Uncertain Future for Electric Vehicle Tax Credits
Drivers looking to purchase or lease an electric vehicle (EV) may be facing a period of uncertainty. The existing federal tax credit, which currently offers up to $7,500 for qualifying EVs, could be eliminated under the incoming Trump administration.
The potential rollback of these credits, which the incoming administration views as wasteful spending, has introduced a degree of urgency for some car shoppers. While a massive surge in EV purchases hasn’t materialized, according to Alex Lawrence, who runs a Utah dealership that specializes in used EVs, those who are aware of the potential change are acting with haste.
“There are still many, many, many, many, many more people that don’t even know this exists,” Lawrence said. However, those who do are trying to take advantage of them while they last.
Frank Shorter of North Carolina had been considering an EV purchase in the coming years. But after the November 5th election, he decided to expedite 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.
Shorter locked in a new Ford F-150 Lightning, and with a 0% financing offer and the tax credit, he got what he called “a screaming deal.”
The Evolution of EV Tax Credits
The federal tax credit for clean vehicles has been in effect since the George W. Bush administration. It has undergone changes over time, most recently, a significant overhaul during the Biden administration as part of the Inflation Reduction Act. Due to the legal nature of the credits, a full removal would require Congressional action, which the auto industry is already lobbying against. Even though the law lacks complete details, the Treasury Department’s rules shape the specifics.
The incoming administration could alter these rules, making the credit more difficult to obtain, which could be quicker than going through Congress.
The Current Landscape
For now, interested buyers are aware of the limited supply of qualifying vehicles. Ivan Drury with Edmunds advises consumers to “strike while the battery is hot.”
Lower-than-expected demand has made EVs a bargain this year, 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,” Drury said.
Some states offer generous EV tax credits that could continue even without federal funding, which may soften the blow if the federal credit is cut.
Understanding the Credit
Buyers can now receive the tax credit as an upfront rebate at the point of sale. The dealer fronts the credit’s value and gets reimbursed by the IRS. This also means it doesn’t matter how little the buyer owes in taxes. Leasing deals may be the first to be affected.
There are restrictions on eligibility, including household income, vehicle price, and supply chain requirements. However, there’s a loophole: leasing a vehicle bypasses these restrictions, making any EV eligible for a $7,500 discount.
The Used Vehicle Credit
The used vehicle credit is worth 30% of the vehicle’s price, up to $4,000. The vehicle’s price cannot exceed $25,000, and the buyer’s adjusted gross income must be $75,000 or lower ($150,000 for couples).
Alex Lawrence said the used vehicle credit is significant for lower and middle-income shoppers. Since the credit is now an upfront rebate, it can serve as a down payment for buyers who might not qualify for a loan. However, there is high demand for those EVs.
New Vehicle Requirements are Changing
For a new vehicle purchase, the income limit is $150,000 for an individual, $300,000 for a couple, and $225,000 for a head of household. The vehicle price cap is also higher, up to $80,000 for an SUV. Also, more requirements for new cars focus on shifting battery and mineral production from China to North America.
Impact of Dropping the Credit
Countries like Germany have seen drops in EV sales when tax incentives were removed. Research also suggests that many individuals would have bought an EV even without the credit, which has sparked debate over its effectiveness.
Lawrence said his dealership was successful before the expansion of the tax credit to used vehicles. He expects to remain profitable if the tax credits disappear. The demand is there, largely because home charging is more affordable than gasoline.
