Electric vehicles (EVs) are all the rage, thanks in part to the federal tax breaks extended by the 2022 Inflation Reduction Act (IRA).
However, Axios reports that these tax credits are becoming fewer and farther between in an effort to reduce American dependence on Chinese supply chains, meaning that right now, it may be a wiser move to lease an EV instead of buying one.
What’s changing with EV tax credits?
When the IRA passed in 2022, it provided enormous amounts of tax credits for drivers purchasing EVs in order to encourage a collective move to cleaner energy. But recent changes have reduced the number of vehicles that qualify for these tax credits and have halved the tax credits from $7,500 to $3,750 for certain EVs.
On April 18, the federal government reduced the number of EVs that qualify for IRA tax credits. As of early May, only 22 new EV models from just nine manufacturers (put into service on or after April 18) qualify for the full $7,500 tax credit outlined in the IRA, according to FuelEconomy.gov.
This is a small fraction of the total EVs on the market — there are 91 different new EV models available today, according to Axios. FuelEconomy.gov lists an additional 10 new EV models that will still qualify for half of that tax credit — $3,750 per vehicle. Either way, this means the total number of new EVs that qualify for any IRA tax credit is only about one-third of the total on the market right now.
But there’s a loophole that may help many consumers still save significant money on EV payments: leasing instead of buying.
How does leasing solve this problem?
The updated EV rules from the federal government permit leased vehicles to receive tax breaks because they’re categorized as commercial vehicles, according to Axios. Leased EVs don’t have as strict of parameters to qualify for tax credits, which means that EVs that aren’t eligible for new-purchase tax credits will still receive significant tax credits when leased, according to CNBC.
Since banks or finance companies own the leased cars, they receive the tax breaks instead of the drivers. If those corporate owners of leased EVs apply the savings they receive from the tax credits to your monthly payment terms, then you could pay significantly less for an EV every month.
As Ingrid Malmgren, a policy director at Plug In America, pointed out to CNBC, “there are very few restrictions that apply” to leased EVs.
Companies like Hyundai have already seen significant boosts in leasing numbers. Today, 30% of Hyundai and Kia EVs are leased rather than bought, Axios reported — a massive jump from just 6% before the IRA passed last year.
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