Buying a new electric vehicle isn’t the only way consumers can access a $7,500 federal EV tax credit. They may also be able to get the money by leasing a car. The Inflation Reduction Act, which President Joe Biden signed in 2022, contained various rules related to consumer tax breaks for EVs. Perhaps the best known of them — the “new clean vehicle” tax credit — is a $7,500 tax break for consumers who buy a new EV. Most qualifying buyers opt to get those funds directly from the car dealer at time of purchase. But many auto dealers are also passing along a $7,500 tax break to lessees, via a different (and, experts say, lesser-known) mechanism called the “qualified commercial clean vehicles” tax credit. The upshot for consumers: It’s far easier to get than the credit for buyers of new EVs, since it doesn’t carry requirements tied to car manufacturing, sticker price, or buyers’ income, for example, experts said. In other words, the $7,500 may be available for lessees but not for buyers.
This EV tax credit “leasing loophole” has likely been a key driver of increased leasing uptake in 2024, according to Barclays auto analysts. About 35% of new EVs were leased in the first quarter of 2024, up from 12% in 2023, according to Experian. “Want a good deal on buying a car today? Your best bet may be leasing an EV,” Barclays said. With a lease, the carmaker technically sells the vehicle to a leasing partner, which is the one transacting with consumers. The U.S. Treasury Department issues the tax credit — offered via Section 45W of the tax code — to the leasing partner, which may then pass on the savings to lessees. The catch is, they don’t have to pass on savings to drivers, experts said. It seems “a ton” are doing so at the moment, though.
While leases are generally (though not always) more expensive than buying, leasing carries nonfinancial benefits, too. For example, leasing ensures car users always have a new vehicle, and also offers “a great glide path” for consumers to determine whether EVs are right for them, without much risk. Buyers waiting for “next-generation EVs” from certain carmakers around 2026 to 2028 can “maintain flexibility,” while also providing a benefit to those “wary of technological obsolescence given the rapid pace of EV/software-defined vehicle development,” Barclays wrote. Consumers may consider doing the rough math on leasing versus buying before making an ultimate choice, including tallying potential tax breaks, interest costs, total car payments, and resale value, experts said.
Transparency and Understanding
That said, it may be more complicated for consumers to untangle how dealers are passing along a tax credit to EV lessees relative to buyers, experts said. “I think leases are a little bit of a shell game,” one expert mentioned. “There are many variables that factor into your payment” that dealers can tweak in a lease contract. She encourages consumers to get a printout of everything included in the lease to make sure the $7,500 tax credit is reflected in the pricing. “Quite frankly, I’d just ask upfront,” another expert said. “And it should be spelled out in the [lease] documents, too.” If it’s not easy to understand, consumers should consider moving on to another dealer.
The option of leasing an electric vehicle presents a unique opportunity for consumers to access federal tax credits that may not be available when purchasing. This lesser-known benefit can provide financial advantages and flexibility for those considering transitioning to an EV. As the automotive industry continues to evolve and adapt to new regulations, leasing an electric vehicle may become an increasingly attractive option for consumers looking to make the switch to more sustainable transportation.