For more than a decade now, climate-friendly policy has protected and boosted the American electric vehicle industry. In the past two years, that has been in the form of the electric vehicle tax credit that was a part of former President Joe Biden’s Inflation Reduction Act.
Now, all of that is due to expire on September 30.
Trump began his attack on the EV tax credit as his first order of business as President. The final blow came when the “big beautiful bill” passed and was signed into law this summer, officially tolling the death knell for the tax credit that could have saved consumers up to $7,500 per EV purchase.
Electric vehicles are increasingly preferred for being climate-friendly, especially as governments around the world try to hit carbon neutrality targets to reduce the risks of climate change.
“Transportation is the largest source of global warming pollution in the country, and passenger vehicles are the largest source within transportation,” David Reichmuth, senior scientist at the Union of Concerned Scientists’ Clean Transportation Program, told Gizmodo. “There’s really no way to make the reductions we need to make to avoid the worst damages from climate change without switching from fossil fuels to cleaner electric vehicles powered by renewable energy.”
A tax credit helps consumers to opt for climate-friendly cars without it being a financial burden, as the industry advances the technology on the road to affordability. It also helps the American electric vehicle industry grow amid heavy competition around the world. Electric vehicle demand is booming globally, and the American industry is squarely behind Chinese and European competitors.
“Taking away the federal tax credit won’t kill EVs, they’re already here and it’s going to happen,” Reichmuth said, adding that it will instead only slow momentum in the U.S. while contributing to worse air pollution.
Now, ahead of the credits’ demise, the American auto industry has seen a surge in EV sales as people rush to take advantage of the credit before it’s gone.
As long as you acquire the car before September 30, you are good to take advantage of the tax credit. Acquiring does not have to mean getting the car physically delivered by September 30; it can mean entering into a contract, making a down payment, or trading in an old vehicle, but likely no refundable deposits.
“You have to sign the contract and buy the vehicle, even if it’s not delivered until after the end of the month, but you can’t just get on the waiting list and put in $100 and then get the vehicle in six months,” Reichmuth said.
How to claim the EV tax credit
There are three parts to the tax credit. One is the new car sales tax credit, an up to $7,500 bonus that the consumer can get on their tax return.
It doesn’t apply to all cars, though: your EV should be primarily sourced and assembled in North America, and you should not exceed a certain level of income. For married couples filing jointly, that’s $300,000; for heads of households, it’s $225,000; and for all other filers, it’s $150,000. There are other qualifiers that it must fit, and you can check to see if a vehicle you are thinking of purchasing is eligible via an official government website.
There is also a used EV tax credit of up to $4,000. The requirements for that are similar. There is an income ceiling you can’t exceed, the car’s sale price should be less than $25,000, and the car should be at least two years old.
Once you buy a car that fits the requirements, all you have to do is file IRS Form 8936 when tax season comes. To complete that form, you’ll need your vehicle’s vehicle identification number, a unique 17-character code that you can find on your car’s registration card.
The final and most commonly used EV tax credit, Reichmuth says, is the leasing tax credit, also worth up to $7,500, and has looser restrictions on what cars qualify for it. This one is actually a commercial clean vehicle credit that is claimed by the leasing company, not the consumer. Instead, it’s translated to lower costs for consumers. So you get the financial benefit without having to worry about tax returns. There are many dealerships still leasing electric vehicles at cheap prices as they try to get empty stock before the credit goes into place and demand drops, Reichmuth said.
There are still state-level incentives
The federal tax credit may be going away, but there are a variety of state and regional incentives that can make electric vehicle purchases easier. There are online databases you can use to search for which incentives are offered in your state.
Reichmuth also believes that we will see more state-level incentives pop up now that the federal government takes a step back. For example, prior to the federal EV tax credit, California had its own state-level tax incentive for EV customers. Reichmuth foresees that program coming back in some form.
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