The United States House of Representatives passed a sweeping tax and spending measure, dubbed the “One Big Beautiful Bill.” This bill has significant tax implications for electric vehicle (EV) buyers and homeowners. The bill, in particular, eliminates federal tax credit for clean vehicles and certain energy-efficient home improvements after December 31, 2025.
You may want to take action soon if you are considering buying an EV, or upgrading the energy efficiency of your home. Otherwise, they could disappear. The Senate is currently considering a proposed bill that could affect the incentives.
Tax credits for clean vehicles
The House bill would end the following tax credits for new and used clean vehicles after 2025, with a limited exception.
Credits for new clean vehicles (Section 30D): According to the Inflation Reduction Act, buyers of new clean vehicles that meet certain requirements can receive nonrefundable tax credit amounts up to $7500, depending on specific mineral sourcing requirements and battery component specifications. Even if a vehicle only meets one of the criteria, it is still eligible for a credit of $3,750. Clean vehicles are EVs, hydrogen fuel cell cars and plug-in hybrids also qualify. This credit is available under current law until 2032.
Other eligibility rules include
- The vehicle must only be used for personal purposes (not for resale).
- It must be primarily used in the United States.
- The final assembly of the vehicle is required to take place in North America.
The manufacturer suggested retail price (MSRP) cannot exceed $80,000 for vans and sport utility vehicles and pickup trucks or $55,000 for other vehicles. The MSRP is not always the price that you pay. It includes manufacturer-installed options, accessories and trim but excludes destination fees.
A taxpayer also has to meet the modified adjusted gross income (MAGI), which is capped at $300,000 for joint filers, $225,000 for heads of households and $150,000 for all other filers.
Credits for clean used vehicles (Sections 25E). Buyers of used clean vehicles may qualify for a credit of 30% of the sale price, up to $4,000. To be eligible for the credit:
- The price of the sale must not exceed $25,000
- The vehicle must be no older than two model years and meet the battery requirements.
There is also an income limit for used vehicles. However, it’s lower than the limits for new vehicles. MAGI for used vehicles is $150,000 for married couples filing jointly, $112,500 if you are a head of household, and $75,000 for all others.
The two credits are not refundable, and they cannot be carried over unless they are claimed as general business credits. Taxpayers may transfer their credit to a dealer in order to lower the purchase price, or claim it on their tax return. There are only two dealer transfers per year allowed. IRS Form 8936 must be completed to claim the EV credit or transfer it to a Dealer.
Important: The House Bill provides an exemption for small-volume manufacturers, allowing manufacturers who have sold less than 200,000 clean vehicles that qualify to retain their eligibility for the current credit through 2026.
The Energy Efficient Home Improvement Tax Credit
The House bill also eliminates energy-efficient home improvements tax credits after 2025, such as for qualified exterior doors and windows. If these provisions become law, 2025 may be your final chance to offset some of the cost of high-efficiency home improvements through tax savings.
The Section 25C, Energy Efficient Home Improvement Credit allows homeowners to claim up to 30% of the cost for eligible improvements every year until 2032. The annual limits are as follows:
- Exterior windows and skylights cost up to $600.
- Exterior doors are eligible for a maximum of $500 ($250 per door).
These upgrades must meet Energy Star certification requirements.
The Key Takeaways
These credits are on the chopping block, so now is a great time to buy an electric vehicle or upgrade your home to become more energy efficient, especially if these were investments you had planned to make. Keep all receipts and certificates for upgrades that qualify.
Tax credits can become more complicated due to potential legislative changes. The House bill keeps these green tax credits through the end of the year, but the Senate may make changes to its bill. (This bill would have to be passed by the House before it could become law.) At Parr & Ibarra, our tax advisors can help you determine if you qualify for these credits. Claim them now while they are still available. Visit the IRS website to learn more about Clean Vehicle Tax Credits as well as Energy-Efficient Home Improvement credit.
