Sales of electric vehicles have grown steadily in recent years, in part because of a federal tax credit of up to $7,500 that makes buying such cars and trucks more affordable.
But understanding which cars it applies to and under what conditions can be confusing. And all of these rules could change drastically under the incoming Trump administration. President-elect Donald J. Trump and Republicans have promised to eliminate or limit the incentives.
The tax credit was designed to bring the cost of buying or leasing electric vehicles closer to the cost of comparable petrol models, helping to tackle climate change. The rules governing the credit are also intended to pressure automakers to produce those vehicles and their batteries in the United States and reduce the industry’s reliance on China for critical components.
The policy worked. Several automakers have increased domestic manufacturing, and sales are expected to rise 7.3 percent by 2023 — to 1.3 million vehicles, according to Cox Automotive, a research firm.
Here’s what you need to know about how credits work and how they might change.
Which cars qualify for tax credit?
At least 15 vehicles from model year 2025 qualify for the full $7,500 credit. The list is here.
Purchased or leased electric vehicles that meet certain requirements, including where the vehicles are assembled and where the vital materials for their batteries come from, are eligible for a tax credit. The stimulus was part of the Inflation Reduction Act signed into law by President Biden in 2022.
To qualify, trucks, vans and sport utility vehicles must have a list price of $80,000 or less. Sedans can cost up to $55,000. The credit can be used for all-electric or plug-in hybrid models. To qualify for the credit, single buyers must earn $150,000 or less and couples $300,000 or less.
Vehicles must be assembled in North America, and a certain percentage of the value of critical minerals used in batteries must be exported or processed in the United States or one of its trading allies.
A separate tax credit for used electric cars is worth up to $4,000. It’s open to all models as long as they sell for $25,000 or less. Each vehicle can qualify for the credit only once.
Why did the list of eligible cars change this year?
In 2024, 50 percent of the value of critical materials in EV batteries had to be sourced or processed in either the United States or a trading partner country. That number rose to 60 percent this year. This change caused some models to lose their eligibility for tax credits.
These cars include the Volkswagen ID.4, Rivian R1S, Jeep plug-ins and the Nissan Leaf.
The list may change during the year if automakers certify to the government that their cars now meet the law’s requirements.
Some manufacturers are struggling to adapt to the more stringent requirements. Ford’s Mustang Mach E does not qualify for the tax credit. car batteries come from Poland. But later this year, Ford aims to start buying them from a plant in Holland, Mich.
What about rental cars?
The rules for buying and renting are different. Because the government considers leased cars commercial vehicles, they are not subject to the same requirements.
But the tax credit goes to the leasing company, which is usually the finance arm of an automaker, and while many of those companies pass the savings on to consumers, some may not.
The rules surrounding leasing have encouraged car manufacturers to offer some attractive deals. In many states, for example, Volkswagen is advertising leases on the ID.4 for as little as $149 a month with $999 due at signing. A Ford dealer in Brighton, Mich. recently advertised a Mustang Mach E lease for $126 a month with a $3,500 down payment. These prices usually do not include taxes and title and licensing fees.
“I wouldn’t advise anyone to rush out and buy an EV just to get the tax credit,” said Chris Harto, transportation policy analyst at Consumer Reports. “But if you’re thinking about an electric car and you’ve done your research and found a car you want, some of the best options available right now are leases.”
Hasn’t Trump promised to repeal the tax credit?
Tax credits are likely to change — and potentially significantly. During and after the campaign, Mr. Trump and other Republican leaders have often criticized tax credits for electric vehicles and vowed to eliminate them.
But it is not clear how far Mr. Trump and Congress. First, Republicans have a very slim majority in the House, which could make it difficult for the party to pass any kind of legislation.
Another wildcard is Elon Musk, the CEO of Tesla, which accounts for nearly half of the electric cars sold in the country. Mr. Musk is close to the incoming president, and it’s hard to know how he will seek to shape changes to the tax credit. Four Tesla models qualify for the credit now.
Other auto executives also lobbied Mr. Trump against credit repeal. Among them is Ford executive chairman William C. Ford Jr., who recently spoke with the president-elect.
“Obviously, we’d like to keep the tax credit,” said Mr. Ford to reporters at a company event last week. “I spoke to the president-elect last week and he knows very well how we feel. We’re not going to win everything. But he clearly understands the importance of the industry. I suspect we will have a very good relationship with him.”
So is it a good time to get an electric car?
Current lease deals are attractive and can be a good option for drivers who want to try electric cars without committing to owning one. Given rapid advances in battery technology, most analysts expect that in two or three years—the length of most leases—new electric models will cost less and travel farther than they do now.
If you prefer to buy, the $7,500 tax credit makes certified cars more affordable. Many automakers, including companies that don’t make models eligible for the credit, offer rebates and other incentives of their own.
Ford is offering a free home charger, including installation costs, to customers who purchase one of its electric vehicles. The Toyota bZ4X doesn’t qualify for a tax credit, but the automaker offers 0 percent financing on 72-month loans — a significant savings when the average interest rate on auto loans is more than 6 percent for most borrowers. Volkswagen also offers interest-free loans on the ID.4.
And buying or leasing an electric vehicle could become more expensive later this year if Mr. Trump and Republicans in Congress to repeal, reduce or impose new limits on the tax deduction.
“For the middle-class buyer, you take away that credit and suddenly an EV is 15 or 20 percent more expensive,” said Steve Wybo, a Detroit-based senior managing director at Riveron, a consulting firm.
