Last Month For EV Credit
Published August 29, 2025
The tax credit for electric vehicles (EVs) will be available until September 30, 2025. The One Big Beautiful Bill Act (OBBBA) repeals the EV credit after that date. The credit for new EVs is up to $7,500, while the credit for a used EV is limited to a maximum of $4,000.
July and August sales of EVs have increased substantially. A report from Cox Automotive indicated that July sales were up over 20%. The report also noted that the average price for a new EV was $55,689 and the used EV average listing price was $35,263.
Several companies are competing in the EV market. The five top EV companies in order of sales volume are Tesla, Chevrolet, Hyundai, Ford and Honda.
There is a sense of urgency in the EV market. However, buyers are advised to research EV ratings. There are multiple organizations that provide reviews, and these can be located by using any of the popular internet search engines.
In addition to reading reviews on specific EVs, owners should also examine their capability to charge an EV. Nearly all EV owners will need to charge their EV at home. A Level I charging system can use a standard 120V outlet. However, many EV owners prefer a higher amperage Level II charging system. Level II typically requires an electrician to install a 240V outlet near where the EV will be parked, likely in a garage. Prospective EV owners should research the costs of installing a suitable outlet for charging an EV.
Taxpayers must also check to see that they qualify for the EV credit. The EV credit for new vehicles is available for individuals with a modified adjusted gross income (MAGI) up to $150,000 for an individual or up to $300,000 for married couples. For the EV credit for used cars, the MAGI limit is $75,000 for an individual or $150,000 for a married couple.
If your income is over that limit, you will not qualify for the credit. However, the IRS permits you to use your 2024 or 2025 income to qualify for the credit. If your income this year is over the applicable limit, you still may be able to qualify based on your income in 2024.
An important taxpayer benefit is the flexibility to order and make a down payment on a car by September 30. If "a written binding contract is entered into and a payment has been made" by September 30, the actual transfer of ownership of the vehicle may occur later and the credit will still qualify.
Another option is to lease an EV as dealers are permitted to pass along up to $7,500 in credits with a lease. Because over half of EV purchasers lease their vehicle, this is a very helpful benefit. The buyer should examine the contract carefully to ensure that the dealer is passing along the credit.
The average car lease in July was $582 per month. However, Edmunds’ lease data reflects that EV lease payments were lower, coming in at $538 per month.
Editor's Note: The EV credit is likely to boost sales in September. While auto manufacturers are likely to continue to offer EVs, they will also continue to promote internal combustion engine vehicles. OBBBA created a new deduction for up to $10,000 in interest on auto loans. Cars can qualify, in part, by having final assembly in the United States. This limit is applicable for single individuals with incomes under $100,000 or a married couple with income under $200,000.
IRS Education Benefits and Offsets
The Chancellor of Germany in the 1870s was Otto von Bismarck who is attributed to have remarked that, "You should not see laws or sausages being made."
The creation of the One Big Beautiful Bill Act (OBBBA) was complex. When Congress creates a benefit in one charitable area, it also commonly offsets the cost in another section of philanthropy. Under OBBBA, it is possible that Congress was considering this concept with the creation of the new credit for scholarship-granting organizations (SGOs) and the excise tax on large private universities.
The SGO is designed to facilitate the granting of scholarships to students who attend private schools. A taxpayer may contribute up to $1,700 each year and receive a 100% credit. The federal credit will be reduced by any similar credit permitted on a state income tax return.
The SGO may offer scholarships to children who attend private schools. To qualify, the child must be a member of a family with an income that is no more than 300% of the area's median gross income.
This limitation may be quite generous. The Fannie Mae Area Median Income Lookup Tool indicates that Winter Park, Florida has a median gross income of $98,100. The family income limit for a scholarship to a Winter Park child is $294,300. An even higher number applies to Bethesda, Maryland. The median gross income is $162,000 and scholarships could be granted to children in households with income up to $486,000.
The Section 25F SGO plan is only available for students who are in a state that elects to participate in the program. While taxpayers may make qualified contributions in all 50 states, most state governors are waiting for tax law guidance before electing to participate. Section 25F(h) indicates that Treasury will issue guidance for both states and SGOs. The state is required to maintain records and report on its SGOs.
Because there is no volume limit on the total amount of $1,700 credits, this could be an expensive program. The Joint Committee on Taxation estimated the cost of the program to be $25.9 billion over 10 years.
One of the issues that was debated was whether the credit would apply to home schooling. Congress determined that an SGO may not pay for home schooling. Part of the issue is that, in contrast to the private schools, home schooling does not typically involve tuition.
The scholarships may benefit middle and high-income parents. The State of Florida has a credit education program. One private school in Central Florida reported that the percentage of students using the credit increased from 3% to 98% after this program became available. The Florida program did not have a limitation on family income.
