What EV Drivers Should Know About Leasing an EV This Year

Electric vehicle (EV) adoption is increasing. Cox Automotive forecasts a notable surge in electric vehicle adoption, projecting a rise from 7.6% in 2023, which witnessed a record 1.2 million domestic sales, to an anticipated 10% by the close of 2024 in the U.S. automotive market. The progression from 9% in 2022 underscores the growing prominence of EVs. Seize the opportunity to explore, test, drive, and consider an electric vehicle for your next ride as manufacturers expand their product lines to meet growing consumer demand. Although the $7,500 consumer tax credit for buying an electric car is becoming more restrictive for new vehicles adhering to specific manufacturing requirements, there’s a provision enabling consumers to still enjoy the credit when leasing an EV assembled outside of North America. Here’s what you need to know about using the EV tax credit to lease your new electric vehicle. 

Clean Vehicle Credits and Leasing

The Inflation Reduction Act is a pivotal legislation reshaping the electric vehicle tax credit. It introduces three distinct Clean Vehicle Credits (CVC) tailored for new, used, and clean commercial vehicles. Notably, the updated legislation categorizes leased EVs as commercial vehicles, qualifying them for the full $7,500 Commercial Clean Vehicle Tax Credit, without the stringent criteria of the Clean Vehicle Credit for individuals. This expansion broadens consumer choices for EVs, potentially leading to cost savings through reduced lease prices or rebates.

Beginning in 2024, Americans can claim the Section 30D New Clean Vehicle Credit when buying an electric vehicle if they meet requirements including: 

• Buyer’s modified adjusted gross income (AGI) does not exceed $300,000 for married couples filing jointly, $225,000 for heads of households, and $150,000 for all other filers. 

• Vehicle’s manufacturer suggested retail price (MSRP) does not exceed $80,000 for vans, sport utility vehicles (SUVs) and pickup trucks, and $55,000 for other vehicles. 

• A vehicle’s gross vehicle weight rating (GVWR) is less than 14,000 pounds, and the battery capacity is at least 7 kilowatt-hours (kWh). 

• Vehicle must be used primarily in the United States. 

• Vehicles must undergo final assembly in North America. 

• Battery components:

  • For the first $3,750 of the tax credit, a certain percentage of the battery components must be made or assembled in North America. 

  • For the second $3,750 of the tax credit, a certain percentage of the critical minerals must come from the United States or a US free-trade agreement partner. 

  • Vehicle’s battery must not use components produced or assembled by a Foreign Entity of Concern (FEOC).  

  • Beginning in 2025, critical minerals in the battery must not be extracted, processed, or recycled by a FEOC. 

Americans can potentially enjoy a Clean Vehicle Credit through leasing an EV, without income restrictions or specific battery requirements, providing an accessible avenue for those who may not be able to purchase a new car.  

How Does Obtaining a Tax Credit for a Leased EV Work?

Leasing an electric car offers an alternative to the strict eligibility rules for claiming the New Clean Vehicle Credit. Regardless of the car's MSRP, manufacturing location, or your own income, a vehicle lease is considered a business deal with the leasing company. Leasing companies can secure the full $7,500 tax credit and then pass on the savings to you through reduced lease payments. The best part: you save money, even if you don't owe taxes on Tax Day.  It’s simple — cars leased by companies are considered “commercial vehicles” in a fleet. Commercial vehicles have lower requirements, and more EVs qualify for the commercial than consumer credits. Leasing companies can leverage these benefits to offer you lower monthly payments. 

Leasing an electric car also comes with an additional tax advantage – your income doesn't impact your eligibility for the tax break. Unlike purchasing, where taxpayers must meet specific income criteria, leasing allows you to sidestep these traditional limits. As you contemplate your options for acquiring an electric vehicle, leasing emerges as an enticing option with financial benefits worth exploring.

Three Tips for Researching Your Dealership

Remember the dealer is the one benefitting from the tax break, and your potential savings could result in a discount or a reduced lease price. It’s crucial to communicate with your dealership and know your options, as you are entitled to the savings. Don’t be deceived — ensure transparency in the process.  

• Ask Questions. Connect with your dealership to inquire about any initiatives they have for leasing EVs. Clearly communicate your expectations regarding EV choices and payment terms for a transparent and informed discussion. 

• Conduct Thorough Research. Maximize the value of your money when leasing an EV by conducting thorough research and recognizing its worth in comparison to purchasing. Ensure you get the most value for your money when leasing an EV by conducting comprehensive research and acknowledging its value relative to purchasing. 

• Explore Options. Explore offerings from various dealerships offering a range of EV options. This empowers you to make an informed decision, selecting the EV that best fits your preferences and requirements.

Why Is Leasing an EV a Good Idea?

The choice to lease an electric vehicle has seen a surge in popularity, as highlighted in the April 2023 J.D. Power report. Analysts found a remarkable 41% increase in EV leases that month, marking a fourfold rise in deliveries compared to December 2022. This upward trend is expected to continue, fueled by the expanding production of EVs and a growing array of products for consumers.  

Opting to lease an electric vehicle brings numerous advantages beyond money and tax benefits. A key factor is the opportunity to keep up with the rapidly changing technology in the car industry. Leasing an EV allows you to leverage the latest innovations, such as enhances to battery range and more competitive purchase prices. This choice enables you to enjoy improvements such as larger batteries, faster charging, and cost savings associated with continuous improvements in newer models. 

Leasing an EV offers a practical benefit by reducing long-term repair costs. Whether the vehicle runs on gasoline or electricity, most new models tend to be more reliable after the first year, and leasing keeps the car under warranty throughout the lease period, protecting you from unexpected repair expenses.  

Another advantage of leasing an EV addresses concerns about depreciation. Predicting the future value of a purchased EV is challenging due to price and rebate changes. Electric vehicles, in particular, tend to depreciate faster. (Before the introduction of the Used Clean Vehicle Credit, only the first vehicle owner could receive a tax credit.) Opting for a vehicle lease protects from declines in the vehicle's resale value, providing a sense of peace and financial security. This protection adds another layer to the overall appeal of leasing an EV as a practical and forward-thinking choice for cars. 

Leasing an EV provides ongoing access to new models without a long-term commitment. This allows you to regularly switch to newer and more advanced vehicles, keeping your driving experience fresh and exciting. With advancement in EV technology, newer models often boast enhanced energy efficiency, contributing to a reduced environmental impact. Opting to lease your new EV actively contributes to the adoption of cleaner and greener transportation solutions, all while saving money at the fuel station. 

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