The One Big Beautiful Bill (OBBB) Act created several new tax breaks. It also eliminates some, notably the climate-friendly tax provisions in the Biden administration’s Inflation Reduction Act.
The $7,500 tax credit for the purchase of a qualifying electric vehicle (EV) is one of the individual tax breaks on the chopping block. The OBBB calls for it to end on Sept. 30.
However, recently issued Internal Revenue Service guidance has provided a tiny bit of leeway for EV buyers.
Now, simply signing a contract for and making a down payment on an EV is sufficient to qualify for the tax credit.
Legislative language vs. real life: The new law’s legislative language said that in order to qualify for the tax credit, which is a dollar-for-dollar offset of any tax owed, EV buyers had to actually take possession of the vehicle by Sept. 30, 2025.
If the EV maker has to ship the auto, that meant that the customer had to get the order in days or even possibly weeks earlier to ensure its arrival by the end of next month.
However, the IRS’ frequently asked questions (FAQ) fact sheet issued Aug. 21 says that a vehicle is acquired, per the OBBB requirement, “as of the date a written binding contract is entered into and a payment has been made.”
That payment, adds the IRS, can be a nominal cash down payment or a vehicle trade-in.
The IRS decision to use a contract and payment date as the acquisition date apparently follows Congress’ legislative intent in ending the EV tax break. During debate on the OBBB, Republican Reps. Darin LaHood of Illinois and Jason Smith of Missouri clarified that Congress did indeed mean to treat an EV binding contract an down payment as a purchase.
Actual credit claiming rules: Note, however, that the new IRS guidance points out that acquiring an EV by Sept. 30 is just the first step in claiming the tax credit.
That action alone does not immediately entitle an EV buyer to the tax break.
To get the tax benefit, the EV must be “placed in service.” That’s when the purchaser takes actual possession of the vehicle, which can be after Sept. 30.
“Taxpayers should receive a time of sale report from the dealer at the time they take possession or within three days of taking possession of the vehicle,” notes the IRS guidance.
General EV tax credit rules: The current Inflation Reduction Act tax breaks for are still in effect until the Sept. 30 deadline for plug-in electric light passenger vehicles and trucks. But claiming them depends on several factors. That includes material sourcing, domestic content, and household income.
Here’s a quick overview of the current EV tax credit rules.
The $7,500 credit applies to the purchase of a new, qualified plug-in EV. There’s also a tax credit for 30 percent of the sale price, up to a maximum $4,000, if you buy a qualified used EV.
As noted earlier, the great thing about a tax credit is that it reduces any tax you owe dollar-for-dollar. Note, however, that the EV tax credits are nonrefundable. The amounts can be used to zero out any tax you owe, but if you have more tax credit than tax liability, you cannot get the excess credit back as a refund.
But EV buyers can get the credit upfront, instead waiting until tax-filing time to claim it. This is done by transferring the credit to an eligible dealer for an immediate discount at the dealership on the qualifying vehicle.
The other claiming option is completing Form 8936, Qualified Plug-in Electric Drive Motor Vehicle Credit (Including Qualified Two-Wheeled Plug-in Electric Vehicles) when filing a 2025 tax year return.
Finally, you must choose an EV that qualifies for the tax credit. As mentioned earlier, there are lots of factors here. Battery capacity. Mineral and battery component requirements. Gross vehicle weight. Qualified manufacturer production. North American assembly.
The dealers will be able to certify that the vehicle you want qualifies. However, you can get a head start on your EV shopping by checking out the Energy Department's Office of Energy Efficiency and Renewable Energy’s FuelEconomy.gov website.
The Department of Energy also has a page where you can find EV credit-eligible new vehicles, and another for qualifying used EVs.
You also might find these items of interest:
- New OBBB tax breaks taking effect in 2025
- Your new car's loan interest might be tax deductible
- Electric vehicle tax credit ending in just three months
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