One Big Beautiful Bill Removes EV Credit

The Electric Vehicle Credit, often referred to as the Inflation Reduction Act (IRA), is a federal incentive designed to make EVs more affordable for everyday consumers. The credit provides a financial rebate of up to $7,500 for qualifying new electric vehicles. For eligible used EVs, it offers a credit of up to $4,000 or 30% of the vehicle’s price (whichever is less).

These incentives not only help reduce the upfront costs of going electric but also contribute to the United States' broader goals of lowering greenhouse gas emissions, reducing dependence on fossil fuels, and promoting innovative technologies.

Understanding Electric Vehicle Credits

One of the biggest draws for EVs is the potential savings created by federal tax credits. The Inflation Reduction Act (IRA) significantly expanded these tax benefits to motivate a broader transition to cleaner transportation options.

Here’s a quick breakdown of the two main federal EV tax credits currently in play:

1. Section 30D New Clean Vehicle Credit: Offers up to $7,500 off the purchase price of newly-manufactured EVs, plug-in hybrids (PHEVs), and hydrogen-powered cars.
2. Section 25E Used Clean Vehicle Credit: Designed for used EV buyers or those seeking more budget-friendly options, offering up to $4,000 or 30% of the vehicle’s price, whichever is lower.

Both credits aim to lower entry costs, support sustainable technology adoption, and make EVs more attainable for consumers.

Key Features of the Credits

• New Vehicle Credit (Section 30D):
• • A $7,500 credit applies if critical mineral and battery component requirements are met.
  • Vehicles meeting only one requirement can still qualify for $3,750.
  • Non-refundable and can’t carry over if unused.
  • Can be “transferred” to the dealer to reduce the vehicle's purchase price immediately.
• Used Vehicle Credit (Section 25E):
• • A credit of $4,000 or 30% of the car’s price (whichever is lower).
  • Tougher limitations based on income, pricing, and eligibility for the vehicle itself.

This proposed legislation threatens to halt these programs, effectively rolling back a key incentive to lower the barrier for EV adoption.

Buyer Requirements for Electric Vehicle Credits

Before jumping into an EV purchase, knowing these eligibility criteria is critical:

For New Vehicles:

• The car must be purchased for personal use (no resellers) and primarily driven in the United States.
• Income Limits:
• • $300,000 MAGI for married joint filers.
  • $225,000 for heads of household.
  • $150,000 for all other taxpayers.
• If your income exceeds these limits, you can use your prior year’s income to calculate eligibility.

For Used Vehicles:

Used clean vehicle credits are stricter:

• Buyers cannot be the vehicle’s original owner or have claimed the credit in the last three years.
• Income Limits:
• • $150,000 for joint filers.
  • $112,500 for heads of household.
  • $75,000 for single filers.
• Prior year’s income may also be used if that amount is lower.

Both sections are invaluable for helping buyers meet budget constraints, making the potential loss of these credits a challenge.

What Vehicles Qualify

New Vehicle Requirements:

To obtain the Section 30D credit, vehicles must:

• Have a battery capacity of at least 7 kWh.
• Weigh less than 14,000 pounds.
• Be assembled in North America.
• Meet strict mineral sourcing or battery component standards.

Additionally, MSRP limits apply:

• $80,000 for vans, SUVs, and pickups.
• $55,000 for all other vehicles.

Used Vehicle Requirements:

To be eligible for the Section 25E credit, the car’s sales price must not exceed $25,000, and it must:

• Be at least two model years older than the year of purchase.
• Weigh less than 14,000 pounds.
• Contain a battery capacity of 7 kWh or more.

The House GOP Proposal What’s Changing

While these credits currently provide substantial financial relief, the proposed House GOP bill aims to phase out Section 30D as of 2026, leaving some manufacturers with limited time to reach their market goals. Importantly, companies producing fewer than 200,000 clean vehicles may be spared under these cuts, but the writing is on the wall for this program's eventual sunset.

Without this incentive, buyers will bear the full brunt of premium EV pricing, which could slow adoption rates dramatically in a market already grappling with affordability barriers.

The Impact on Consumers and Businesses

Eliminating these credits could create challenges for buyers:

• Higher Out-of-Pocket Costs: Without significant rebates, consumer access to newer EV models may shrink.
• Economic Inequality: Affordability disproportionately affects middle or lower-income households, who rely on these credits to access sustainable options.
• Smaller Pools for Used EVs: The used market depends on a robust cycle of new model sales. Without incentives, this flow may slow.

For businesses, especially startups or fleets aiming to green their transport:

• Operational Costs May Rise: Transitioning fleet vehicles without incentives forces businesses to absorb higher costs.
• Reduced Innovation Cycles: Early discounts aid new manufacturers in selling advanced technology to price-conscious buyers.

Navigating Uncertainty

While the elimination of clean vehicle tax credits adds hurdles, savvy buyers and businesses can still maximize their benefits before the deadline or explore alternatives:

Act Fast: If you're considering an EV purchase, now’s the time to take advantage of available credits before changes take effect.

Leverage Both Sections: The new and used clean vehicle credits may be combined to maximize savings for businesses with diverse fleets.

Consult an Advisor: Tax experts can help you optimize timing and plan your purchase to minimize costs.

Stay Ahead with Electric Vehicle Knowledge

The potential rollback of these taxpayer-friendly credits is a stark reminder of the shifting legislative landscape. For buyers and businesses alike, keeping informed and taking action while these credits remain effective could mean saving thousands on your next EV.

Need help figuring out electric vehicle credits and how they apply to your tax strategy? Contact SD Mayer & Associates today. Our team of forward-thinking advisors is here to guide you through the numbers, minimize costs, and help you plan for the road ahead.