Clean Vehicle Tax Credits

Updated April 2, 2026

Clean Vehicle Tax Credits

Prior to the enactment of the FY2025 reconciliation law

(P.L. 119-21), the federal government offered three tax

credits to incentivize the purchase of clean vehicles (electric

vehicles, plug-in hybrid vehicles, and fuel cell vehicles).

All three credits were created or substantially modified by

P.L. 117-169, the Inflation Reduction Act of 2022 (IRA).

This In Focus summarizes each clean vehicle credit,

provides a brief discussion of relevant economic policy

considerations, and discusses the repeal of the credits in the

FY2025 reconciliation law.

Clean Vehicle Credit (IRC §30D)

Taxpayers purchasing a qualifying new clean vehicle could

claim a nonrefundable tax credit of up to $7,500 for

vehicles acquired before October 2025. The maximum

potential credit ($7,500) was the sum of two amounts: the

critical mineral amount ($3,750) and the battery component

amount ($3,750); the credit went into effect for vehicles

acquired on or after April 18, 2023. (Fuel cell vehicles

without batteries that meet other requirements were eligible

for the full $7,500 credit, though fuel cell vehicles with

batteries were subject to the rules below.)

• For taxpayers to claim the critical mineral portion of the

credit, at least a certain percentage of a car battery’s

critical minerals must have been extracted or processed

in the United States or in a country with which the

United States has a free trade agreement, or have been

recycled in North America. The minimum percentage

was 40% in 2023, 50% in 2024, and 60% in 2025. For

vehicles acquired after 2024, no applicable critical

minerals in the vehicle’s battery could come from a

foreign entity of concern (FEOC). An FEOC is defined

as a nonstate actor that potentially poses an economic or

security threat to the United States.

• For taxpayers to claim the battery component portion of

the credit, at least a certain percentage of an electric

vehicle battery’s component parts must have been

manufactured or assembled in North America. The

minimum percentage was 50% in 2023 and 60% in 2024

and 2025. Vehicles acquired after 2023 could not use

battery components manufactured or assembled by an

FEOC.

In addition to the critical minerals and battery component

requirements, qualifying clean vehicles had to meet other

criteria. These additional criteria included a manufacturer’s

suggested retail price (MSRP) limit ($80,000 for vans,

SUVs, and pickup trucks; $55,000 for other vehicles); a

required gross vehicle weight rating (GVWR) of less than

14,000 pounds; and a battery capacity of at least 7 kilowatthours. The final assembly of all qualified vehicles must

have occurred in North America.

To claim the credit, taxpayers must have had modified

adjusted gross incomes (MAGIs), for either the current or

previous year, at or below certain thresholds: $300,000 for

married couples, $150,000 for single filers, and $225,000

for heads of household. The clean vehicle credit was

generally nonrefundable, meaning taxpayers could not

claim credit amounts in excess of their tax liabilities.

Starting in 2024, taxpayers were allowed to transfer their

credits to vehicle dealers. Dealers who received transferred

credits were required to compensate buyers with either a

cash payment or a price reduction equal to the value of the

credit. Transferred credits could exceed taxpayers’ income

tax liabilities, effectively making transferred credits fully

refundable. Taxpayers who transferred a credit but later

exceeded their MAGI limit were required to pay back the

credit (to the IRS) when filing their taxes.

Credit for Previously Owned Clean

Vehicles (IRC §25E)

Taxpayers purchasing a qualifying previously owned clean

vehicle could claim a nonrefundable tax credit equal to 30%

of the vehicle’s sales price, up to a maximum credit of

$4,000. This credit was commonly referred to as the “used

clean vehicle credit.” Taxpayers could claim the credit only

for vehicles acquired before October 2025.

The credit could be claimed once per vehicle, and the

vehicle needed to satisfy other criteria. The vehicle must

have been purchased from a licensed dealer for $25,000 or

less, had a GVWR of less than 14,000 pounds, and had a

battery capacity of at least 7 kilowatt-hours. In addition, the

vehicle’s model year must have been at least two years

before the year of purchase, and the dealer must have

produced a report of the transaction for both the buyer and

the IRS.

Taxpayers with MAGIs at or below $150,000 for married

couples, $75,000 for single filers, and $112,500 for heads

of household in either the current or previous year qualified

for this tax credit. Taxpayers could claim the credit at most

once every three years. Rules for credit transfers under the

used clean vehicle credit were similar to those under the

clean vehicle credit.

Credit for Qualified Commercial Clean

Vehicles (IRC §45W)

By purchasing a qualified clean vehicle, businesses and taxexempt organizations could qualify for a tax credit of up to

$40,000. For plug-in hybrid vehicles, the credit was equal

to the lesser of the incremental cost of the vehicle (the

difference between its price and the price of a gas- or

diesel-powered vehicle of similar size and use) or 15% of

the vehicle’s cost basis. For electric vehicles and fuel cell

vehicles, the credit equaled the lesser of the incremental

cost of the vehicle or 30% of its cost basis. The credit could

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Clean Vehicle Tax Credits

not exceed $7,500 for vehicles with a GVWR of less than

14,000 pounds.

The credit for qualified commercial clean vehicles could be

claimed once per vehicle and must have satisfied other

criteria. The vehicle must have been used for business

purposes, been used primarily in the United States, had a

battery capacity of at least 7 kilowatt hours if the GVWR

was less than 14,000 pounds (or 15 kilowatt hours

otherwise), and been produced by a qualified manufacturer.

