IRS tweaks Tesla Model Y tax credit expiration deadline as California mulls federal subsidy compensation

The current White House administration is phasing out the clean vehicle and energy subsidies introduced by the previous one with the Inflation Reduction Act. Just the $7,500 in new electric vehicle tax credit have cost the government more than $2 billion annually since the inception of the program.

When the tax credit after September 30, Tesla will have to sell the Model Y, Model 3, or any of its vehicles on their own merit. For now, EV sales in the US are up year-on-year thanks to buyers rushing to take advantage of the tax credit.

EV tax credit expiration date

The IRS has now changed its rules to allow those who pay for their new electric car in the current quarter to receive the $7,500 in tax credit that more often than not ends up as a down payment on a Model Y lease.

Previously, Tesla clarified that the buyer must take delivery by the September 30 deadline to take advantage of the tax credit subsidy. The IRS, however, has changed the language in section 30D of the One Big Beautiful Bill that mandates the end of the new EV tax credit subsidy to reflect that buyers can profit from the tax credit even after September 30.

"The credit will not be allowed for any vehicle acquired after September 30, 2025" reads the amended section, which in government parlance means that even a small Model Y down payment or a trade done before the end of the quarter will qualify the buyer for the tax credit. In order to then claim it, the dealer will have to provide a time-of-sale report to the IRS on delivery, and the buyer will get the $7,500 subsidy even if their Model Y drives itself to their garage after September 30.

California EV tax credit replacement

Even after the federal EV tax credit expiration, states like California may pick up the slack and replace the program with local incentives. In June, the Governor of California Gavin Newsom signed Executive Order N-27-25 that recommended moving to state-funded EV and clean energy subsidies, compensating for their loss at a federal level.

The order intends to keep the Low Carbon Fuel Standard and give EV buyers rebates, vouchers, or another form of purchasing incentive that matches the expiring federal tax credit. The executive order says that the state will fund purchases of new or second-hand electric cars, as well as fleet electrification and charging infrastructure deployment.

How exactly will Newsom's clean vehicle tax credit replacement mandate compensate for the $7,500 federal outlay remains to be seen, but California's move may be a harbinger of things to come as both individual states and automakers like Tesla are now starting to think how to sell electric cars without government subsidies.

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