The Leasing Loophole Drove Huge EV Sales. The Senate May Have Killed It Already

• Senate Republicans published a wide-ranging budget and tax proposal on Monday.
• If passed, it would end the EV leasing credit within 180 days while severely restricting it immediately. 
• The Senate Finance Committee also aims to swiftly cancel other tax credits for buying used and new plug-in vehicles. 

If you’ve been thinking about jumping on one of those bargain-basement EV lease deals you’ve been hearing so much about, it may already be too late. Senate Republicans unveiled a sweeping budget proposal on Monday that would close the tax code’s popular leasing loophole, effective immediately.

The chamber’s Finance Committee released draft legislation that would end the commercial clean-vehicle tax credit, which discounts plug-in vehicle leases by $7,500, 180 days after the measure is signed into law. That tax credit was originally supposed to last through 2032. 

Lawmakers also took the extra step of including language that would drastically restrict the program starting after this Monday, June 16, the day they unveiled the proposal. 

In other words, by the time the bill is eventually signed into law, which could take several more weeks or even months, the leasing credit will already be severely hobbled. 

Ending the leasing credit could be devastating for EV sales going forward—perhaps even more so than terminating the long-running federal incentive for EV buyers. Given the retroactive language buried deep in this bill, that slowdown could start far before legislation is actually passed. The text also could change before a final reconciliation package hits the president’s desk, adding a layer of uncertainty. 

“As a consumer, if I want to go shopping this weekend for an EV lease, what am I looking for?” said Ingrid Malmgren, senior policy director at the advocacy group Plug In America. “It really creates a lot of consumer uncertainty.”

Just consider how sharply EV leasing has risen since 2022. In February, over 60% of electric vehicles sold in the U.S. were leased, triple the industry-wide rate, according to Cox Automotive. Before the Inflation Reduction Act of 2022, the EV leasing rate was around 10%.

That’s because the standard EV tax credit for people who buy clean cars includes a laundry list of restrictions—on where vehicles can be made (only in North America), where their battery components can come from (not China, and increasingly from the U.S. and its allies), how much a vehicle can cost (under $80,000 for an SUV or truck and under $55,000 for other vehicles) and on how much buyers can earn annually ($150,000 for individuals and $300,000 for married couples). 

This means that only a small subset of electric cars and buyers qualify for that $7,500 rebate. 

The commercial EV tax credit—i.e., the leasing loophole—on the other hand, has no such rules. A leasing company that acquires any EV can bank the $7,500 and pass on that discount to any lessee in the form of a lower monthly payment. As a result, EV leasing has exploded, blowing far past historical norms and industry-wide leasing rates. 

Photo by: Tesla

Here’s the rub: The Senate Finance Committee’s proposal, if passed, would copy-paste most of the regular EV tax credit’s restrictions onto the commercial tax credit right away.

Personal vehicles acquired thereafter would need to be assembled in North America, fall under the same price caps and not use any battery components or critical minerals tied to China. The retroactive language would shrink the pool of eligible cars and throw leasing companies for a loop. It could have a chilling effect on EV leases immediately.

Looking forward, the eventual termination of the credit would all but certainly end impossibly good deals like $129 per month for a Kia Niro EV or $149 per month for a Nissan Ariya.

It’s bad news for anybody who would like to snag a notoriously expensive electric car on the cheap. The reversal would also pump the brakes on growth in America’s clean car market.

EV leasing has skyrocketed as a proportion of EV sales.

Photo by: Tim Levin/InsideEVs

So, when might EV buyers and sellers gain some clarity here? That all depends on how long negotiations in Congress drag on. Republican leaders have said they aim to put a budget reconciliation bill on President Trump’s desk by July 4, but it could take a lot longer than that. 

Got a tip about the EV world? Contact the author: Tim.Levin@InsideEVs.com