INDIANAPOLIS — Shocking to some but buying might not be the best way to go for a new car if you’re trying to save the money and go the most affordable route. Thanks to a government initiative leasing may just be the way for Hoosiers to save.
The Inflation Reduction Act passed by Congress in 2022 provides a federal tax credit of up to $7,500 to use toward an electric vehicle (EV). Under the rules a dealer can apply that credit to any leased electric vehicle no matter where it’s made, to reduce a customer’s monthly payment.
That’s not the case for Hoosiers who buy an EV.
If you choose the purchase route only EVs made in North America qualify for the full tax credit. Only 10 of the 49 electric cars for sale in the U.S. this year meet that requirement. That gets more compounded with the additional requirement that the vehicle contains certain percentages of battery parts from the U.S. or countries in which it has a trade deal to receive the full $7,500 credit.
The 10 vehicles eligible for the full $7,500 credit are Tesla’s Model 3 Performance model, the Tesla Model Y, Ford’s F-150 Lightning pickup, the Chrysler Pacifica and the Lincoln Aviator Grand Touring plug-in hybrids. Also, General Motors will have five models eligible this year including its top-selling Chevrolet Bolt and Bolt EUV, as well as the Cadillac Lyriq, the Chevrolet Silverado electric pickup and the upcoming Chevy Equinox small SUV.
Hoosiers that wanted to check any other EVs that they’re considering for credits can find eligibility on the federal fuel economy page.
AES Indiana also has benefits for customers who drive EVs and would like to prepare their home to charge their vehicles.
Why the distinction between leased and purchased vehicles?
The reason for the important distinction is that when Congress established the tax credit they classified leased but not purchased EVs as “commercial” vehicles. Under the law commercial vehicles are exempt from the North America manufacturing and battery-content requirements. The result is that people who lease enjoy a much wider selection of EVs that qualify for the $7,500 credit.
An executive recently weighed in a J.D. power index that includes the total cost of vehicle ownership.
Lease affordability has surpassed purchase affordability…Elizabeth Krear, vice president of the EV practice at J.D. Power
Additional rules to ensure you qualify for tax credit
To qualify for the tax credit, a car cannot cost more than $55,000. SUVs, pickups and vans can’t exceed $80,000. And a buyer’s gross income must be no more $150,000 if single, $300,000 if filing jointly and $225,000 if head of a household.
South Korean automaker “Hyundai” with three EV models for sale in the United States is one of the beneficiaries for the leasing provision. A spokesperson for Hyundai said that leases amounted for 30% of its EV deliveries in the U.S. from January to March. That’s up from 2022 when it was only 5%.
Breakdown in costs of leasing an electric vehicle
The average monthly ownership cost on an EV leased for three years has dropped $403 since December, largely because of the tax credits, J.D. Power found. By contrast, for an EV purchase financed over five years, the average monthly cost has declined by only $118.
Hyundai is offering to lease an Ioniq 5 SE rear-wheel-drive EV for $499 a month for three years, though the customer must put down nearly $4,000. Buying the same EV would cost $865 a month for five years at the average new-auto loan rate of 7%.
Though it may be cheaper, leasing won’t fit into everyone’s financial plans. Unlike with a purchase, monthly payments don’t end when a loan is paid off.
Experts also note that not everyone who leases an EV will receive the tax credit even if you meet the qualifications since automakers and dealers are allowed to decide whether or not to pass it on to customers. They aren’t required to do so.