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US Treasury says consumer leases may qualify for electric vehicle tax credits

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Dec 29 (Reuters) – The U.S. Treasury Department said on Thursday that electric vehicles rented by consumers starting Jan. 1 can qualify for up to $7,500 in tax credits for clean commercial vehicles, a decision that makes Those assembled outside of North America are eligible.

The announcement is a victory for South Korea and some automakers that earlier this month sought approval to use the commercial electric vehicle tax credit to increase consumer access to electric vehicles. Automakers said the credit could be used to lower leasing prices.

The $430 billion Inflation Reduction Act (IRA), passed in August, ended consumer tax credits of $7,500 for purchases of electric vehicles assembled outside North America, angering South Korea, the Union European Union, Japan and others. The Treasury’s new guidance does not change the definition of what constitutes North American assembly to make more vehicles eligible for EV purchases.

Treasury said it was using “longstanding tax principles” to determine which consumer leasing could qualify for the EV tax credit.

The IRA also imposes significant battery mineral and component supply restrictions, sets income and price limits for qualifying vehicles, and seeks to phase out Chinese battery minerals or components. Commercial credit does not, however, have the sourcing restrictions of consumer credit.

Senator Joe Manchin, a Democrat who chairs the house energy panel, urged the Treasury to halt the rollout of commercial EV tax credits and new consumers and said they bowed “to the wishes of companies looking for loopholes” and would seek new legislation that “prevents this dangerous Treasury interpretation from going forward.”

Toyota Motor (7203.T) previously said that “the lack of criteria to qualify for (trade credits) could undermine the IRA’s goals to expand domestic production of EV batteries and maintain America’s energy independence.”

That law lifts the 200,000-vehicle-per-manufacturer limit that made Tesla (TSLA.O) and General Motors (GM.N) ineligible for EV tax credits effective January 1. which includes Ford Motor (FN), Rivian (RIVN.O), Chrysler-parent Stellantis (STLA.MI) and Nissan (7201.T) EVs for the consumer tax credit and plans to release a more comprehensive list by Saturday.

On Dec. 19, the Treasury said it would delay releasing proposed guidance on mandatory supply of electric vehicle batteries until March. This means that some EVs that do not meet the new requirements may have a brief window of eligibility in 2023 before the battery rules take effect.

One-half of the credit depends on at least 40% of the value of the battery’s critical minerals being mined or processed in the United States or in a country with a U.S. Free Trade Agreement, or recycled in North America, a percentage requirement which rises annually.

Treasury said on Thursday that its definition of a free trade agreement will include at least existing comprehensive trade agreements with Australia, Bahrain, Canada, Chile, Colombia, Costa Rica, Dominican Republic, El Salvador, Guatemala, Honduras, Israel, Jordan , South Korea, Mexico , Morocco, Nicaragua, Oman, Panama, Peru and Singapore.

The United States may negotiate additional free trade agreements with allies in the coming months. Treasury said it will “evaluate any newly negotiated deals for proposed inclusion” when finalizing the EV rules.

Reporting by David Shepardson in Grand Rapids, Michigan; Editing by Chizu Nomiyama

Our Standards: Thomson Reuters Trust Principles.

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