Electric vehicle (EV) tax credit is about to expire — but new IRS rules offer some flexibility

If you’re considering buying an electric vehicle, now is the time to act. The massive tax bill that President Donald Trump signed into law on July 4 eliminates the popular electric vehicle (EV) tax credit, with Sept. 30 now the deadline to purchase a vehicle.

But there’s some good news: The IRS recently announced that buyers can still qualify for the tax credit if they sign a binding purchase contract and make a payment by Sept. 30 — even if the car isn’t delivered by then. (See the IRS rules here.)

The EV tax credit launched in 2008, but it was expanded under President Joe Biden’s 2022 Inflation Reduction Act, which boosted the tax incentive to $7,500 for new EVs and added a $4,000 credit for used models.

“The purpose of the tax incentives was simply to spur EV adoption by giving a literal ‘incentive’ for people to buy EVs,” says Dave Thomas, director of content marketing and automotive industry analyst at CDK Global, a technology firm serving car dealerships.

Analysts say the tax credit has been a driving force behind the EV boom. In 2024, 87 percent of EV shoppers took advantage of the tax credit, with many citing it as a key reason for their purchase, according to J.D. Power’s E-Vision Intelligence Report.

Here’s how the EV tax credit works now

The EV tax credit is in effect for new and used electric cars purchased through the end of September.

The tax credit applies to cars purchased in 2023 or later; taxpayers can claim the electric vehicle tax credit if they meet specific income and purchase requirements.

Tax credit rules for new EVs

For new electric vehicles, you may qualify for a credit of up to $7,500, as long as the vehicle is primarily used in the United States. To be eligible, your modified adjusted gross income (MAGI) must fall below the following limits:

• $300,000 for married couples filing jointly or a surviving spouse
• $225,000 for head of household filers
• $150,000 for all other filers

The IRS allows taxpayers to apply the income limit based on the year they take possession of the vehicle or the prior year — whichever is more favorable.

Tax credit rules for used EVs

For used electric vehicles purchased in 2023 or later, the credit is worth up to $4,000 or 30 percent of the purchase price, whichever is less. The vehicle’s purchase price must not exceed $25,000, and you must buy the car from a licensed dealer.

Also, the car must be at least two years old when you purchase it; for example, if you bought the car in 2025, it would have to be a 2023 model or older to qualify for the credit.

Used EVs have lower income limitations than newer EVs as follows:

• $150,000 for married couples filing jointly or a surviving spouse
• $112,500 for head of household filers
• $75,000 for all other filers

Another benefit: You can receive the credit at the time of the purchase instead of waiting until tax time to claim it, by transferring the tax credit to the dealer. If you choose this option at the dealership, you must still meet all the IRS requirements when filing your tax return.

New EV fee dropped in final law

While an earlier version of the massive tax law included a $250 annual fee for electric vehicles, the final version of the law omits any mention of an annual EV charge. The House’s proposed fee for electric vehicle owners was aimed at ensuring all drivers contribute equally to maintaining the nation’s roadways.

Currently, owners of gas-powered cars help fund highway infrastructure through the 18.4 cents per gallon federal gas tax. But that tax has remained unchanged since 1993, even as the cost of maintaining roadways has skyrocketed. Plus, cars have become more fuel-efficient, and some drivers have switched to electric cars.

But some experts argued that the proposed $250 EV fee was excessive. The proposed fee would have been nearly three times what the average driver pays annually in gas taxes, according to a Consumer Reports study.

“The proposal of an annual fee for EVs makes sense on its face as those owners don’t pay the federal or local gasoline taxes,” Thomas says. “However, most calculations say the average driver pays around $100 in gas taxes a year and this fee is clearly more than that.”

And EV owners often do pay state and local fees tied to their cars, depending on the tax rules of the state where they live.