May 17, 2023

How Ineligible EVs Can Still Qualify for $7,500 Tax Credit

Recent changes to federal regulations deemed certain electric vehicles no longer eligible for the full $7,500 tax credit. However, a recent loophole spotted restores eligibility to nearly any EV, whether from Tesla or other automakers.

Above: A Tesla Model 3 (Image: Casey Murphy / EVANNEX).

After the list of EVs qualifying for the full credit was cut significantly last month, some have discovered a simple loophole that renders almost every EV eligible. As CNET reports, those who purchase the vehicles through a lease agreement gain access to the full $7,500 tax credit as the vehicles are instead recategorized as “commercial vehicles.”

Currently, only about a dozen EVs qualify for credit eligibility when purchased outright, due to regulations requiring at least half of the battery components to be made in North America. EVs with at least 40 percent critical minerals sourced in the U.S. are eligible for a reduced $3,750 credit.

However, cars purchased through a lease agreement are technically owned by the entity leasing them, making them commercial vehicles in the eyes of the Inflation Reduction Act. Kelley Blue Book Executive Editor Brian Moody detailed how this could result in lower monthly payments from certain OEMs, instead of getting credits back at tax time.

"Because the car is still owned by the lessor, they're the one who can claim the credit," Moody said. "If you're leasing an EV because you want a lower payment, be sure to ask about it up front.”

While Tesla doesn’t offer a discount on leased vehicles, the loophole can still be used to purchase those previously made ineligible by the updated IRS regulations. These include the base-level and Long Range Model 3 trim options. The Tesla Model Y is available for the full tax credit, matter which trim you select.

Below is a list of the other EVs which are eligible for the full and reduced tax credits, even without purchasing through a lease (via CNET).

EVs Eligible for $7,500 Tax Credit