Everything You Need to Know About Leasing an EV or PHEV With a Tax Credit

The Inflation Reduction Act (IRA) of 2022 made a tax credit of up to $7,500 available to qualifying purchasers of certain EVs. But restrictions on buyer income and where the car components are manufactured severely limit the availability of that credit to car buyers. Leasing companies (the firms owned by or partnered with automakers that consumers lease cars from), however, aren’t subject to those restrictions, which means they can receive the tax credit and pass it on to the consumer in the form of a less-expensive lease.

It may not be obvious to lessees where that credit gets factored in, says Chris Harto, CR’s senior policy analyst for energy and transportation. Some automakers are using the credit to discount the overall price of the vehicle, while others are using it to reduce the money factor—essentially the interest rate for a lease. It can be even more confusing for PHEVs, which may not qualify for the full $7,500. The lack of transparency can leave consumers confused.

“Ultimately, it comes down to the fact that leasing is more complex than buying outright,” Harto says.

Most automakers that choose to pass on the credit to consumers are doing so through an advertised discount.

“The amount of the lease credit is deducted from the price of the vehicle at the time of signing, which reduces the customer’s monthly cost,” says Phil Dilanni, a spokesperson for BMW, one of the manufacturers that offers discounted leases on some vehicles.

Many manufacturers explicitly mention the tax credit in their advertised lease deals—Audi and Volkswagen call it an “EV Lease Bonus,” and Dodge calls it a “Hybrid/Electric Federal Tax Credit.” But other companies are less clear, and consumers might assume it’s a standard discount. For example, Mercedes-Benz advertises “Lease Bonus Cash” and Lexus offers “lease cash.” We have heard dealership salespeople refer to the tax credit as a “pass through,” a “capitalized cost reduction,” or a “45W” credit, so look out for those terms, too. We’ve included a full list of the terms that automakers use at the end of this article.

If you’re planning on claiming a state or local tax credit, make sure it applies to leases, and read the fine print. For example, California requires owners to have a lease that’s at least 30 consecutive months to qualify.

Some automakers don’t specifically itemize a tax credit in their advertised lease deals. It doesn’t necessarily mean that the company is keeping the money for itself, but it does make it harder for consumers to judge the merit of a deal.

For example, Ford doesn’t mention the tax credit in the lease deals we saw advertised online, but spokesperson Dan Barbossa tells Consumer Reports that the credit is applied to leases on eligible vehicles. “For competitive reasons, we aren’t disclosing the specific calculations of the incentives being offered,” he says.

Lease deals for the Nissan Ariya and Leaf do not itemize the federal tax credit. However, according to Nissan spokesperson Jeff Wandell, the lessor—Nissan Motor Acceptance Company—claims the credit and factors it into overall lease deals through discounted financing and improving lease residuals (the amount that a lessor predicts a vehicle will be worth at the end of the lease term). “We can provide the best offers through residual value and APR support in the current rate environment,” he says.

There is no easy answer. Regardless of tax credits, buying a car might be the more financially savvy option in some cases, while leasing might come out on top in others. To get an estimate of whether a lease makes financial sense, we recommend calculating the total cost of a lease, comparing it to the cost of a purchase, then subtracting how much the car will likely be worth when you sell it.

For example, Chevrolet offers a $299 per month lease for 36 months with a hefty initial payment of $6,109 for a 2023 Bolt LT. The deal doesn’t include any itemized savings related to the tax credit, and it assumes the Bolt will have an MSRP of $27,495, including the destination fee and without taxes and dealer fees. At the end of the lease, lessees will have spent a total of $16,873 to drive a Bolt for three years. As is the case with all leases, once the lease term is over, lessees won’t own a car that they can continue to drive or trade in.

By comparison, someone who buys that same Bolt will have paid $31,842 after three years if they finance it at an interest rate of 7.39 percent. But they’ll own a car that—judging by current resale values—could be worth at least $18,000 three years from now. That means they’ll have paid $13,842.64 to drive a Bolt for three years, taxes and fees aside. If those buyers are also eligible for a federal tax credit of $7,500, the total shrinks to just $6,342.64—a 62 percent savings over leasing.

