As of January 1, consumers can lease electric vehicles and qualify for up to $7,500 in commercial clean vehicle tax credits.  -  IMAGE: GettyImages/martin-dm

As of January 1, consumers can lease electric vehicles and qualify for up to $7,500 in commercial clean vehicle tax credits.

IMAGE: GettyImages/martin-dm

As of January 1, consumers can lease electric vehicles (EVs) and qualify for up to $7,500 in commercial clean vehicle tax credits.

The move by the U.S. Treasury Department makes EVs assembled outside of North America eligible for tax credits. The change addresses concerns by South Korean and European automakers who were frustrated that their EVs would not qualify for tax credits under the $430 billion Inflation Reduction Act (IRA).

Though this is a positive change, outright vehicle purchases only qualify for tax credits if the EVs were assembled in North America. The new legislation, passed in August, ended $7,500 consumer tax credits for purchases of EVs assembled outside North America.

The IRA also restricts battery minerals and component sourcing, sets income and price caps for qualifying vehicles and plans to phase out Chinese battery minerals or components. However, the bill’s commercial credit does not place sourcing restrictions on EVs.

U.S. Senator Joe Manchin has urged the U.S. Treasury to pause implementation of both commercial and new consumer EV tax credits. He warned the rules will be applied unevenly and reward those companies “looking for loopholes” and promised to introduce legislation to stop this “dangerous interpretation” from the Treasury.

The European Commission, however, praised the Treasury consumer leasing guidance saying it would not require "changes to established or foreseen business models of EU producers. This is a win-win for both sides."

Alliance for Automotive Innovation CEO John Bozzella told Reuters the leasing guidance was "consistent with our recommendation and a positive development for broad adoption of EVs in the U.S."

That law also removes the 200,000-vehicle per manufacturer cap that made Tesla and General Motors ineligible for EV tax credits as of Jan. 1.

A list of eligible 2023 EVs is available from the Internal Revenue Service. The list includes EVs from 13 automakers including Ford Motor Co., Nissan, Rivian, Stellantis, Tesla, Volkswagen, and Volvo.

In December, the Treasury delayed releasing guidance on sourcing of EV batteries until March. The delay will allow manufacturers of EVs that do not meet the new sourcing requirements to make changes before the rules go into effect.

Still, the credits have rules that may be difficult to figure out at first. For instance, half the credit is contingent on at least 40% of the value of the critical minerals in the battery having been extracted or processed in the United States or a country with a U.S. free-trade agreement, or recycled in North America, a percentage requirement that rises annually.

Originally posted on Auto Dealer Today

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