The Insider’s Guide to Leasing Electric Cars With Tax Credits
One of the biggest pieces of news to hit the EV world in 2022 was the passage of the Inflation Reduction Act. Also known as the IRA, the new law introduced a range of benefits for buyers of electric vehicles, including a $7,500 tax credit for purchasers of new EVs.
The drawback is that qualifying vehicles must be built in North America using North American parts and batteries. But if you’re in the market for a foreign EV, don’t give up hope yet: Leasing an electric vehicle using the tax credit is one way you can save while getting around the restrictions.
In this article, we’ll take a look at how leasing an electric car can benefit you, how to qualify, what to expect when you sign, and more. Let’s dive in.
The Lease Tax Credit Explained
Only some EVs and buyers who meet certain income requirements can qualify for the Inflation Reduction Act electric vehicle tax credit. But those restrictions don’t apply to leased vehicles: The IRA classifies leased EVs as “commercial vehicles,” making them eligible for the tax credit regardless of income or the vehicle itself.
However, there’s a catch: While a leased EV could qualify for up to $7,500, the leasing company or dealer receives the credit, not the lessee. And since the terms of the lease are still up to the dealer, whether you can get any savings in the form of a reduced lease price or a rebate is up to individual leasing companies.
Leasing companies call their lease deals by different names. An “EV Lease Bonus” is available from Audi and Volkswagen, while Mercedes-Benz offers “All Electric Lease Bonus Cash,” and Dodge calls its deal a “Hybrid/Electric Federal Tax Credit.” Other names include “45W,” “capitalized cost reduction,” “lease credit,” and “lease cash.” The terms of each deal differ between leasing companies, with some offering attractive discounts while others simply modify existing leasing options to take advantage of the EV tax credit.
How to Qualify for an EV Lease Bonus
Leasing an EV is mostly no different from leasing a traditional car. You’ll need a good credit score (typically 700 or above), proof of regular income, proof of insurance, and a valid driver’s license. However, even if you meet all these conditions, it only means you can qualify to lease an electric car, not that you’ll receive the benefit of the commercial vehicle tax credit.
For that, you’ll have to shop around for dealerships or automakers offering discounts, deals, or savings on leased EVs. Audi, Volkswagen, Mercedes-Benz, Dodge, and Lexus are a few companies promoting lease deals in their advertising. Ford and Nissan are among those not advertising similar deals, but they may still offer an EV lease bonus on select models for some drivers.
Should You Buy or Lease Electric Cars?
There’s no question that leasing a vehicle comes with several advantages over purchasing, including lower monthly payments, fewer repair expenses, and the option to get behind the wheel of the latest and most efficient electric cars.
However, there are also a few possible disadvantages, such as:
Mileage restrictions: Leasing contracts often place limitations on the number of miles you can drive each year without incurring additional charges. If you’re someone who frequently takes road trips or has a long daily commute, this could be a potential downside.
No ownership: When you lease a car, you’re essentially renting it for a specific period, which means you won’t have ownership at the end of the lease term. If you prefer to own your vehicle or plan to keep it for an extended period, leasing may not be the best option.
Potential fees and penalties: Failing to meet the obligations that come with leasing can result in fees and penalties. For example, you may face charges for exceeding mileage limits, excessive wear and tear on the vehicle, or terminating the lease early.
In other words, there’s no easy way to tell if leasing is always a better deal. A good rule of thumb is to calculate the total cost of leasing, including down and monthly payments and operating expenses, and compare that to the cost of purchasing and eventual resale value. But if you find a great deal with the savings from the commercial clean vehicle tax credit passed on to you, leasing could be a great way to get on the road with an EV you’ve had your eye on without breaking the bank.
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