This Loophole Allows You To Receive 2024 EV Tax Credits Even If You Lease a Car
Written by
Yaël Bizouati-Kennedy
Edited by
Nicholas Morine
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The road to EV ownership might be more difficult for Americans this year, as tax credits for certain electric vehicles (EVs) are becoming more stringent. For instance, as of Jan. 1, 2024, to qualify for the full $7,500 credit, EVs will now need to meet more rigorous requirements.
The Treasury Department announced on Dec. 1, 2023, an update on the Inflation Reduction Act (IRA) credit rules involving “foreign entity of concern (FEOC) requirements.” Said entities include China, Russia, North Korea and Iran.
In turn, “An eligible clean vehicle may not contain any battery components that are manufactured or assembled by a FEOC.”
Yet, there might be good news for EV shoppers as a loophole might still work in their favor — that is, if you lease a car.
The so-called “45W” provision gives commercial buyers for light vehicles up to $7,500 in tax credits for acquiring a new or used clean vehicle with fewer requirements than those buying a new car, according to the National Automobile Dealers Association.
Steve Birkett, senior EV editor for FindTheBestCarPrice.com, said this loophole has been around since the new tax credit came into effect and is unlikely to be closed this year. In turn, he said, this can be a way for drivers who are considering a model that doesn’t qualify for incentives via the new EV purchase criteria to get the electric car that they want.
“Increasingly strict requirements for sourcing battery components came into effect on Jan. 1, 2024, cutting in half the number of all-electric models that qualify for federal incentives by outright purchase,” he said. “Leases sidestep that requirement and make popular models accessible again, assuming the mileage limitations are not too restrictive for the lessee.”
Other Options Available to Would-Be EV Customers
According to Birkett, another option is to negotiate a one-payment lease. This is a scenario wherein the buyer signs up for a lease agreement to secure the $7,500 federal incentives, then pays off the lease in full and secures separate financing to pay off the purchase price over time.
“These approaches have been key to the likes of Hyundai in maintaining strong sales of its popular IONIQ line,” he said. “Both the IONIQ 5 and 6 have continued to see growth in the U.S. market, despite not qualifying for federal incentives on an outright purchase, as the South Korean automaker leaned heavily into lease offers to move those models throughout 2023.”
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Peter Glenn, founder and co-CEO of EV finance platform EV Life, added that for for car shoppers who really want to buy popular EVs from brands such as Hyundai, Kia, or Polestar, leasing can be a great option to get the benefit of a $7,500 “leasing” tax credit on vehicles that do not currently qualify for the consumer EV tax credit.
But Is EV Leasing a Good Idea?
However, Glenn argued that EV shoppers should know that leasing is not a panacea. Many leases include strict mileage restrictions that may be less than what an average American drives.
“While the EV tax credit may reduce your leasing costs, leasing companies can also manipulate residual value calculations and your money factor to increase your overall payments in ways that are harder to detect,” he said. “Plus, if you want to buy out your EV after leasing, lookout for some possibly costly fees. Also, Tesla doesn’t offer lease buyouts.”
Glenn further argued that while there has been a lot of talk about the more than 20 models that lost EV tax credits on Jan. 1, 58% of EVs sold in 2023 still qualify for the consumer EV tax credit. This data is provided by EV Life’s analysis of 2023 sales data from Cox Auto.
“[This is] including the Tesla Model Y, the world’s best selling vehicle, representing 34% of U.S. EVs sold last year,” he said. “Other popular models like the Tesla Model 3 Performance, Chevy Bolt EV, and Ford F-150 also still qualify for the full $7,500 consumer tax credit. Plus, automakers are racing to shift their manufacturing to meet the higher compliance requirements and expect to regain tax credit eligibility later this year.”
According to Glenn, if car buyers are looking to enjoy the benefits of unlimited mileage and long term ownership of their vehicles, financing an EV may still be the best option.
