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Discussion in 'General' started by Aircooled6, Nov 4, 2017.
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Please explain how the tax credit ($7500) works.
From the Department of Energy: Office of Energy Efficiency & Renewable Energy -- Electric Vehicles: Tax Credits and Other Incentives web page
The federal government and a number of states offer financial incentives, including tax credits, for lowering the up-front costs of plug-in electric vehicles (also known as electric cars or EVs).
The federal Internal Revenue Service (IRS) tax credit is for $2,500 to $7,500 per new EV purchased for use in the U.S. The size of the tax credit depends on the size of the vehicle and its battery capacity. To find out specific tax credit amounts for individual vehicles, visit FuelEconomy.gov’s Tax Credits for Electric Vehicles and Tax Credits for Plug-in Hybrids pages. This tax credit will be available until 200,000 qualified EVs have been sold in the United States by each manufacturer, at which point the credit begins to phase out for that manufacturer. Currently, no manufacturers have been phased out yet.
To claim the credit, fill out IRS Form 8936, Qualified Plug-in Electric Drive Motor Vehicle Credit. For vehicles acquired for personal use, report the credit from Form 8936 on the appropriate line of your Form 1040, U.S. Individual Income Tax Return. For vehicles purchased in 2010 or later, this credit can be used toward the alternative minimum tax (AMT). To learn more about the law, visit the IRS’s Plug-in Electric Drive Vehicle Credit webpage.
Depending on where you live, you may also be eligible for EV incentives from your state, city, or utility. Monetary and non-monetary incentives may include additional tax credits, vehicle or infrastructure rebates or vouchers, vehicle registration fee reductions, loans, special low-cost charging rates, and high-occupancy vehicle lane exemptions. A few states also have fees specific to EVs. To find incentives and laws relevant to consumers, search the database above for your state. To search all laws and regulations relevant to EVs, including businesses, visit the Alternative Fuels Data Center’s Laws and Incentives database.
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It's probably more informative to read the Edmunds.com article "Electric Vehicle Tax Credits: What You Need to Know", which I'm not going to copy and paste here, due to both copyright (government publications, such as the text above, are not protected by copyright) and the fact it has tables showing the maximum credit for most of the BEV and PHEV models on sale in the U.S.; tables which won't display properly if copied here.
Is it possible to receive this credit two years in a row with the same vehicle ?
If by "the same vehicle" you mean the very same car, then no. It's something you can get when a car is bought new. If by "the same vehicle" you mean another unit of the same model bought the next year, then yes. It's once for each purchase, limited by how much you pay in U.S. federal income tax for the year.
This is something I actually thought was feasible.
For instance, I don't make enough in a single year to use the entire $7,500 credit, so I thought one could use it over the course of 2 or 3 years.
It's quite possible I'm wrong about this, but I thought this was the case.
Reduce tax owed for year by full tax owed or $7500 whichever is less
Thats carry forward and as of a few years ago at least, last I looked, the EV credit does NOT qualify for carry forward.
"you cannot carry the excess forward for use in future years"
We did the math on this not long ago and you need to make like $110k family with 2 kids to qualify, or something like that. Everything changed this year but it's still a wealthy person credit, but that's true for most of them.
Thanks for clearing that up for me.
Also, $110K lol. Like, that's several year's wages.
If you are married and have no kids and get no child tax credit then you can get the full benefit at a lower annual income. My wife and I made under 90k last year combined and we paid about $8000 in taxes after the standard tax deduction. The changes in tax code this year had basically no benefit to us, sadly.
I almost regretted leasing my Bolt instead of buying! But price wise over 3 years it would have been a wash. And I know by then there are going to be so many crossover EV options that I would just be trading the car in anyways.
I wonder how often it happens someone goes and gets an EV banking on the credit only to find out they didn't owe enough tax to collect on it.
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It happened to one of our Forum members, but only because the dealership backdated his purchase to pad their numbers.
For those with a traditional 401k or equivalent from a former employer, you can do a Roth IRA conversion and use up the tax credit.
Hmm. This is interesting. How does that work?
Ah, good idea, hadn't considered that. You are suggesting taking money out of retirement as an early distribution to increase your actual "income" for the year, correct? Or am I misunderstanding?
If so, just make sure you plan ahead and do it before the end of the year! And then be sure to put it back into retirement later so that you aren't screwing over your future self! Lol.
You change pre-tax dollars to post-tax dollars. If it stays in a retirement account you avoid the 10% penalty but you go ahead and pay the taxes now vs later. It's not a bad idea but it takes some acute accounting calculations, and of course for the person to have enough retirement assets to make it worthwhile.
Someone in this situation is probably in the now 12% bracket. For each dollar of EV credit you need $8.33 of 401k conversion. If you need to collect say $2,000 of EV credits then you need to convert $16,666 to generate the tax benefits.
You need to really start this in say October so it's all done and in place in the same tax year.
No you don't take it out, that incurs a penalty. You convert it to post tax money. It will work for some but not sure it's a widely available option to many. First it requires you to actually have the pre-tax money (be it 401k, IRA, etc) to do it with.
Second you need to be very accurate with your calculations or you could get it very wrong. This means doing your taxes in October or so and projecting out through years end what you will pay. This includes any credits, 401k contributions, etc. Since tax software isn't available during the year you do this by hand or pay an accountant, which cuts into your benefit. Not everyone can do their taxes in advance by hand and accurately project what the end result will be.
I see, interesting, I have never touched my 401k so not quite sure how that works. Wasn't aware that it took out such a huge penalty!
My deductions are already set up for a Roth IRA - I pay taxes on it now, not later. So that may be part of the reason why my tax burden is higher and I'm able to take advantage of the full rebate?
Yes, you're paying taxes now on the $5500 that you are putting into the Roth IRA (if you're contributing the maximum allowed). If it was going into a traditional IRA, that $5500 would be deducted from your income.
EDIT: If both you and your wife are contributing the max into Roth IRAs that would be $11000
You could also move the traditional 401k or equivalent, into a traditional IRA first and then do a Roth conversion at the end of the year. That should help a bit with the tax planning.
Moving 401k or equivalent money from a former employer into a IRA may not be a bad idea just for the extra investment options it offers.
If you pay taxes on it today you are paying at the highest marginal rate
If you pay taxes on it later you start the tax year with some freebies (standard deduction, exemptions, deductions etc) and get the first chunk of money at 0%
I'd much rather avoid the highest marginal tax today and get it truly tax free later.
If the take out rate = the put in rate then it's a wash, but you can really tip things in your favor by having the take out rate be less than the put in rate avoided.
We're in the old 33% marginal bracket, now like 28% or whatever it is. I avoid 33%/28% on every dollar put away and get a good chunk of it at 0% on removal.
Roth's aren't always the right choice, and it can be more costly in the end.