The electric vehicle market is booming, and a little-known tax credit loophole could make leasing an EV surprisingly affordable.
EV Sales Skyrocket
The electric vehicle (EV) market is on fire, with EV sales soaring. In the second quarter alone, electric cars made up 8% of all new vehicle sales in the U.S. – a massive 11% increase from the previous year.
The $7,500 Secret
And here’s the best part: If you’re in the market for an EV, there’s a juicy loophole that could net you a $7,500 tax credit – and it’s easier than you think.
The Inflation Reduction Act
Due to the Inflation Reduction Act, which President Biden signed in 2022, there are several provisions for EV tax credits. The most popular one is the “new clean vehicle” tax credit that gives buyers a $7,500 break.
Why Many Miss Out
While it sounds great, the reality is many potential buyers find it tough to qualify due to strict requirements about where the car is made, how much it costs, and the buyer’s income level.
Lease to Save
But here’s the magic trick – leasing an EV might be your golden ticket to that $7,500 credit.
How Are They Doing It?
Auto dealers are using a lesser-known part of the act, the “qualified commercial clean vehicles” tax credit, to pass these savings on to customers who lease instead of buy.
Why Leasing is the New Buying for EVs
Why is leasing a big deal? For starters, it’s much easier to get the full $7,500 tax credit. You don’t have to worry about where the vehicle was assembled or whether you make too much money to qualify.
EV Leasing Boom
Barclays auto analysts say this loophole is the key reason why EV leasing has exploded.
The Numbers Don’t Lie
In the first quarter of 2024, 35% of new EVs were leased, up from just 12% in 2023. “If you’re looking for a smart way to get into an EV, leasing is the way to go,” Barclays noted.
Luxury EVs for Less
Luxury brands like Audi, BMW, and Mercedes-Benz are making the most of this opportunity. Normally, these high-end models don’t qualify for the purchase credit due to their price and manufacturing locations, but now with the leasing loophole they can offer incredible deals.
Foreign EVs Find a Foothold
Even foreign automakers like Toyota and Hyundai Kia are getting in on the action.
Made In America
They struggle to meet the “made in America” requirements for the consumer tax credit but are essentially free to do what they want for the commercial credit. This means they can still offer competitive leasing deals that make their EVs more accessible to customers.
When Renting Beats Buying
Leasing gets a bad rap, as it’s typically not the most financially savvy idea – but in this case, leasing an EV could be a super-smart decision. The lower monthly payments make it one of the best options for anyone eyeing a new EV.
The Lease Loophole Explained
So how does this work? When you lease, the car is technically sold to a leasing partner. This transaction makes the vehicle eligible for the commercial tax credit, which the dealer then passes on to the lessee through reduced monthly payments or lower upfront costs.
Dealers’ Dilemma
Not all dealers have to pass these savings on to consumers, but many of them currently do. This strategy not only helps get more people interested in electric cars but also helps dealers stay competitive.
Buyer Beware
Experts warn that it’s essential to get all the details from the dealer to ensure the tax credit is properly applied to your lease terms.
Navigating the EV Lease
Since it can be tricky to see exactly how the credit is being used to lower your costs, don’t hesitate to ask for a clear and detailed breakdown.
A Numbers Game
Data from J.D. Power shows just how popular leasing has become. Audi reported that 94% of its EV sales in the first quarter of 2024 were leases. Mercedes-Benz and BMW followed closely with 93% and 89%, respectively.
9 Out of 10 EVs
That means more than nine out of every ten new EVs from these brands were leased – all due to the federal tax credit.
Lease Now, Save Big
If you’re considering an EV, leasing might be your best bet. With this federal tax credit loophole, you could drive off in a new electric vehicle for a fraction of the cost.
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Featured Image Credit: Shutterstock / Estrada Anton.
The content of this article is for informational purposes only and does not constitute or replace professional financial advice.
