On August 21, 2025, the Internal Revenue Service issued new FAQs regarding clean vehicle and other tax credit information under the 2025 Budget Reconciliation Act, also referred to as the "One Big Beautiful Bill Act" or "Tax Reform 2025." Notably, as to tax credits currently available but scheduled to sunset on September 30, 2025, under the budget act, the IRS provided that the tax credit would be available after the September 30, 2025 sunset if the taxpayer had entered into a written, binding agreement and made a payment for a clean vehicle prior to September 30.The act eliminates the credit for vehicles "acquired" rather than for vehicles placed in service after September 30, 2025.
While the FAQs are not binding and expressly state they may not be relied upon, there is precedent for allowing a written agreement to preserve tax treatment existing before a sunset. The same concept applied for clean vehicle tax credit changes in the Inflation Reduction Act, holding pre-IRA rules for written contracts entered into prior to the effective date in August 2022.Electric vehicle manufacturers used written agreements to preserve pre-IRA rules for their customers, allowing delivery of vehicles as late as 2024, nearly two years later.
The dynamic surely applies here. OEMs that produce electric vehicles may wish to take advantage of the written contract effective extension of the credit sunset. Direct to consumer EV Sellers may contract with their buyers, and OEMs with traditional independent dealer distribution might facilitate the same with their dealer networks. From the buyer side, significant commercial buyers may wish to contract in advance of September 30to preserve the 45W credit.
It is worth noting that the IRS position is that the written binding contract must be entered into and a payment be made before September 30, 2025. As to the payment, the IRS FAQ states that "a payment includes a nominal down payment for a vehicle trade-in." The nominal concept of the payment is more lenient than the standard of significant under the Tax Reduction Act transition rules. Whether a vehicle trade-in includes a trade-in amount agreed to but not actually provided is not known, although one would not expect that a buyer would trade in a vehicle before receiving delivery of the purchase vehicle and thus a trade-in allowance agreement may be effective. However, in light of the nominal down payment rule, it would appear wiser to rely on that condition rather than the trade-in condition.
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