One way that the One Big Beautiful Bill Act (OBBBA) pays for its extension and expansion of the Tax Cuts and Jobs Act of 2017 (TCJA) is by cutting tax credits put in place by the Inflation Reduction Act (IRA).
The Clean Vehicle Credits end for vehicles purchased after September 30, 2025. If you were considering an electric or fuel cell vehicle and would qualify for the tax credit, be sure to purchase it by the end of September.
There are three types of clean vehicle credits: new, used, and commercial. The programs are different for each. We won’t cover the commercial clean vehicle credit in this article.
Qualified New Clean Vehicles may be electric, plug-in hybrid or fuel cell. The Manufacturer’s Suggested Retail Price (MSRP) is the limiting factor in that it cannot be more than $80,000 for a pickup truck, van, or SUV, and cannot be more than $55,000 for all other passenger vehicles. However, if you pay more than the MSRP because of scarcity of a particular model or color, that doesn’t rule out the credit. There are critical mineral and battery requirements and final assembly must have occurred in North America. The maximum credit is $7,000.
However, there is an income limit for taking the credit.
- MFJ – $300,000
- HOH – $225,000
- Single – $150,000
If your income ends up being over the limit for 2025, you do not qualify for the credit. This is a cliff, not a phase-out. If the dealer paid you the credit at time of sale and maybe you used it as a part of your down payment, you don’t have to pay the dealer back, but you will need to pay it back on your 2025 tax return. This is not a bad way of partially financing the purchase.
Very important! There is a time of sale report that the seller must complete and file with the IRS. Make sure you get a copy of this form.
Qualified Used Clean Vehicles may be electric or fuel cell, but not a hybrid. The sale price, not including government fees and licensing, paid to a licensed dealer cannot exceed $25,000. The credit is 30% of the purchase price up to a maximum of $4,000 ($13,333 x 30%). The vehicle must have a model year at least 2 years younger than the purchase year, must have a GVW of less than 14,000 pounds and have a battery capacity of at least 7 KWH. The vehicle cannot have previously been transferred to a qualified buyer i.e., one tax credit per vehicle.
There are income limits for taking the credit.
- MFJ – $150,000
- HOH – $112,500
- Single – $75,000
Be sure to get a copy of the time-of-sale report!
Clean Vehicle tax credits are non-refundable. If you don’t have a tax burden before withholdings equal to the amount of the credit ($7,500 or $4,000), your tax is reduced to zero by the credit and your withholdings are refunded. The excess tax credit is lost. If you transferred the credit to the dealer to pay for the vehicle, you don’t have to pay back the excess tax credit.
If your income is over the applicable AGI limit, you don’t get the credit. In this case, if you transferred the credit to the dealer to pay for the vehicle, you don’t pay the dealer back, but you do pay the credit back on your tax return.
The Alternative Fuel Vehicle Refueling Property Credit is repealed for property placed in service after June 30, 2026, so you have a little more time to install a charging station in your garage.
While we are on the subject of vehicles, Congress, through the OBBBA, created a deduction for qualified car loan interest.
Qualified vehicles are new, not used, cars, minivans, vans, SUVs, pickup trucks, and motorcycles designed to be used on public roads, and have a maximum GVW of 13,999 pounds. Final assembly of the vehicle must have occurred in the U.S..
The qualified loan is the original acquisition debt to purchase a vehicle after December 31, 2024, and before January 1, 2029. The lender is required to report the interest paid to the borrower and the IRS on form 1098.
The deduction for qualified car loan interest is capped at $10,000 and phases out by $200 per $1,000 of AGI over the limit. Phase-outs start at MFJ $250,000 and $150,000 for all other filers.
Repealed for property placed in service after December 31, 2025, are:
- Residential Clean Energy Credit – also known as the Home Solar Credit.
- Energy Efficient Home Improvement Credit.
If you were planning to use either of these credits, the property must be placed in service i.e., fully operational, by the end of this year, even if you haven’t fully paid for the property.
The Residential Clean Energy Credit includes: solar, wind, geothermal, biomass, fuel cells and battery storage. The credit is 30% of the actual cost (without annual limits), non-refundable and the unused portion can be carried forward.
The Energy Efficient Home Improvement Credit includes: windows, doors, insulation, home energy audits, heating and cooling, heat pumps and biomass stoves or boilers. This is also a 30% non-refundable credit, but there are annual limits by sub-category. This credit does not have a carryforward provision if your credit exceeds your tax burden.
The New Energy Efficient Home Credit is repealed for homes acquired after June 30, 2026. This is a credit of up to $5,000 earned by the builder, not the buyer.
The Energy Efficient Commercial Buildings Deduction (under IRC Section 179D(i)) is repealed for property where the construction begins after June 30, 2026. Again, this is a business deduction for builder, not the buyer.
There has also been a change to bonus depreciation under IRC Section 168 on energy property. Under the IRA, the recovery period was five years. Since the beginning of 2025, it is now 7 years.
Key Take-Aways
If you were planning to buy a clean energy vehicle, do it before September 30, 2025. Transferring the credit to the dealer to help pay for the purchase is generally a good move. Be mindful of which vehicles qualify and get a copy of the time-of-sale report.
If you are in the process of installing clean energy property or making energy efficient home improvements on your residential property(ies), it is critical that these systems be placed in service by December 31, 2025.
Builder incentives are repealed as of July 1, 2026.
Time marches on and tax laws are constantly changing. The team at Cardinal Point stays on top of the changes that affect our clients and can help you make the most of these opportunities while they last.