The U.S. Treasury says that E.V. tax credits can be applied to leases.

The U.S. Treasury is letting automakers who sell E.V.s with final assembly outside of North America get up to $7,500 in tax credits for using subsidized leases. This would meet the provisions of the Inflation Reduction Act, which changed the E.V. tax credit in 2022. 

This would be a win for automakers, who had worked hard to get the new tax credit standards in their favor. But when this rule goes into effect, many people might not like it.

One important part of the $430 billion U.S. Inflation Reduction Act, which was signed into law in August, terminated the $7,500 tax credit for people who buy electric cars made outside of the U.S. South Korea, the European Union, Japan, and other countries were upset by the action.

To increase domestic production, the IRA laid forth three sets of regulations for E.V. parts and final assembly. There are limitations on income and price, new regulations for where E.V. batteries and supplies must originate from, and a goal to stop using minerals or parts from China in batteries.

For a consumer lease, a car must have been completely put together in North America for the credit to apply. (see the list here). This means that vans, pickup trucks, and SUVs with suggested retail prices from the manufacturer of more than $80,000 will not be eligible.

After the Inflation Reduction Act was passed this summer, the U.S. Treasury confirmed that E.V. tax credits are available to people who lease cars. Who might aid car companies who sell and lease electric cars, especially if the lessor can include this incentive in the transaction?

In a white paper released on Thursday, the Treasury Department and the IRS recommended new criteria for sourcing essential minerals in battery components. This is to ensure that U.S. manufacturers establish a stronger local battery supply chain to assist renewable energy projects that decarbonize the economy.

Starting in 2023, the rule would apply to private and business buyers of E.V.s. It says that at least 40 per cent of the value of the battery's critical mineral content must have been mined, processed, or recycled in the U.S. or a country with a free-trade agreement. This percentage goes up every year.

The law also says that anyone with a tax credit can't buy a car with battery parts made in "foreign entities of concern," like China or Russia. But it's not clear how the new laws will affect sales of older E.V.s or whether businesses will try to invest in battery production in the U.S.

You might be able to give credit to the dealer if you buy a new electric car. This can assist in bringing down the cost of the car when you buy it.

The tax credits, which range from $2,500 to $7,500 for a new E.V. and up to $4,000 for a used E.V., are meant to help E.V.s grow and cut greenhouse gases. But there are a lot of rules for these credits.

For example, there is a limit on how much money buyers can make and still get the loan. People who file their taxes as married couples can't make more than $300,000 a year.

Single people who file taxes can't make more than $150,000. And for the first time, there will be tight rules about where battery parts can come from.

So, it's hard to predict if these adjustments will make more people buy E.V.s. They are a gain for sustainable energy, though. And it will be interesting to see their effect on a market that is getting more and more competitive.

Before the Inflation Reduction Act of 2022 was enacted in August of last year, many electric cars could get a tax credit of $7,500. When the law went into force in 2022, things changed. The final assembly had to be done in North America to get the credit.

The change meant that E.V.s like the Hyundai Ioniq 5 and Kia EV6 no longer got the entire tax credit, but it also meant that leasing could still be a good choice for drivers who want to achieve the maximum E.V. tax credit.

On December 29, the IRS told people how to get the tax credit for leased vehicles. But the guidance didn't change the stricter rules for getting battery parts after 2023. These rules are meant to boost production and move supply chains to the U.S. or nations with free-trade agreements with the U.S. This might cause a dispute between Manchin and automakers over who has stricter rules.