What is incremental cost, and will that affect the amount of the tax credit?

The incremental cost is the cost difference between the new clean vehicle and a comparable new gas-powered (ICE) vehicle. The Department of Energy conducted a study that found that all EVs would have an incremental cost of at least $7,500 for 2024. The only exception is compact plug-in hybrid electric vehicles (PHEVs), which would have the tax credit capped at $7,000. The IRS issued a safe harbor notice for 2024 that all EVs have an incremental cost of at least $7,500 except compact PHEVs, which have an incremental cost of $7,000.

We will continue to update these numbers each year. As the purchase price of an EV gets closer to the cost of a comparable gas-powered vehicle, this number will eventually equal zero, meaning leases will no longer be eligible for this tax credit.

It is important to note that over the life of the vehicle, EVs typically cost less because they require less maintenance, are more efficient, and cost less to power. In addition, electricity prices are very stable over the long term meaning that they are very budget-friendly and aren’t subject to the same price volatility as gas. Read more about total cost of ownership.

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