Approaching Electric Vehicle Leasing: Tax Credits Previously accessibly as a 'Phase-out' will soon expire
Leasing an electric vehicle (EV) has become increasingly popular, offering lower monthly payments compared to buying. One of the key factors driving this trend is the federal EV tax credit, which is set to undergo significant changes.
The One Big, Beautiful Bill, enacted by Donald Trump, is eliminating many clean energy tax breaks, including the EV tax credit and the EV lease loophole. However, it's essential to understand how the lease-related tax credit works and what changes are coming.
The federal EV tax credit, designed to help boost EV adoption by making the cars more affordable, typically belongs to the lessor (usually the dealership or automaker’s finance arm), not the lessee. The lessor can choose to pass on the value of the credit to the lessee by reducing the lease price or monthly payments, effectively giving the lessee a discount.
This arrangement benefits lessees because they can enjoy the full $7,500 federal credit without the usual restrictions on vehicle assembly location, battery sourcing, or buyer income limits. Lease payments may also be reduced by the credit amount amortized over the lease term or given upfront as a down payment reduction.
However, starting after September 30, 2025, the federal EV tax credit for leasing will be phased out. This means the current ability for lessees to indirectly receive the full federal credit through dealer discounts will no longer be available after that date.
The Inflation Reduction Act, climate legislation enacted in 2022 by the Biden administration, contains billions of dollars in clean energy tax incentives, including an up to $7,500 EV tax credit for eligible buyers and qualifying new and used "clean vehicles." However, this credit is not applicable to leased vehicles after the phase-out date.
If you plan to lease an electric vehicle and want to benefit from the federal EV tax credit, it should be done before the end of September 2025. After this date, the tax credit incentive for leased vehicles will be eliminated.
While registered dealers should still be able to pass on the federal tax break for leasing electric vehicles after the phase-out, the up to $7,500 federal incentive will go away, potentially pushing lease prices higher if automakers don't offer new deals. It's also important to note that not all dealers pass on the credit savings to lessees.
Leasing an electric vehicle provides other benefits, such as lower down payments, access to newer models, and the option to walk away after the lease term ends, provided lease obligations are satisfied. Additionally, some states offer electric vehicle tax incentives, and the amounts and eligibility rules vary.
In summary, the federal EV tax credit for leasing will be phased out on September 30, 2025. If you're considering leasing an electric vehicle, it's crucial to act before this date to take advantage of the current tax credit incentives.
- The federal EV tax credit for leasing will no longer be available for lessees after September 30, 2025, meaning that it is essential for individuals planning to lease electric vehicles to do so before this date to benefit from the current tax credit incentives.
- Browsing through various aspects of lifestyle, business, technology, sports, and finance, the upcoming elimination of the federal EV tax credit for leasing stands as a notable development in the finance sector, impacting the choices of individuals considering electric vehicle leasing.
