Leasing Lets You Claim the $7,500 EV Tax Credit
In 2023, the Federal Government radically reduced the number of vehicles eligible for the full $7,500 tax credit under the Inflation Reduction Act. Less than 20 EVs and plug-in hybrids are now eligible for the credit, which not only requires eligible vehicles to be manufactured in North America, but also use battery components and critical minerals sourced in North America. Every year, the requirements for local components and critical minerals get more stringent, making the tax credit more difficult to access.
Indeed, many vehicles previously eligible for $7,500 now only qualify for $3,750, while many vehicles don’t get a credit at all. But there is one important caveat: if you’ve been thinking of making the switch, almost all electric vehicles still qualify for the full $7,500 – if you lease instead of buy.
That’s because the Inflation Reduction Act legislation categorizes leased vehicles as commercial vehicles, and all battery-powered “commercial” vehicles qualify for the $7,500 credit. It seems like a giant loophole in the legislation, but it’s actually the result of significant lobbying by world’s automakers, who lobbied hard for electric car leases to qualify for the credit.
The loophole has upset some politicians, who see it as supporting wealthy car buyers and a distortion of the IRA’s intent to support local production, but it does make leasing the most attractive option for driving an EV.
Why Leasing an Electric Car is a Better Option
Leasing an electric car may be a better choice in the short term for many drivers anyway. Due to their high technological content, and the fact that EV battery technology is evolving at a rapid pace, leasing can function as a sort of technology insurance. At the end of three or four years, you can simply give your electric car back to the dealer and upgrade to a newer, better model without having to worry about battery degradation or how your car’s resale value will be affected because the tech is advancing so rapidly.
Interestingly, while electric car leases have traditionally not been as attractive as leases for gasoline cars, they are getting more affordable as more EVs enter the market and dealers have larger inventories of vehicles to sell. More new car choice, and more used EVs in the market, is good news for buyers, as prices, and payments, have come down a lot in the last year.
If you study your monthly costs carefully, you'll realize EVs can also save you hundreds of dollars a month on gas. Plus most of them can be easily upgraded either by a dealer or with over-the-air updates to receive the latest features on their digital dashboards. Interestingly, your experience with an EV is likely to improve over time with newer software, instead of your gasoline car deteriorating as its mechanical parts wear out.
A recent report from Bloomberg suggests that, thanks to the availability of the $7,500 credit, many more EVs will be leased in the short term. Ford expects almost two-thirds of EV buyers to lease rather than purchase, three times what’s normal in the new-car market, and Hyundai’s lease up-take on EVs jumped massively in 2023. Most luxury electric vehicles ae also leased.
Reducing Your Monthly Payments
We would expect that trend to continue as more EVs hit the market. While the number of EV options available to American consumers has never been higher, affordability still remains an issue, with the starting MSRPs of most electric cars still higher than comparable gasoline models. Getting access to as much financial support as possible will be the game-changer for many EV buyers.
The $7,500 credit could either reduce or eliminate the lease down payment, or could reduce monthly payments – either way, consumers don’t have to wait until they file their taxes to see a financial benefit. Americans, and EV drivers, don’t like waiting – leasing may help everyone make the switch to electric that much sooner.
