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As finance experts at Extreme Investor Network, we are always on the lookout for unique and valuable information to help you make informed decisions when it comes to your investments. Today, we are here to discuss a hot topic in the world of electric vehicles: the $7,500 federal EV tax credit and how leasing a new EV could be your ticket to accessing this credit.
President Joe Biden’s signing of the Inflation Reduction Act in 2022 brought about various rules related to consumer tax breaks for EVs. While most people are familiar with the $7,500 tax break for consumers who buy a new EV, not many are aware of the “qualified commercial clean vehicles” tax credit that is passed along to lessees by some auto dealers.
So, what’s the catch with this “leasing loophole” and how can it benefit you as a consumer?
Unlocking the EV Leasing Loophole
Unlike the tax credit for buyers of new EVs, which has strict requirements tied to car manufacturing, sticker price, and buyers’ income, the credit for lessees is a lot simpler to access. This has led to a significant increase in leasing uptake, with about 35% of new EVs being leased in the first quarter of 2024, up from 12% in 2023.
By leasing an EV, you can sidestep the requirements for the full tax credit and enjoy the benefits of lower monthly payments, helping to “stoke demand” for EVs, as pointed out by Barclays analysts.
Dealers’ Role in Passing on Savings
While dealers are not obligated to pass on the tax credit savings to lessees, many are currently doing so to remain competitive. This trend is expected to continue as dealers leverage leasing promotions, offering subsidized monthly payments to attract more customers.
Foreign automakers like Toyota and Hyundai Kia are also taking advantage of the leasing loophole, as they may struggle to meet the domestic manufacturing requirements set forth by the Inflation Reduction Act.
Considerations for Consumers
Before deciding whether to lease or buy an EV, it’s essential to do the math and weigh the benefits of leasing, such as always having a new vehicle and flexibility to upgrade to next-generation EVs when they become available.
However, consumers should be cautious and ensure that dealers are transparent about how the tax credit savings are passed on in the lease agreement. Getting a clear printout of all costs and making sure the $7,500 tax credit is reflected in the pricing is crucial to avoid any surprises down the line.
At Extreme Investor Network, we strive to provide you with expert insights and actionable advice to navigate the world of finance with confidence. Stay tuned for more valuable information to help you make smart investment decisions.