EV Tax Credit Uncertainty: What Car Buyers Need to Know in 2025
EV Tax Credit Uncertainty: What Car Buyers Need to Know in 2025 – If you’re considering buying an electric vehicle (EV) in 2025 to take advantage of federal tax incentives, recent policy changes under the Trump administration have created uncertainty around the $7,500 federal EV tax credit, leaving many potential buyers confused about their options.
If you’re considering buying an electric vehicle (EV) in 2025 to take advantage of federal tax incentives, you might face some unexpected hurdles. Due to recent policy changes under the Trump administration, the availability of the $7,500 federal EV tax credit is now uncertain, leaving many potential buyers in a state of confusion.
Under the Inflation Reduction Act of 2022, consumers who purchased eligible electric vehicles were entitled to a tax credit of up to $7,500. However, a new executive order, signed by President Donald Trump on his first day back in office, has cast doubt on the continuation of these incentives. The order, titled Unleashing American Energy, states that U.S. policy will now focus on “considering the elimination of unfair subsidies and other ill-conceived government-imposed market distortions that favor EVs over other technologies.”
While only Congress has the authority to revoke tax credits, this executive order has created confusion among automakers, dealers, and consumers alike. Some dealerships have already rolled back the tax incentives they previously offered, citing concerns over potential policy changes.
Elaine Buckberg, a senior fellow at Harvard University’s Salata Institute for Climate and Sustainability and former chief economist at General Motors, discussed the impact of these changes during a Harvard media call. She noted that her team has spoken to multiple dealers across different brands, revealing that many are now hesitant to offer point-of-sale tax credit transfers due to the policy uncertainty.
“Before January, dealers were confident in applying tax credits to EV purchases at the point of sale,” Buckberg explained. “Now, many are advising customers to consult their accountants before making a purchase decision.”
This uncertainty means that some buyers may no longer be able to receive immediate savings on an EV purchase. Instead, they would need to claim the credit when filing their taxes in 2026—assuming the policy remains in place by then.
Currently, two types of tax credits are available for electric vehicles:
In 2024, leasing an EV became a popular way for consumers to bypass some of the bureaucratic hurdles tied to tax credit eligibility. Many dealerships factored the savings directly into the lease price, allowing consumers to enjoy lower monthly payments.
For now, leasing appears to be a safer option for those looking to take advantage of the tax credit. “Automakers’ finance companies are backing these leases, and they have the resources to navigate potential regulatory changes,” Buckberg noted. “But they are still taking on a level of risk when it comes to whether the IRS will continue honoring these credits.”
The EV market in the U.S. has seen rapid growth, with electric and hybrid vehicles making up 25% of all new car purchases in December 2024. However, experts warn that EV tax credit uncertainty could slow down this progress.
Wood Mackenzie, an energy research and consulting firm, suggests that the impact of these changes could be significant, though the exact consequences remain unclear. If the tax credits are eliminated, it may lead to lower demand for EVs, particularly among cost-conscious consumers who rely on incentives to make electric cars more affordable.
Mark Luscombe, principal analyst at Wolters Kluwer Tax & Accounting, explains that any change to the tax credit would require congressional action. “Congress could choose to set an effective date for revoking the credit, whether that’s January 1, 2026, or as soon as new legislation is enacted,” Luscombe said.
“Even if your monthly car payment is higher, the savings on gas and maintenance can more than make up for it,” Orvis added.
For some, the decision to drive an EV is tied to environmental concerns, while for others, it’s about embracing new technology or avoiding trips to the gas station.
“If buying a car was only about economics, everyone would be driving a Toyota Camry or RAV4,” Drury explained. “But personal preferences, lifestyle, and even political views influence vehicle choices.”
Despite the ongoing EV tax credit uncertainty, the electric vehicle industry is unlikely to slow down entirely. Even without tax credits, automakers continue to expand their EV offerings, and consumer interest remains strong.
“The EV market is evolving quickly,” Orvis said. “It has gone mainstream, and even if tax incentives change, demand for EVs will continue to grow.”
However, until Congress clarifies the status of the tax credits, buyers may need to weigh their options carefully. For those looking to make a purchase, leasing may be the safest bet to secure financial incentives, while those set on buying an EV should prepare for possible policy changes before filing for their rebate.
