Looming questions about EV tax credit

Discussion in 'General' started by space_out, Oct 18, 2018.

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  1. space_out

    space_out New Member

    Hey everyone. I'm considering purchasing a new Nissan Leaf as my first electric car. As I research pricing, I'm trying to accurately figure in the tax credits. I'm hoping someone with experience and more knowledge than myself can chime in.

    I've searched around and done quite a bit of reading on the tax credit already, however almost everything I find seems to be sort of a glossed over version of what I expect has some hidden 'gotchas' under the veneer. However, it would be wonderful if this was less true than I fear.

    I think it would be easiest if I just asked a few questions specifically that come to mind. I'll just start in, not in any order of importance.

    1. When I search for cars, I find some considerably reduced prices in other states... If I were to purchase a car from another state, will this present a problem with claiming the tax credit on either the federal or state level? I mentioned state taxes because here in New York we also are able to claimcla additional $2,000 credit.

    2. What criteria is used by the government to determine whether you've purchased a new or used car? Can I rely on the tax credit being valid if I purchase a car that is advertised as new from any dealer, or are there some pitfalls here that I really need to be aware of?

    3. Is the tax credit truly as simple as "just subtract $7,500 from whatever the total is that you owe on federal taxes"? And, likewise, subtracting $2,000 from the total owed state taxes? That would be great if this were the case, and I could just rely on actually having that much payment deducted. However, I fear that there may be some catch here that I'm not aware of, and I would like to avoid any surprises come tax time. For example, I wonder if perhaps the credit in fact only applies to a certain section or portion of your taxes, and not bluntly the total sum... So, for example, what if I owe $9,000 in federal taxes total, but for some reason the EV tax credit can only be applied to $4,000 of that, so I end up with the surprise that I didn't get the benefit from the remaining $3,500 that I counted on.

    I should mention that I do already understand that if you don't owe the full credit amount for your taxes, you forfeit in the remainder of the credit and it cannot be spilled over in any way (i.e., if you owe only $1,000 total, you're only going to receive a credit of $1,000).

    4. Is there a mandatory time of ownership that you need to uphold in order to benefit from the EV credit? For example, what if, in a theoretical scenario, I purchase this car for my wife, and I want the car to be in her name, but I would like to benefit from the rebate? In this scenario, would I need to purchase the car under my name, and then immediately transfer the title to her name? Would this constitute some grounds for disqualification of the tax credit because I only technically owned the car for one day?

    Well, I may be forgetting to include a question or two that I had thought about, but this covers the bulk of my concerns. I really appreciate any solid insight that can be offered here. I hope we may help others who have similar concerns as well.
     
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  3. interestedinEV

    interestedinEV Well-Known Member

    I am sure there are experts here with more knowledge, but you may have to do some of your research on some of the questions.

    1. When I search for cars, I find some considerably reduced prices in other states... If I were to purchase a car from another state, will this present a problem with claiming the tax credit on either the federal or state level? I mentioned state taxes because here in New York we also are able to claimcla additional $2,000 credit.

    Should not present a Federal issue as long as you buy it for your personal use and use it as such. You have to find out about your state. Also, remember, even if you buy it out of state, you have still have to register in your state, you also have to factor transportation to your state. Also, advertised prices may include state incentives, which may not be available to you as you live in a different state. Make sure that you can get the car at the advertised price and check registration requirements in New York.


    2. What criteria is used by the government to determine whether you've purchased a new or used car? Can I rely on the tax credit being valid if I purchase a car that is advertised as new from any dealer, or are there some pitfalls here that I really need to be aware of?

    It should be a new car i.e. cannot have been registered before. If the dealer certifies it is a new car, then you should be OK.

    3. Is the tax credit truly as simple as "just subtract $7,500 from whatever the total is that you owe on federal taxes"? And, likewise, subtracting $2,000 from the total owed state taxes? That would be great if this were the case, and I could just rely on actually having that much payment deducted. However, I fear that there may be some catch here that I'm not aware of, and I would like to avoid any surprises come tax time. For example, I wonder if perhaps the credit in fact only applies to a certain section or portion of your taxes, and not bluntly the total sum... So, for example, what if I owe $9,000 in federal taxes total, but for some reason the EV tax credit can only be applied to $4,000 of that, so I end up with the surprise that I didn't get the benefit from the remaining $3,500 that I counted on.

    IRS and simplicity is an oxymoron. You have to fill a form with details. You can only take credit for balance of taxes. So you can claim this only when you file taxes. Just to be clear, if a Tesla Model 3 is $49,000 + taxes etc. then you pay all of that upfront and then while you file your taxes, reduce your tax burden by a maximum of $7500. I am not sure I understand your question on why if your tax liability is $9000, which the credit can be applied to $4,000. I suspect that you have other credits you can apply, if so talk to your accountant. Also, do not confuse credits with deductions. You apply your deductions and come up with your tax liability. Only then you apply your credits. Possibly your question is "I have Tax credit X for $5,000 and EV tax credit for $7500, for a Total Tax credit of $12,500, but I owe only $9000 in taxes. In that case can I defer some of the credits to next year". These are complex issues only a professional should answer as it depends upon the nature of the other credit and which is applied first etc. .