While the discussion of benefits and offsets in the halls of Congress is not public, there are many examples of when bills are passed, and members of Congress made efforts to create offsets for benefits. OBBBA involved several trillion in tax reductions and the initial goal was to have $2 trillion in offsets to reduce the total bill cost.
One potential offset for the SGO charitable benefit was an increase in the excise tax on private universities. The previous excise tax of 1.4% on net investment income (NII) was increased to a maximum of 8% for a select number of large private universities. These universities at the top bracket have endowments of $2 million per student. These private universities have more than the minimum 3,000 tuition-paying full-time student equivalents. The NII definition has been expanded to include student loan interest and royalty income that resulted from federal grants.
The House of Representatives report on OBBBA stated, "Congress believes that in order to allocate tax burdens more fairly, the wealthiest of these institutions should be required to contribute a greater share of their income in taxes."
The Department of Treasury has been assigned the responsibility to write guidance on the excise tax. The guidance is required to reduce the risk that large universities will restructure their endowment funds or make "other arrangements designed to reduce or eliminate the value of net investment income or assets subject to the tax."
Editor's Note: While a limited number of large private universities will be subject to this excise tax on endowment income, the tax bill could exceed $200 million per year at some institutions. This will have a significant impact on both the institution and its students.
Will Trust and Estate Charitable Deductions Be Limited in 2026?
The One Big Beautiful Bill Act (OBBBA) included a new limitation on itemized deductions that will be applicable in 2026. The limitation essentially reduces the deduction for taxpayers in the 37% top bracket to 35%. One of the major questions that remains to be answered is whether this will apply to trusts and estates. With fairly low indexed limits for the 37% bracket for trusts and estates, the reduction could be widely applicable. If the reduction applies to trusts, charitable lead annuity trusts (CLATs) with remainder to family may be impacted.
Daniel J. Gespass is a director with Andersen Tax LLC. Gespass published an article in Tax Notes that reviewed the potential tax position that could be taken based on the statute and legislative history.
Section 642(c) states, "In the case of an estate or trust, there shall be allowed as a deduction in computing its taxable income any amount of the gross income, without limitation, which pursuant to the terms of the governing instrument is, during the taxable year, paid for a purpose specified in Section 170(c)."
The basic issue is whether the "without limitation" provision of Section 642(c) would act to exclude trusts and estates from the OBBBA limit on itemized deductions for entities in the 37% tax bracket.
The general statutory purpose of Section 642(c) is to permit full charitable deductions. The prior Pease limits applied to various taxpayers. However, Section 68(e) excluded Section 642(c) from the Pease limitation. Gespass notes "that if the Pease limitation never applied to trusts, there was no need for Section 68(e) at all." Therefore, the question is whether or not the "without limitation" language in Section 642(c) applies. The article contends that Congress would have addressed the issue on the "without limitation” language if it had intended the new rule to apply to trusts and estates.
There is also a Section 681 issue with respect to trusts and estates. If a trust or estate has unrelated business taxable income, Section 681 does not permit a Section 642(c) deduction. With unrelated business income (UBI), the trust or estate is subject to the normal Section 170 limitations. However, both Section 681 and Section 642(c) are part of subchapter J. Therefore, the "without limitation" language could apply to provisions within subchapter J but exclude the limitation outside that section.
Another reason for excluding trusts or estates from the reduced deduction of 37% to 35% is the general policy of the Supreme Court in prior cases. Generally, charitable deduction provisions of statutes are interpreted fairly broadly. The Section 642(c) deduction is intended to facilitate trust or estate gifts to nonprofits, and a broad interpretation of the language is consistent with Congressional intent.
Editor's Note: The Joint Committee on Taxation publishes a "Blue Book" after each major tax act. The Blue Book on OBBBA will be a substantial document that reflects the complexity of this bill. Hopefully, JCT will realize the uncertainty in the language of OBBBA with respect to CLAT income tax deductions and address the issue. In addition, it is quite possible there will be future litigation in Tax Court to obtain a Tax Court ruling on this issue.
Applicable Federal Rate of 4.8% for September: Rev. Rul. 2025-17; 2025-36 IRB 1 (17 August 2025)
The IRS has announced the Applicable Federal Rate (AFR) for September of 2025. The AFR under Sec. 7520 for the month of September is 4.8%. The rates for August of 4.8% or July of 5.0% also may be used. The highest AFR is beneficial for charitable deductions of remainder interests. The lowest AFR is best for lead trusts and life estate reserved agreements. With a gift annuity, if the annuitant desires greater tax-free payments the lowest AFR is preferable. During 2025, pooled income funds in existence less than three tax years must use a 4.0% deemed rate of return. Charitable gift receipts should state, “No goods or services were provided in exchange for this gift and the nonprofit has exclusive legal control over the gift property.”
