This Weird Loophole Gives You the EV Tax Credit on Leased Vehicles

·2 min read
Image:  Hyundai
Image: Hyundai

The federal EV Tax Credit was recently changed to favor vehicles made in the U.S., but in doing so, it disqualified a slew of vehicles for the credit, turning off buyers and leaving them with just 10 models from six different manufacturers to choose from. But there’s a loophole many buyers might not be aware of. CNBC reports buyers that lessees may find that disqualified EV gaining the $7,500 credit.

The loophole impacts leased vehicles. Under the Inflation Reduction Act, leasing is defined as a “commercial business.” As a result, the tax credit’s requirement that an EV and its battery be made in the U.S. don’t apply. Automakers are aware of this, and of course they love it. Lease rates at some automakers have gone up as more consumers find out about the loophole. Like Hyundai with its Ioniq 5:

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The percentage of Hyundai Ioniq 5 vehicles that are leased spiked from about 2% to begin this year to more than 30% in April, according to Hyundai Motor America CEO Randy Parker. Starting this month, the company is offering a $499-a-month leasing deal for the vehicle — lower than the industry’s average lease payment of $577, according to Edmunds.

And you can save a pretty penny, too. A Cox Automotive analyst estimates that by using the loophole for the $7,500 tax credit, a 36 month lease on an EV that cost $50,000 would save the buyer $222 a month.

Ford and Kia are also looking to get more butts into EV seats with higher lease rates. Kia is planning to up its lease rate on the EV6 with a $499 a month deal with $4,999 down. Eric Watson, vice president of sales operations at Kia America said, “For the next several years, Kia is going to have to lean heavily into leasing to be able to pass along that $7,500 credit to customers.”

That’s at least until the feds catch on. People like Senator Joe Manchin (D-WV) intended for the rules in the Inflation Reduction Act to keep things like this from happening. This loophole might not last long once those that were against the bill catch on to what’s happening.

And while these lease rates are good for automakers who have seen leasing decline recently, they don’t do much to help EV adoption as a whole. Edmunds executive director of insights Jessica Caldwell pointed out that this loophole just lets automakers target wealthier customers, who are the people who were already taking advantage of the tax more than anyone to begin with.

“It kind of creates a loophole for automakers to target more affluent customers who are probably more likely to be able to afford and actually get approved to buy an EV,” she said.

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