In addition, the vehicle must have been either mobile

machinery as defined in IRC §4053(8) or a motor vehicle

for use on public roads for purposes of Title II of the Clean

Air Act. Mobile machinery is defined to include vehicles

such as electric tractors while excluding vehicles such as

electric golf carts.

The commercial clean vehicle credit was nonrefundable,

meaning that businesses could not claim tax credits in

excess of their income tax liabilities. Any unused credits

could be carried back 1 year or carried forward up to 20

years to offset other years’ tax liabilities. Tax-exempt

organizations were eligible to receive the credit as a direct

cash payment instead of as a nonrefundable tax credit.

Businesses could claim the commercial clean vehicle credit

for vehicles leased to customers. In some cases, dealers

reportedly claimed credits for leased passenger vehicles,

then used these credits to lower customers’ down payments

by $7,500. This tax credit exception allowed customers to

save up to $7,500 even if the vehicle did not match the

MSRP restrictions or domestic content rules from the Clean

Vehicle Credit; taxpayers who were above the Clean

Vehicle Credit income limits also benefited from the

exception. This issue is discussed in greater detail in CRS

In Focus IF12603, The Tax Credit Exception for Leased

Electric Vehicles, by Nicholas E. Buffie.

Who Claimed Clean Vehicle Credits?

The pre-IRA tax credit for plug-in electric vehicles (the

precursor to the Clean Vehicle Credit) was claimed

disproportionately by high-income taxpayers. In 2022, 50%

of the credit’s benefits went to taxpayers in the top 8% of

the taxpayer income distribution (those with adjusted gross

incomes, or AGIs, of $200,000 or more), and 93% of its

benefits went to taxpayers in the top 33% (those with AGIs

of $75,000 or more).

The previous tax credit’s nonrefundable nature likely

contributed to the relatively smaller benefits accruing to

low-income taxpayers. For credits claimed in 2022, credit

recipients with AGIs below $50,000 received roughly

$2,025, compared to $7,443 for taxpayers with AGIs

between $100,000 and $500,000. These amounts may have

changed as more taxpayers transferred fully refundable

credits to car dealers. Initial Treasury data for January 1

through February 6, 2024, indicate that roughly 19,500

taxpayers transferred the clean vehicle credit or the used

clean vehicle credit to dealers. Over the same period, 5,500

vehicle sales were reported for purposes of traditional

nonrefundable credits.

Clean Vehicle Credit Repeal in the

FY2025 Reconciliation Law

The FY2025 reconciliation law, commonly known as the

“One Big Beautiful Bill Act,” repealed all three credits for

vehicles acquired after September 30, 2025. In August

2025, the IRS announced that it would interpret the term

“acquired” to mean “paid for,” such that if an individual

purchased a vehicle before October 1, then took possession

of the vehicle at a later date, that individual was eligible for

a tax credit. Under prior law, taxpayers could claim credits

for vehicles acquired before 2033.

The Joint Committee on Taxation projects that the repeal of

these credits will increase federal revenues by $190 billion

over the 10-year budget window (FY2025-FY2034). These

cost estimates and other aspects of the credits’ repeal are

discussed in greater detail in CRS Insight IN12625, IRA

Tax Credit Repeal in the FY2025 Reconciliation Law: Part

2, by Nicholas E. Buffie.

Complementary Tax Provisions

Federal tax policy also contains a provision that indirectly

promotes the adoption of clean vehicles. The Alternative

Fuel Vehicle Refueling Property Credit (AFVRPC; IRC

§30C) can be claimed by individuals and businesses that

install property used to store or dispense clean-burning fuel

or to recharge electric motor vehicles in qualifying census

tracts. Qualifying census tracts are those designated as lowincome for the New Markets Tax Credit (generally having a

poverty rate greater than 20% or median family income less

than 80% of the statewide or metropolitan area median

family income) or those located in nonurban areas. The

AFVRPC applies to property placed in service before July

2026.

For individuals, the AFVRPC is equal to 30% of the cost of

the property with a maximum credit of $1,000. For

businesses, the credit is equal to 30% of the cost of the

property if prevailing wage and qualified apprenticeship

requirements are met (or 6% otherwise), with a maximum

credit of $100,000 per unit of property.

Federal tax incentives support the clean vehicle market in

other ways as well. For example, the clean hydrogen

production credit (IRC §45V) subsidizes the production of

hydrogen fuel, which may be used in fuel cell vehicles, and

the advanced manufacturing production credit (IRC §45X)

subsidizes production of battery components, which may be

used in clean vehicles. In addition, an array of federal tax

credits—most notably the Clean Electricity Investment Tax

Credit (IRC §48E) and the Clean Electricity Production Tax

Credit (IRC §45Y)—subsidize electricity generated by

“clean energy” sources such as nuclear and renewables. For

information on other energy tax incentives, see CRS Report

R46865, Energy Tax Provisions: Overview and Budgetary

Cost, by Nicholas E. Buffie and Donald J. Marples.

Donald J. Marples, Specialist in Public Finance

Nicholas E. Buffie, Analyst in Public Finance

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IF12600

Clean Vehicle Tax Credits

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