IRS Extends Electric Vehicle Tax Credit Deadline: Buyers Can Qualify for Up to $7,500 Tax Credit with a Binding Contract Before Sept. 30

The impending expiration of the federal tax credit for electric vehicle (EV) purchases looms on September 30, as stipulated by the One Big Beautiful Bill Act. However, recent clarification from the Internal Revenue Service (IRS) offers some flexibility in the deadline.

Shoppers who enter a binding contract to purchase an EV before September 30 can qualify for the tax credit, even if the vehicle isn’t delivered until a later date. A payment prior to the deadline is also necessary, which may include a nominal downpayment or a vehicle trade-in. The tax credit will not be granted until the buyer takes possession of the car; however, as long as the binding contract was executed before the deadline, the transfer can occur afterward without affecting eligibility.

Typically, the IRS has used delivery dates to determine eligibility for the tax credit. For instance, if a vehicle would have qualified for a tax credit in 2024 but not in 2025, and the buyer took delivery on January 1, they would have been ineligible.

However, it’s not uncommon for the IRS to base eligibility on the contract signing date, as evidenced by their use of similar language during changes to the credit rules following the Inflation Reduction Act.

This new guidance could be particularly beneficial for car shoppers who need to purchase a vehicle located in another state and have it shipped or who wish to order a car that hasn’t yet been manufactured. In both scenarios, they may run out of time to receive the car before the deadline.

Andy Phillips, Vice President of the Tax Institute at H&R Block, suggests that this added flexibility will be particularly helpful for such individuals. While he cannot provide exact numbers on how many people will benefit from the IRS update, he believes it will significantly help those who have already identified the vehicle they want to purchase.

The federal tax credits for EVs are complex and have undergone numerous changes in recent years. Unlike most tax credits, this one can now be claimed upfront as a discount on the vehicle’s purchase price.

For new vehicles, the tax credits are worth up to $7,500. To qualify, vehicles must adhere to a specific price cap, be manufactured in North America, and contain a certain percentage of battery minerals and components sourced from the U.S. and selected allied countries.

To be eligible for the credit, buyers must earn less than $150,000 adjusted gross income ($300,000 for married couples) – that’s income after tax-deductible retirement contributions.

Qualifying vehicles are listed here and include many Tesla, Chevrolet, Hyundai, and Kia models, as well as the Ford F-150 Lightning and the Chrysler Pacifica PHEV. In each case, shoppers must confirm with a dealer that an individual car qualifies for the credit – not all do.

There is also a used vehicle credit worth up to $4,000 for EVs at least two years old and sold for less than $25,000.

For those who opt to lease rather than buy, $7,500 can be applied toward the lease of any EV, without restrictions on price, manufacturing location, or buyer income – a loophole that has pleased many automakers and frustrated many EV tax credit critics.

EV and plug-in hybrid sales in the U.S. experienced rapid growth from 2020 to 2023. Since then, however, they have stagnated in the U.S., remaining around 10% of the market – a disappointment for automakers and environmentalists alike.

The Trump administration is currently dismantling a suite of policies designed to promote EVs, including ending these tax credits. Analysts predict a near-term increase in EV sales as buyers and dealers race against the deadline, followed by a decline in sales. Auto data giant Cox Automotive reports that new EV sales were up almost 20% year-over-year in July, and used EV sales were up 40%. Earlier this month, Stephanie Valdez Streaty of Cox predicted that “urgency is likely to remain high” as the tax credits near expiration, and sales will be strong through the end of September.

In the long run, electric vehicles are still expected to grow in popularity, albeit slower than anticipated, and automakers continue to invest in new EVs designed to be more affordable. However, the loss of the tax credit is a significant challenge for automakers, especially as they grapple with shifting tariffs and high interest rates.

Jessica Caldwell, head of insights at the auto data company Edmunds, notes that searches for EVs on Edmunds.com have not increased as much as she expected as the tax credit deadline approaches. She attributes this to a lack of consumer awareness about the approaching deadline and the potential impact on their purchasing decisions. With so much news surrounding autos, particularly tariffs, some messages may get lost in the noise – leaving some consumers potentially disappointed come fall.