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Greg O Brien CPA, CTS
July 6, 2023

Leasing vs. Buying an Electric Car: Tax Strategist’s Insights

As the world embraces a greener future, electric vehicles (EVs) are gaining popularity. However, choosing between leasing or buying an electric car involves important considerations, including tax implications. In this comprehensive guide, we will explore the benefits of leasing an EV, the tax advantages it offers, and how it can contribute to your overall tax strategy and pursuit of tax-free wealth.

The Rise of EV Leasing

The popularity of leasing electric vehicles has been on the rise in recent years. According to data from Edmunds, nearly 37% of electric vehicles were leased overall in April, marking a significant increase from the first quarter of 2023. One of the driving factors behind this surge in EV leases is the federal EV lease tax credit "loophole" introduced in the Inflation Reduction Act.

Under the IRA, leased electric vehicles are classified as "commercial vehicles," making them eligible for the full federal clean vehicle credit without having to meet strict battery and sourcing requirements. This classification opens up a wider selection of electric vehicles for potential lessees, potentially leading to signific

Understanding the Tax Strategy for EV Leasing

The federal EV lease tax credit allows qualified buyers to receive a tax credit of up to $7,500 for leasing an electric vehicle. However, it is essential to note that the tax credit belongs to the dealer, not the lessee. This means that any savings the lessee receives will come in the form of a rebate or reduced lease price, contingent on the dealer's decision to pass on the tax credit savings.

One of the advantages of leasing an electric vehicle is that it eliminates concerns about income eligibility for the tax credit. Since the dealer holds the tax credit, income limits for the EV tax credit do not apply when leasing a vehicle. This can be particularly beneficial for individuals who may not qualify for the credit due to income limitations when purchasing an electric vehicle.

Benefits of Leasing an Electric Vehicle for Tax-Free Wealth

Deciding whether to lease or buy a car is a significant decision for many consumers, and this holds true for electric vehicles as well. Leasing an electric vehicle offers several advantages that align with tax strategies and the pursuit of tax-free wealth:

1. Lower Monthly Payments

Leasing often comes with lower monthly payments compared to buying a vehicle outright. This can be particularly appealing for individuals looking to reduce their immediate financial burden.

2. Lower Down Payment

Leasing typically requires a lower down payment compared to purchasing a vehicle. This can be advantageous for individuals who may not have a substantial amount of cash available upfront.

3. Warranty Coverage

Leasing an electric vehicle often includes warranty coverage for the duration of the lease term. This can provide peace of mind and protect lessees from unexpected repair expenses.

4. Access to Newer Models

Leasing allows individuals to drive the latest electric vehicle models without the long-term commitment of ownership. This provides the opportunity to experience the latest technological advancements and improvements in electric vehicle technology.

5. Easy Transition at the End of the Lease Term

At the end of the lease term, lessees have the flexibility to return the vehicle and walk away, provided they have satisfied their lease obligations. This eliminates concerns about resale value and the hassle of selling a vehicle.

EV Affordability and Tax Strategy

The affordability of electric vehicles has been a significant factor in their adoption. High car prices, both for electric vehicles and traditional automobiles, have made leasing an even more attractive option for prospective buyers.

Recognizing the importance of pricing, some manufacturers have reduced starting prices on popular electric vehicle models. These price cuts, combined with state and federal tax incentives, can lead to significant discounts for buyers. For example, Colorado offers a state electric vehicle tax credit, which, when combined with the federal tax incentive, can result in substantial savings for Coloradan buyers.

It is crucial to note that tax credit incentives can potentially bring down the cost of an electric vehicle lease. However, recent price cuts and state and federal tax incentives may also incentivize those looking to buy an electric vehicle. The choice between leasing and purchasing ultimately depends on individual circumstances, financial goals, and preferences.


The decision to lease or buy an electric vehicle is a personal one that depends on various factors, including financial goals, lifestyle, and individual circumstances. Leasing an electric vehicle offers unique advantages, including lower monthly payments, warranty coverage, and access to the latest models. The recent tax credit loophole introduced by the Inflation Reduction Act has made EV leasing even more appealing, potentially leading to significant cost savings for lessees.

To make an informed decision aligned with your long-term financial goals, it is advisable to work with a tax strategist who can optimize your tax situation. By incorporating electric vehicle leases into your overall tax strategy, you can maximize tax incentives, pursue tax-free wealth, and contribute to a cleaner and greener future.

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