All About the Previously-Owned Clean Vehicle Tax Credit

January 15, 2026 by Chelsea Jo, EA

Understanding the Previously-Owned Clean Vehicle Tax Credit Under the One Big Beautiful Bill Act (OBBBA)

The Previously-Owned Clean Vehicle Tax Credit used to offer up to $4,000 to qualifying buyers of used clean vehicles. However, with the passage of the One Big Beautiful Bill Act (OBBBA) on July 4, 2025, this credit is being terminated. It cannot be claimed for vehicles acquired after September 30, 2025.

This article breaks down what the credit was, how it worked before OBBBA, what has changed, and what it means for taxpayers.
 

What Was the Previously-Owned Clean Vehicle Tax Credit?

Before OBBBA, the credit was part of the Inflation Reduction Act of 2022. It aimed to help more people afford clean vehicles by offering a tax break when buying a used electric, fuel cell, plug-in hybrid electric, or plug-in fuel cell vehicle. 

 

Key Features Before OBBBA:

• Credit amount: 30% of the sale price, up to $4,000
   
• Vehicle price cap: Must be $25,000 or less
   
• Vehicle age: At least 2 years older than the purchase year
   
• Seller: Must be a licensed dealer
   
• Buyer requirements:
   
  • Must be an individual (not a business)
     
  • Cannot be the original owner
     
  • Cannot be claimed as a dependent on another person’s tax return. This includes buyers who could be claimed as a dependent on another person’s return but are not.
     
  • Must not have claimed the credit in the past 3 years.
     
  • Must meet Modified Adjusted Gross Income (MAGI) limits. MAGI is your adjusted gross income from your tax return, with certain deductions and exclusions added back in. For the purpose of this credit, AGI is increased by any foreign-earned income exclusion. The MAGI limits for this credit apply to the current or preceding taxable year if the taxpayer’s MAGI is less. MAGI limits are generally calculated by your tax software and are shown below:
     
    • $150,000 for married filing jointly
       
    • $112,500 for head of household
       
    • $75,000 for single filers [stayexempt.irs.gov]

Example: How the Credit Worked

Let’s say Jordan, a single filer with a MAGI of $60,000, buys his first car, a used electric car from a licensed dealer on September 15, 2025, for $20,000. The car is a model year 2022. 
 

• Jordan meets the Modified Adjusted Gross Income requirement (under $75,000).
   
• The car is priced under $25,000.
   
• It’s at least two years old.
   
• Jordan hasn’t claimed the credit in the past 3 years.

Jordan qualifies for a tax credit of 30% of $20,000 = $6,000, but the maximum allowed is $4,000, so Jordan gets a credit of $4,000 on his tax return.

What Changed Under OBBBA?

The One Big Beautiful Bill Act (OBBBA) made major changes to clean energy tax credits, including the early termination of the Previously-Owned Clean Vehicle Credit.

 

New Rules Under OBBBA: 

• The credit ends for qualified vehicles acquired after September 30, 2025.
   
• To qualify, the vehicle must be:
   
  • Acquired by September 30, 2025. (A binding contract must be entered into and a payment must be made by this date.)
     
    • Please note, the payment can include a down payment, a small amount, or even the value of any vehicle traded in.
       
  • Placed in service (you must take possession) by that date.
     
    • Note: If there is a written binding contract and a payment is made on or before September 30, 2025, the credit is allowed, even if it is placed in service after September 30, 2025. A time of sale report should be issued by the dealer when a taxpayer takes possession of the vehicle, or within 3 days.
       
• No credit is available for vehicles acquired after this deadline—even if they meet all other criteria. 

Why Does This Matter?

Ending the credit earlier than expected (it was originally set to last until 2032) could affect many taxpayers who were planning to buy a clean vehicle in the coming years.

Potential Impacts of OBBBA:

• Fewer incentives for budget-conscious buyers
   
• Reduced affordability of clean vehicles
   
• Possible drop in EV sales, especially in the used market

Now, let’s go back to the example with Jordan. If Jordan waits until October 1, 2025, the credit is no longer available, even if all other conditions are met.
 

What Should Taxpayers Do?

If you or someone you know purchased a clean vehicle before September 30, 2025, you may qualify for the credit. Below are some resources you can use to see if you may qualify:
 

• Verify the car qualifies: Search for the vehicle on https://www.fueleconomy.gov.
   
• Check the Rules: You can find the Used Clean Vehicle Tax Credit Checklist on the IRS website: https://www.irs.gov/pub/irs-pdf/p5866a.pdf.
   
• Talk to a Pro: Get personalized advice on your specific situation by reaching out to a tax professional.

Because the OBBBA includes a lot of changes, it is important to stay informed and apprised of any updates, so that come tax time, you can be sure to take advantage of any potential tax savings that are available to you.