As clean energy incentives evolve, the window to capture meaningful tax savings on electric vehicles (EVs) is closing fast. The One Big Beautiful Bill Act of 2025 (OBBBA) accelerates the phase-out of federal EV tax credits, now scheduled to sunset after September 30, 2025. While the Inflation Reduction Act of 2022 reshaped the landscape under IRC §30D, introducing income limits, price caps, and battery content requirements, OBBBA cuts the timeline short.
This creates a short but powerful opportunity for tax savings: pair a federal EV tax credit with a deductible interest expense on a qualified vehicle loan. This article outlines the current rules, the accelerated sunset, and how to position your EV purchase for maximum tax benefit.
The EV Credit: A Quick Refresher
Under Internal Revenue Code §30D, taxpayers may claim a nonrefundable tax credit of up to $7,500 for the purchase of a qualifying new clean vehicle. A related provision under IRC §25E allows up to $4,000 for certain previously owned EVs.
The Inflation Reduction Act of 2022 made significant changes to §30D, which narrowed the requirements for eligible vehicles effective January 1, 2023, including the addition of the following requirements:
- Final assembly in North America;
- MSRP caps ($80,000 for SUVs, $55,000 for sedans);
- Buyer income limits ($150,000 single, $300,000 MFJ);
- Battery and mineral content requirements phasing in through 2029.
Under the OBBBA the EV credit is scheduled to sunset after September 30, 2025, but due to strict eligibility rules, many models may phase out of eligibility sooner.
Auto Loan Interest: A New Deduction
The OBBBA introduced a new federal “above-the-line deduction” of up to $10,000 per year for interest paid on qualifying new, personal-use auto loans. It is available to both itemizers and standard deduction filers. Not every purchase will qualify, so there are certain requirements that must be met, including the following:
- The deduction only applies to loans originated after December 31, 2024, and for tax years 2025 through 2028. It is retroactive to loans made earlier in 2025 before enactment;
- The purchase must be for a new vehicle – the original use must start with the buyer (used vehicles are excluded);
- The vehicle must be for personal use only; business or commercial vehicles do not qualify;
- The vehicle must be a standard passenger vehicle (car, SUV, minivan, pickup truck, or motorcycle) with a gross vehicle weight under 14,000 pounds;
- Final assembly must occur in the U.S., per the vehicle’s label or VIN’s plant-of-manufacture. Imported or foreignassembled vehicles do not qualify, even if partially made in America.
Income phase-out:
- The deduction phases out for higher-income taxpayers:
- Single filers with MAGI over $100,000;
- Married filing jointly with MAGI over $200,000.
Additional requirements & reporting:
- Taxpayers must report the VIN of the vehicle when claiming the deduction;
- Lenders or financing businesses that receive $600 or more in interest during the year must file IRS information returns and provide statements to borrowers showing interest paid.
Example:
By strategically timing the purchase of a qualifying $80,000 U.S. assembled electric vehicle in 2025, a single filer earning $100,000 could unlock substantial federal tax savings under the revised clean vehicle credit and the new auto loan interest deduction introduced by the OBBBA. With full eligibility for both benefits, the buyer may claim a $7,500 nonrefundable EV tax credit and deduct approximately $6,400 in loan interest (assuming current interest rates), reducing taxable income and yielding an estimated $1,400 in additional tax savings. Together, these provisions offer a combined first-year benefit of nearly $9,000, demonstrating the value of aligning clean energy incentives with smart tax planning before key provisions phase out in late 2025.