s not easy to understand, consumers should consider turning to another dealer, he added.
