Leasing an electric vehicle could be the easiest way to qualify for a new federal tax cut, experts say.
Motorists can claim up to $7,500 in credits when they buy specific models of electric cars thanks to a rebate from the US Treasury Department in April.
But a bizarre loophole in the regulations means those who rent rather than buy have a greater choice of electric vehicles to choose as their next journey. The credits can be used to reduce their monthly payments on a leased vehicle.
In April, leases accounted for 41% of all electric vehicle deliveries, four times the amount in December.
The Treasury added the Inflation Reduction Act as a way to reduce the costs of an electric car, which has historically been too expensive for the average consumer. But prices have come down as more companies make electric vehicles and the technology improves.
Experts recommend leasing an electric vehicle is the easiest way to get another $7,500 federal tax cut
Motorists can claim up to $7,500 in tax credits when they acquire one of these ten electric vehicles
But the new rules are filled with complex qualification criteria detailing how a certain percentage of battery parts must come from the United States to qualify for the full $7,500 rebate.
As a result, only ten of the 49 electric vehicles for sale nationwide are eligible for full credit.
However, electric cars that are leased are defined as “commercial” vehicles under the rules.
“Utility vehicles” are exempt from the requirements, meaning borrowers have a wider choice.
The price of electric cars has been falling steadily in recent years. Data from Kelley Blue Brook in March revealed that the average cost to purchase a new electric vehicle is now around $58,940.
And the price of leasing has also fallen. Consumer intelligence firm JD Power found that the average monthly cost of owning an electric car leased for three years has fallen $403 since December, largely due to tax credits.
“The affordability of leasing has exceeded the affordability of buying,” said Elizabeth Krear of JD Power. PA News.
Geoff Pohanka, president of a group of 21 dealerships in Maryland, Virginia and Texas, told the outlet he expects rental to increase.
Buyers, he predicts, will increasingly recognize that the tax credit will help minimize the cost of an electric car.
“It definitely makes sense,” he said. “Incentives can move the market if it reduces the affordability problem between gasoline and electric cars.”
Critics argue, however, that the loophole benefits manufacturers who produce all of their vehicles overseas and have not yet built factories in the United States – which some believe is the purpose of the law.
According PA Newsthe Treasury denied creating a loophole and said it was Congress that exempted commercial vehicles from manufacturing and battery requirements.
When a dealer buys a vehicle and leases it to someone, it is equivalent to a commercial transaction. The dealer or a finance company receives the tax credit and retains ownership of the vehicle.
Experts warn that not everyone who leases a vehicle will receive a tax credit, as automakers and dealers are allowed to decide whether to pass the reduction on to their customers, but are not required to do so.
Krear added that some companies pass the entire $7,500 credit to eligible consumers, while others only pass a portion.
The Ford F-150 qualifies for the full amount of the tax credit. Prices start at $43,325
The Tesla Model 3 Performance qualified for the full credit, but the Standard Range version is only eligible for half of it
Buying a Jeep Wrangler, pictured, can earn you tax credits of up to $3,750
Of the ten vehicles eligible for the credit, almost all are manufactured by General Motors Co., Tesla Inc. and Ford Motor Co. Seven others are eligible for a tax reduction of $3,750.
Ford and Stellantis NV each have an eligible plug-in hybrid model on the list.
However, three of those on the list – GM’s Chevrolet Silverado pickup and Blazer and Equinox SUVs – aren’t available until summer or fall.
And certain limitations apply. Vans, pickup trucks and SUVs with a suggested retail price (MSRP) over $80,000 will not be eligible for the credit.
For cars, the MSRP limit is $55,000.
Many vehicles fall within these limits anyway. For example, a Chevrolet Bolt EV has a starting MSRP of $36,500.
Meanwhile, the MSRP for a Chrysler Pacifica starts at $38,615.
Offers do not apply to ‘used’ cars – which are defined as any previously owned vehicle that is more than two years old.
These cars benefit from a separate tax credit of up to $4,000 or 30% of the sale price.