    4. Is there a mandatory time of ownership that you need to uphold in order to benefit from the EV credit? For example, what if, in a theoretical scenario, I purchase this car for my wife, and I want the car to be in her name, but I would like to benefit from the rebate? In this scenario, would I need to purchase the car under my name, and then immediately transfer the title to her name? Would this constitute some grounds for disqualification of the tax credit because I only technically owned the car for one day?


    IRS expects that this car is for your use, not for resale. I do not know if there is a time limit, but if you transfer ownership in a day, IRS can deny it. Again, may be I am not understanding, but if you own the car and your wife uses it, why should anyone care, except possibly the auto insurance company. Again, I do not know your tax situation and you should contact your tax preparer rather than a discussion board, but how are you filing your taxes (married filing jointly or married filing separately). New York is not a community property state, so I would assume cars are individually owned. Or you should be able to register the car in your joint names. Or name her the beneficiary. You may want to talk to your accountant about this. Your insurance agent may have some insights.
     
  4. space_out

    space_out New Member

    Hey interestedinEV! Thank you so much for the very detailed response... Much, much appreciated.

    Regarding the confusion around question 3 -- sorry, I could have phrased my hypothetical scenario more clearly. I think you did answer my question already, but I'll try to clarify what I meant anyways. I'll try another scenario - if federal income taxes have a separate forms for employment salary and income from investments, maybe there was a hidden clause in the EV credit that rendered it only able to reduce your tax owed from your employment income. So, if I owed $5000 on earned income through employment, and another $5000 on earned income through investments, I would owe a total of $10000... But, in this hypothetical situation, I would only be able to claim a $5000 deduction from the EV credit, because it only applied to what I owed from my employment income, and not my investment income... Whereby I'm then unpleasantly surprised by being off the mark on what I thought I would actually be able to claim. I have no evidence or suspicion of this particular scenario, but I want to be absolutely sure that there isn't something relatable to this in reality.

    Does things make more sense? For some reason I'm struggling to find the best way to describe this, so I apologize if I'm still a bit hazy.

    Anywho, thanks again -- you've already been a huge help!
     
  5. interestedinEV

    interestedinEV Well-Known Member

    It does not work that way. You need to calculate your taxes (which includes taxes on income, tax on capital gains etc.) and you get your tax liability, how much you owe in taxes. You can now take the credits and then this reduces that the taxes due to the IRS. So that concern is unfounded.
     
  6. space_out

    space_out New Member

    Ok, great -- that was critical knowledge. Thanks again - virtual handshake your way. Cheers!
     
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  8. Rothgarr

    Rothgarr Member

    Haven't bought a PHEV yet, but we had solar installed last month.

    We have an almost $17k tax credit from installing solar. But we'll probably only be paying between $12 and $13k in taxes for 2018 after all deductions. So we can expect to get a refund for that amount (between $12 and $13k).

    Whatever is left over gets carried over to 2019, so next year we can expect to have that $5k - $6k leftover credit.

    I was going to wait until next year to get a Honda Clarity with $7.5k federal credit and $2k CT incentive. But she said I might as well get it this year because the car credit gets calculated BEFORE the solar. And this also helps ensure that I get the incentives before the government does anything stupid if they end the PHEV programs early. So we won't be paying taxes for two years and getting a big refund for two years.
     
  9. Pushmi-Pullyu

    Pushmi-Pullyu Well-Known Member

    I've seen it stated that you have to keep the car for 1 year (12 months) before transferring the ownership, to qualify for the Federal tax credit. I don't know if that's true. I also don't know if there is a similar restriction on State tax credits, but I'd be surprised if there isn't. Check with your State registration office on that.

    I suggest, as an easy way out of this dilemma, that you simply register the car with both you and your wife as co-owners. Mr. Google indicates this is possible in New York State, and I'd think that would be pretty common practice in most if not all States.

    For your other questions: Really, you ought to be directing very specific questions like this to your tax preparer. Failing that, the IRS has a toll-free help line; try that for questions about the Federal tax credit. Those of us here can share our group wisdom with you, but when it comes to tax preparation, your individual case is unlikely to be exactly the same as anyone posting a comment here.

    For an overview about the Federal tax credit, I recommend this article:

    From Edmunds.com: "Electric Vehicle Tax Credits: What You Need to Know"

    From the info included in your very specific questions, my guess is that you likely know everything in this article, but I advise you to skim thru it anyway to see if there is anything you didn't glean from other sources.

     
  10. interestedinEV

    interestedinEV Well-Known Member

    That was my question, which is applied first. Again I am not a tax professional, but here is an opinion on the web which seems to agree with you partially. I would however go by your accountants view, as she knows your situation best

    https://ttlc.intuit.com/questions/4463917-i-understand-how-the-tax-credit-for-solar-energy-works-and-how-the-electric-vehicles-works-but-if-i-have-both-in-the-same-tax-year-how-do-they-calculate-it

    @Pushmi-Pullyu thanks for reinforcing exactly what I had said, that @space_out should be contacting a tax preparer rather than a discussion board for those questions.
     

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