2023 IRA EV/PHEV Lease Credit "pass-through"

If youre leasing with the intent of immediate buyout, the value of a larger cap reduction is entirely based on the state you live in.

Leasing to buyout in TX and have tax credits on the lease? Put all the money down.

Leasing to buyout in CA? Doesnt make a bit of difference.


Thank you for sharing the DP! Specifically, this pertains to HMS. Is there a method to obtain information about other manufacturers such as Mercedes and Volvo?

It seems unbelievable that there are no unearned rent charges or early termination fees involved. :slight_smile: The only expense to qualify for the $7500 EV credit is the acquisition fee.

Sorry, can you clarify why it doesn’t make difference in CA? Thank you!

Mercedes includes a 4% fee in their early termination language.

Ultimately, you have to look at the lease contract. I’ve never seen a contract that requires you to pay unearned rent charge, but buyout fees can vary.

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In Texas, you pay tax on the entire vehicle value up front and then again on the buyout, so you want to minimize the buyout value.

In California, you pay tax monthly on the amount paid and then on the buyout amount. If you don’t pay much upfront, you won’t pay much tax. Your buyout tax will be higher, but it’s balanced by the low initial tax. If you make a big down payment, you’ll pay tax on it. You’ll then pay less tax on the lower buyout, but with higher upfront. It basically works out to the same net tax in either situation.


Thank you! So Texas double tax the lease buyout? That sounds unreasonable.

It is my understanding that that’s the case. Fortunately, you can get sales tax credits on the lease to lower the initial tax liability there.

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Yes, you’re correct. In the absence of sales tax credits, if you lease in TX with minimal DAS then immediately buyout the lease, you’ll effectively pay 2x full purchase sales tax (or 12.5%).

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Hi - I am considering this buyout method with either the BMW i4 or MB EQB. Based in CA. I have a few questions.

  1. How do I calculate what my purchase price will be? I know I can call the bank once I sign the paperwork, but I’d like to know up front.
  2. Would I be better off keeping the lease, but paying a substantial downpayment? That way the risk of depreciation is still on the car manufacturer?

Residual+ (Depreciation x months remaining)+fees+ tax = Buyout.

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Unless its mercedes, who include an additional 4% penalty



Quick question regarding the $7500 for VW ID4, is the $7,500 considers as lease cash? If yes does that gets subtracted from as a cap cost reduction which will imply sales tax on the $7,500 in CA or is it consider as a down payment which will not get taxed in CA?

Can anyone help provide information on this? The goal is to buyout in the 1st month after lease, need to understand if tax will have to be paid on the $7,500. (which will reduce the benefit of the credit by the tax paid to CA)


Tax will have to be paid on it.

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Down payments typically are applied as cap codt reductions, and are taxed. Only an amount going towards a non-taxed fee wouldnt be taxed. That goes for money coming out of your pocket or applied incentives.

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Down payments are taxed in CA.

Thanks mllcb42!

How can I have VW/Hyundai apply the $7500 as a applied incentive instead of cap cost reduction? Is this negotiable with the finance team of the dealer or this gets dictated by the manufacturing finance/lease company and may differ based on the manufacturer?

It doesnt matter. Youre going to pay the taxes either way.

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Yeah unless Hyundai changes it to dealer trunk money and then you can get it as a discount. Mercedes welcome to electric is an example…

You can also adjust your tax withholding to account for the $7500 credit. You won’t get the money right away, but you will realize it over the course of the rest of the year, rather than waiting until you file your taxes to get it.

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I’m going to preface this by saying that we’ve never leased a car and we’re not really interested in leasing a car; we pretty much drive our cars until they fall apart. But we’re in the market for a new car (son is turning 16) and we’re committed to getting an EV. However, our income is too high to claim the $7,500 tax credit for the purchase of a new EV. I’ve been reading that there is no income limit if you lease and that the lease credit applies to more models. That’s what led me here.

My wife will be driving the new car and she really likes the Genesis GV60. I pulled up the GV60 on my local dealer’s website (Genesis of Chantilly [VA]) and they are offering “Savings of $7,500 from the manufacturer” under the lease option. That’s more than 10% of MSRP, so it’s definitely got me intrigued. Even if I end up losing half of the tax credit by going the lease route, that’s still some significant savings.

We have enough cash on hand to buy the car outright. But can we get a better deal by leasing it first and then buying it? How would that even work? Do we have to wait until the lease period is over and then buy the car? Or can we turn around and buy it immediately after leasing it? That sounds suspiciously like a straw purchase, but for a few thousand bucks, I’m willing to risk it.

Strategically speaking, how should I go about doing this? Should I be upfront with the dealer about my intentions? Should I look in to other leasing companies like Ally (I bank with Ally so that’s kind of convenient). On the dealer’s website, you can choose the term, miles per year and amount due at signing. Does any of that really matter to us?

Sorry for all the questions. I’m a total neophyte and reading this thread has left me even more confused. I’d appreciate any advice you all can offer.