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The U.S. House of Representatives has approved a sweeping budget reconciliation bill known as “The One, Big, Beautiful Bill.” Among its many provisions, the legislation would bring an end to clean vehicle tax credits after 2025 in most cases.
If you’re thinking about purchasing a new or used electric vehicle (EV), it may be wise to act soon to take advantage of current tax incentives. Here’s what you should know.
The Inflation Reduction Act (IRA) broadened the scope of the Section 30D credit for eligible clean vehicles placed in service on or after April 17, 2023. For eligible taxpayers, it extended the credit to any “clean vehicle,” including EVs, hydrogen fuel cell cars and plug-in hybrids through 2032. It also created a new credit, Section 25E, for eligible taxpayers who buy used clean vehicles from dealers. That credit equals the lesser of $4,000 or 30% of the sale price.
The maximum credit for new clean vehicles is $7,500, depending on whether the vehicle meets specific sourcing criteria for both critical minerals and battery components. Vehicles that meet only one of these criteria may qualify for a $3,750 credit.
Credits under Section 30D and Section 25E are nonrefundable, meaning they can only be used to offset tax liability and cannot result in a refund. Additionally, if claimed as an individual credit, any unused portion cannot be carried forward. However, if claimed as a general business credit, carryforward may be allowed.
Eligible buyers have two ways to apply the credit: they can either transfer it to the dealer at the time of purchase to reduce the upfront cost of the vehicle or claim it when filing their tax return for the year the vehicle is received. Note that only two credit transfers are permitted per tax year.
To qualify for the Section 30D credit, you must buy the vehicle for your own use (not resale) and use it primarily in the U.S. The credit is also subject to an income limitation. Your modified adjusted gross income (MAGI) can’t exceed:
If your MAGI was less in the preceding tax year than in the year you take delivery of the vehicle, you can apply that amount for purposes of the income limit.
Note: The original draft of the GOP proposal would preserve the Section 30D credit through 2026 for manufacturers that have sold fewer than 200,000 clean vehicles.
For used vehicles, similar requirements apply. You must buy the vehicle for your own use, primarily in the U.S. You also must not:
A MAGI limit applies for the Section 25E credit, but with different thresholds:
You can choose to apply your MAGI from the previous tax year if it’s lower.
To qualify for the Section 30D credit, the vehicle you purchase must meet several criteria:
In addition, the manufacturer suggested retail price (MSRP) can’t exceed:
Note: MSRP includes manufacturer-installed options, accessories, and trim, but excludes destination fees. It may differ from the actual purchase price.
To qualify for the used car credit, the vehicle must:
The sale price is determined after applying any incentives but before accounting for any trade-in value.
Form 8936, “Clean Vehicle Credits,” must be filed with your tax return for the year you take delivery. The form is required regardless of whether you transferred the credit or chose to claim it on your tax return.
Contact us if you have questions regarding the clean vehicle tax credits and their availability.
The information provided in this communication is of a general nature and should not be considered professional advice. You should not act upon the information provided without obtaining specific professional advice. The information above is subject to change.
