The federal EV tax credit has an uncertain fate. What car shoppers should know

Currently, drivers can access a federal tax credit worth up to $7,500 for buying or leasing an electric vehicle. There's a smaller credit for used EVs, too. But the incoming Trump administration has declared the tax credits wasteful spending, making their fate uncertain.

Has that caused a massive rush of EV shoppers hoping to lock in savings before the new administration begins in January? Well, not quite, said Alex Lawrence, who runs a Utah dealership that exclusively sells used EVs.

"There are still many, many, many, many, many more people that don't even know this exists," he said.

But those who do know, he said, are concerned — and acting fast. According to Cox Automotive, EV sales went up around 10 percent in November.

Frank Shorter of Cary, N.C., had been thinking of buying an EV for a while, sometime in the next few years. But after Nov. 5, he decided to move up his timeline.

"After the election, the writing was on the wall that the tax credit might go away ... and, you know, these tariffs looming on the horizon, potentially — it just felt like the prices were about to go up," he said. He hurried to snag a new Ford F-150 Lightning. A Ford 0 percent financing offer and the $7,500 tax credit combined for what he called "a screaming deal." The tax credit "made it so that it was within our reach," he said.

An uncertain timeline for reversal

The federal tax credit for clean vehicles has been around since the George W. Bush administration. It's changed over time, with a big overhaul during President Biden's administration as part of the Inflation Reduction Act, the Democrats' major climate bill.

A change couldn't happen overnight. Because the tax credits are defined by law, Congress would have to act to fully remove them, and the auto industry is already lobbying to try to defend them.

But the law only sketches out broad strokes, while rules from the Treasury Department lay out the details. The Trump administration could change those rules to make the tax credit more difficult for drivers to get. That would still require a notice and comment period, but might be quicker than Congress.

For now, there's a finite supply of vehicles that qualify for the credit, thousands of dollars on the line for shoppers, and an uncertain timeline after Jan. 20.

"For consumers interested in an EV purchase, strike while the battery is hot," advises Ivan Drury with the automotive research site Edmunds. EVs have been at bargain prices this year, thanks to lower-than-expected demand, but automakers are adjusting. "Now, with production cuts shrinking supply and a fresh wave of demand from those seeking a deal while they still can, it can be all but assured that the price for that EV you've been eyeing is going up in the coming months," he said.

There could be other savings in the future. Maybe.

Some states have very generous tax credits for EVs that would continue even if the federal funding is cut. (Looking at you, Colorado!) California's governor has promised to try to bring back a state incentive if the federal one falls, and other states might follow suit.

Cheaper vehicle models could also become available next year. (Looking at you, Chevy Bolt 2.0!) But there's no guarantee about what those future prices will be — and potential tariffs are another wild card. The Trump administration has announced plans for a range of tariffs that could potentially drive up vehicle prices.

And, of course, there is a chance that the tax credit won't be eliminated at all, or will be phased out very gradually. Still, analysts are generally recommending a strike-now approach, for shoppers already thinking of an EV purchase. It's not that the credits will definitely disappear; it's that right now buyers can definitely get them.

What to know about getting the tax credit

It's available as an up-front rebate.

This year, there was a huge change to this tax credit: Buyers can now get it as an upfront rebate off the price of the vehicle.

Effectively, the dealer fronts the value of the credit to the buyer, and the dealer gets reimbursed by the IRS. This makes the credit much easier to access. And it doesn't matter how little the buyer owes in taxes — they can still benefit from it.

Leasing deals are the simplest, and might be the first to fall

There are strict restrictions on which buyers and vehicles are eligible for the tax credit. Eligibility depends on factors like household income, and the car's price and supply chain. But there's a loophole: If you lease a vehicle, all those restrictions go out the window. Anyone can get $7,500 off the price of any electric vehicle. Combined with state incentives, that has led to some truly insane leasing deals.