The math works out similarly for a $40,240 2023 Tesla Model 3 RWD. It leases for $429 a month for 36 months with $4,500 due at signing, or it can be financed for 6.49 percent APR. The Model 3 currently qualifies for a $7,500 federal tax credit if purchased, but Tesla doesn’t advertise any tax credit savings on a lease. Taxes and fees aside, it will cost you $19,944 to lease a Model 3 for three years, or you’ll spend about $38,544 to purchase it outright over the same time period. You come out ahead if you purchase and sell it after three years, as long as you can sell it for more than $18,600. Currently, three-year-old Model 3s are selling for over $25,000.

But that’s not the case for other vehicles. The $51,300 2024 Polestar 2 Long Range Single Motor leases for $399 a month for 36 months with $5,399 due at signing, or it can be financed for 6.49 percent APR. The Polestar 2 is made in China, so it’s ineligible for a purchase tax credit, but Polestar does factor a tax credit into the lease. Before taxes and fees, it will cost you $19,763 to lease a Polestar 2 for three years, or you’ll spend about $30,600 to purchase it and resell it after three years based on an estimated resale value of around $26,000. In this case, the lease is a much better deal—or at least it would be if the Polestar 2 were a CR Recommended model.

Below, we’ve compiled a list of lease deals we’ve seen advertised. This list is just an example of what might be available—check manufacturer websites for the latest information or check Consumer Reports’ Electric Vehicle Savings Finder. Remember that just because a manufacturer advertises a tax credit, it doesn’t necessarily guarantee a good deal. 

Audi: $7,500 EV Lease Bonus on 2022 and 2023 E-Tron models, including E-Tron and Q4 E-Tron. 

BMW: $7,500 Lease Credit on BMW i4 eDrive35, eDrive40, and xDrive40; BMW i5 pre-orders; BMW i7; and BMW XM. $9,900 credit on BMW iX xDrive50 and M60.

Chrysler: $7,500 EV Incentive++ on Chrysler Pacifica Hybrid.

Dodge: $6,000 CCAP Hybrid/Electric Federal Tax Credit on Dodge Hornet R/T PHEV.

Genesis: $7,500 EV Lease Bonus on GV60, Electrified GV70, and Electrified G80.

Hyundai: $7,500 EV Lease Bonus on Ioniq 5 and Ioniq 6 SE and SEL, and Kona Electric SE, SEL, and Limited.

Jaguar: $7,500 lease credit for eligible 2022 Jaguar I-PACE vehicles.

Jeep: $7,500 EV Incentive on Grand Cherokee 4xe PHEV  and Wrangler 4xe PHEV.

Kia: $7,500 EV Lease Bonus on Niro EV Wind.

Lexus: $7,500 Lease Cash Offer on RZ and NX PHEV.

Lucid: Lease offer on Lucid Air includes $7,500 capital cost reduction.

Mazda: $7,500 Lease Customer Cash only on CX-90 PHEV.

Mercedes-Benz: $7,500 lease bonus cash applies to all new ’23 EQs (EQB/EQE/EQS), S580 Plug-In Hybrid, and ’24 GLE 450 Plug-in Hybrid models leased through Mercedes-Benz Financial Services.

Mitsubishi: Federal EV lease incentive applied as EV Lease Customer Cash for a capitalized cost reduction on Outlander Plug-in Hybrid.

Polestar: $8,500 Clean Vehicle Credit on Polestar 2.

Porsche: Capitalized cost includes a non-cash credit in the amount of $7,500 based on the Porsche Financial Services Clean Vehicle Lease Tax Credit Pass-Through program on Taycan.

Toyota: $7,500 cash from Toyota Motor Sales on bZ4X, $6,500 cash on RAV4 Prime, and $4,500 on Prius Prime; must be applied as a capitalized cost reduction.

Volkswagen: $7,500 EV Lease Bonus on ID.4.

Volvo: $7,500 EV lease bonus on all Recharge EVs and PHEVs.