Cash on the Hood: How the IRA Makes EV Tax Credits More Accessible

Thomas Boylan
Ronnie LeHane
Thomas Boylan
Thomas Boylan
October 6, 2023

ZETA Overview of IRS Guidance on Transferability for Clean Vehicle Tax Credits Under Sections 30D and 25E


Signed by President Biden in August 2022, the Inflation Reduction Act (IRA) created or modified a series of clean vehicle tax credits that will drive down the costs of EVs while supporting a domestic supply chain. For more information on the IRA tax credits impacting the EV supply chain, see here

The IRA includes novel, pro-consumer rules that enable qualifying EV buyers to transfer certain tax credits to a qualified dealer (including direct-to-consumer manufacturers) in exchange for cash—similar to a rebate. Implementation of these so-called “cash on the hood” provisions was detailed in October 2023 IRS guidance and FAQs. We summarize them below and offer analysis on how they will increase consumer access to EVs.

Affected Tax Credits

  • Section 30D New Clean Vehicle Credit
  • Section 25E Previously-Owned Clean Vehicles Credit

Affected Entities

  • New and used clean vehicle dealers, defined in the IRA as “a person licensed…to engage in the sale of vehicles.”
  • New and used clean vehicle buyers who meet eligibility criteria.


Starting January 1, 2024, buyers can choose to transfer their new clean vehicle credit (30D) of up to $7,500 and their previously owned clean vehicle credit (25E) of up to $4,000 to a vehicle dealer instead of claiming it on their individual tax return filing. This will effectively lower the vehicle’s purchase price by providing buyers with an upfront down payment on their vehicle at the point of sale, rather than having to wait to claim the credit the following year.

Qualified dealers and manufacturers will register with IRS’s Energy Credits Online website (forthcoming), and use it to submit “time of sale” reports. These reports will confirm vehicles’ eligibility for a credit—whether or not the buyer chooses to transfer the credit to the dealer.

When a buyer chooses to transfer the credit, registered dealers will reduce the purchase price of the vehicle or provide cash to the buyer. The amount provided must equal the full amount of the credit available for the eligible vehicle. When completing the sale, the dealer will electronically submit information regarding the transfer to receive an advance payment for the value of the credit. The IRS expects to issue payments within 72 hours. 

Included in the guidance are limitations on the return and resell of eligible vehicles under 30D and 25E:

  • Buyers who return new vehicles within thirty days of taking delivery cannot claim the credit.
  • Vehicles returned within thirty days of purchase that have already been placed into service are no longer eligible for 30D.
  • Used vehicles that have been returned are no longer eligible for 25E upon subsequent sale. 
  • Buyers are prohibited from claiming the credit on new or used vehicles if they resell the vehicle within 30 days of purchase.
  • The guidance also clarifies that a vehicle originally purchased new using the 30D credit remains eligible for the 25E credit, provided it is sold in a subsequent year.

Under the guidance, credit transfers and advance payments would generally not affect dealers’ tax liability. The payment made by the dealer to the consumer (in the form of a cash payment, down payment, or partial down payment) would not be included in the gross income of the consumer.

ZETA Analysis 

The proposed 30D and 25E transferability guidance is a major step toward more equitable deployment of electric vehicles by enabling buyers to see the upfront cost of their EV reduced at the point of sale. ZETA expects these “on the hood” discounts on new and previously owned vehicles will increase the effectiveness and speed of the 30D and 25E credits' impact on EV market penetration.

Studies have demonstrated that consumers feel more comfortable with and place greater value on “on the hood” vehicle discounts. A 2022 survey by George Washington University quantified consumer perception of the 30D tax credit structure prior to its revision and expansion under the IRA. Researchers found that “immediate rebates were valued significantly more than tax credits.” Further, the study found that the valuation of “on the hood” discounts among low-income households is significantly larger than average.

The 25E credit, applicable to used EVs at or below $25,000, allows buyers to claim $4,000 of the upfront cost of the vehicle. Recurrent Automotive reported that in 2022, 17.9% of used EVs were priced below the $25,000 limit. Transferability of the 25E previously-owned clean vehicles credit is particularly significant for increased EV adoption: American consumers purchase twice as many used vehicles than new vehicles. Lowering the upfront cost of already-more affordable EVs will increase access for buyers across all income levels. 

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National policies to support 100% electric vehicle sales.

The Zero Emission Transportation Association (ZETA) is a federal coalition focused on advocating for 100% EV sales. Enacting policies that drive EV adoption will create hundreds of thousands of jobs, secure American global EV manufacturing dominance, drastically improve public health, and significantly reduce carbon pollution.