Lease with Purchase Option a way to get $7500 tax credit?

[DuoRivians]

RJ recently said that Rivian leases are coming soon, and that they would be eligible for the $7500 tax credit, without regard for income levels or msrp.

Yes, this is a loophole in the current IRA law.

My question is: if Rivian offered a purchase option at the end of lease at the residual value, would this effectively become a discount? Assuming you went ahead with the post-lease purchase.

[for this question, I’m assuming money factor on lease v purchase apr would be comparable]

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[Aag12]

Depends how the lease is structured. They currently partner with chase. For chases jlr (jaguar land rover) partnership, they offer a 'one pay' feature which reduces the money factor if you pay all the lease payments up front.

It was a way for cash rich customers to get some of the benefits of a lease, but emulating a cash purchase. Hopefully rivian does something similar to take advantage of ev rebate.

If they don't do this, chase traditionally charges a high money factor to factor in the residual value risk of customer turning back in the lease and then having to see each car back at a loss. I would imagine this would offset a lot of the ev rebate.

 

[Electrified Outdoors]

On Jan 1st thr tax credit will be transferrable to dealer making it point if sale and from my understanding (not an accountant) you will not need to qualify there either.

The only thing that would apply there would be the 80k MSRP limit.

A lot of folks prefer to lease though.

 

[COdogman]

Leasing works well for those who don’t modify their vehicles or don’t intend to purchase at the end of the lease. This crowd seems to have a lot of tinkerers

 

[DuoRivians]

Leasing works well for those who don’t modify their vehicles or don’t intend to purchase at the end of the lease. This crowd seems to have a lot of tinkerers

Yeah I get that. But if one knows they’ll plan on buying the car after the lease ends, they can tinker their cars today and get the $7500 savings instantly. Of course, the risk is not keeping their promise.

 

[Rs6er]

Audi and MB are already deducting the $7500 on new leases regardless of the vehicle price.

 

[emoore]

Is there still an $80k cap if you lease? If not that might be a good way to get the entire fed EV rebate.

 

[voxel]

Is there still an $80k cap if you lease? If not that might be a good way to get the entire fed EV rebate.

Nope. No battery requirements either.

The problem is... the financing arm must pass through the $7500 commercial EV tax credit to you. Rivian doesn't even lease so this point is moot until they have leases.

 

[carsly]

On Jan 1st thr tax credit will be transferrable to dealer making it point if sale and from my understanding (not an accountant) you will not need to qualify there either.

The only thing that would apply there would be the 80k MSRP limit.

A lot of folks prefer to lease though.

I'm fairly certain that it you opt for the upfront dealer recognition of the tax credit that you must qualify when you file that year's return or you will be assessed back the $7,500. Plus knowing the gov't you'll probably owe them interest and, perhaps, fees as well.

Also not an accountant, but this was clarified in the recent (last week?) guidance that was issued around passing the tax credit to qualified dealers.

 

[Donald Stanfield]

On Jan 1st thr tax credit will be transferrable to dealer making it point if sale and from my understanding (not an accountant) you will not need to qualify there either.

The only thing that would apply there would be the 80k MSRP limit.

A lot of folks prefer to lease though.

You still need to be under the income limit. They will give you the credit at the point of purchase if you want but if you do not qualify you will owe it back to the government when you do your taxes.

The point of purchase thing just makes it easier for those who qualify, it doesn't change who qualifies at all.

 

[carsly]

It's still a proposed rule, subject to public comment period:

https://home.treasury.gov/news/press-releases/jy1783

Quoting from the Treasury release: "Consumers may transfer the credit if they attest that they believe they are eligible, including that they fell below the applicable income thresholds in the prior year or expect to be below these thresholds in the year the vehicle is placed in service. Consumers will need to directly repay the full value of a transferred tax credit to the IRS when filing their taxes if they exceed the applicable modified adjusted gross income limitation."

 

[SRO]

My neighbor did exactly that with an EV6. It is Korean made. I don’t know about income limits and I believe the car is in the $50,000 range. The credit was deducted from the lease upon signing. He paid the lease off almost immediately. Worth looking into.

 

[Captain JB]

I had 3 leases on a Chevy Volt Hybrid. As I understand it, when the Volts were not selling initially, the dealer took the tax credits fed and state and made the lease super attractive. My first one was $225/month, then the next 3 years-$275/month and the last one $285/month. It was a super good value. All with no money down. People died not under and them I think and they needed to move the cars. It allowed me to only use my gas guzzling Jeep for trips. Maybe the leases will be structured the same with Rivian…they take the credits and make the payment more attractive. JB

 

[Electrified Outdoors]

It's still a proposed rule, subject to public comment period:

https://home.treasury.gov/news/press-releases/jy1783

Quoting from the Treasury release: "Consumers may transfer the credit if they attest that they believe they are eligible, including that they fell below the applicable income thresholds in the prior year or expect to be below these thresholds in the year the vehicle is placed in service. Consumers will need to directly repay the full value of a transferred tax credit to the IRS when filing their taxes if they exceed the applicable modified adjusted gross income limitation."

Yes, I expect them to close up any loopholes before it goes into place. It's pretty risky for the consumer honestly because they could wind up having the pay all the funds back. There has to be a simpler way to do it. I fear a lot of folks may have to pay back the credit at tax time. Aside from the income limitations don't they also need to have the tax obligation equal to the credit amount? Sounds like a visit to the accountant might be in order before purchasing in 2024.

I had a relative that owed money to the IRS and they were brutal in collecting the back taxes. I felt really bad for her.

A cap cost reduction on the lease is a good way as was said earlier...just make sure to do the math on the cost of ownership over the lease term for lease vs. buy to make sure you aren't still paying more to lease.

 

[carsly]

Aside from the income limitations don't they also need to have the tax obligation equal to the credit amount?

Yes, I believe that is still true. You need to have enough tax liability and it can't take your liability below zero (in which case you won't be able to recognize the full credit).

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