The Trump administration is expected to close this loophole, which, unlike the purchasing credit, doesn't support U.S. jobs, and might be easier to reverse.

Leasing EVs has been wildly popular since the loophole was established. Stephanie Valdez Streaty, with Cox Automotive, says she expects to see leases pop up even more in December as people try to take advantage of it while they can. "The leasing loophole is such an attractive option for consumers," she said.

Used vehicle credits: Demand outstrips supply

The used vehicle credit is worth 30 percent of the vehicle's price, up to $4,000. The vehicle can't cost more than $25,000, and the buyer's adjusted gross income has to be $75,000 or lower (or $150,000 for a couple). Note: That's adjusted gross income, so after things like contributions to a 401(k), and buyers can use the current or prior year's AGI. It's a buyer's responsibility to confirm they're under the cap, and if they aren't, they'll owe the IRS back!

There are some other requirements; you can read more about them in our 2024 EV tax credit explainer.

Alex Lawrence, the EV dealer, said the used vehicle credit has been particularly significant for lower- and middle-income shoppers. Because the credit is now available as an upfront rebate, which is treated like cash, it can serve as a down payment for a buyer who otherwise would not qualify for a loan. "It allows these customers to buy cars that they wouldn't be able to buy," Lawrence said, "because they don't have $4,000."

As of November, about a third of used EV listings were under the $25,000 mark, meaning they could qualify for the credit, according to CarGurus. That's a huge increase from a couple of years ago. But Lawrence said that demand for those affordable EVs still far outstrips supply. He also warns that buyers need to watch out for dealers who will try to fudge the prices. The price cap of $25,000 includes fees and other required payments — it's tax fraud to claim the credit on a car that's artificially underpriced and pay the dealer in other ways, like through buying overpriced add-ons.

New vehicle requirements are changing Jan. 1

For a new vehicle purchase, there is also an income limit for buyers, but it's twice as high: $150,000 for an individual, $300,000 for a couple, $225,000 for a head of household. The vehicle price cap is also much higher, up to $80,000 for an SUV.

But there are extra requirements for new cars, designed to shift battery and mineral production from China to North America, to support jobs and create more secure supply chains for the U.S.

You can learn more in this explainer from NPR. For now, suffice it to say that federal law requires the cars to be built in North America, and that a certain percentage of their battery materials be sourced from certain countries — and those requirements get stricter on Jan. 1.

The list of new vehicle models that are potentially eligible for the tax credit is posted on fueleconomy.gov; as of Dec. 12, the list for 2025 has not yet been shared.

You can see a list of potentially eligible models here, but just because a model is potentially eligible doesn't mean an individual vehicle is eligible. Dealers can confirm if a specific vehicle is eligible by putting its VIN (vehicle identification number) into an IRS system. Dealers also need to report the sale to the IRS in order for a buyer to get the credit.

What would dropping the credit mean for sales? Stay tuned

Countries like Germany have seen EV sales drop significantly when tax incentives were removed. On the other hand, logic suggests — and research confirms — that many people claiming the tax credit would have bought an EV with or without it. That has bolstered the Republican argument that it's not a good use of federal money (more than $2 billion this year), but also raised hopes among EV fans that losing the tax credit wouldn't permanently hamper sales.

Lawrence said his dealership was profitable before the tax credit was expanded to cover used vehicles — and he predicts it will still be profitable if these tax credits go away. The demand is there, he said, in large part because charging at home is cheaper than buying gas.

"For the vast majority of folks," he said, "EVs are a great, great option." Especially if drivers can charge at home, he said, "you get cost savings, you get safety, and they're way more fun to drive."

In the long term for the EV industry, "the ship is going, right?" said Valdez Streaty. "It's not going to turn around. It's just the pace of adoption — the timelines are probably going to shift."

Copyright 2024, NPR

• Farmington residents sue city over proposed data center
• Scams are surging. Could you be a victim?
• Growing a ‘green fertilizer’ industry in Minnesota