Financing/tax credit

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TRSmith

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I’m thinking about buying an EV, but have a logistical question about the US federal tax credit.

After learning that I’d have to wait until I file my taxes to get the credit, I’m trying to figure out how best to use it. For example, do people finance something like 80% of the cost, and then make a big payment on the loan when you get your tax refund? Put an additional $7,500 toward your down payment, knowing you’ll get it back when you file your taxes? Redo your W4 withholdings so you get it back in each paycheck?

Just looking to get an idea of people’s strategies.
 
TRSmith said:
I’m thinking about buying an EV, but have a logistical question about the US federal tax credit.

After learning that I’d have to wait until I file my taxes to get the credit, I’m trying to figure out how best to use it. For example, do people finance something like 80% of the cost, and then make a big payment on the loan when you get your tax refund? Put an additional $7,500 toward your down payment, knowing you’ll get it back when you file your taxes? Redo your W4 withholdings so you get it back in each paycheck?

Just looking to get an idea of people’s strategies.
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I know of people that have done all of the above, and it sometimes depends on the timing of the purchase. Buying a the end of December means a relatively short wait and no way to adjust the amount withheld. Buying in January makes the withholding adjustment pretty easy to calculate.
I've heard of people leasing the car and then paying it off almost immediately. this is usually done with a "one pay" lease and is contingent on the finance company passing on 100% of the tax credit as a cap cost reduction. Mostly used when the buyer has money but not much income.
 
Double check but at one time, individuals could get $1000 tax credit for installing a home EVSE. A business could get $10,000. This might be a way an apartment resident might provide the EVSE and building owner the circuit and split the resulting tax credit savings.

Bob Wilson
 
TRSmith said:
I’m thinking about buying an EV, but have a logistical question about the US federal tax credit.

After learning that I’d have to wait until I file my taxes to get the credit, I’m trying to figure out how best to use it. For example, do people finance something like 80% of the cost, and then make a big payment on the loan when you get your tax refund? Put an additional $7,500 toward your down payment, knowing you’ll get it back when you file your taxes? Redo your W4 withholdings so you get it back in each paycheck?

Just looking to get an idea of people’s strategies.
Click to expand...
I didn't change my W4, I just waited for my tax return.. Got $9600 back ($7500 from the tax credit). I did NOT use it to pay down my loan. At 2.90% interest, I have no intention on paying it down faster. I used part of that money to pay cash for my wife's BMW i3.. Even though I own the i3 free and clear, I will take out a loan on it as I can get 2.74% from my Credit Union. I invest in real estate and own several houses free and clear. I could take loans out on them to finance future homes but closing cost on investment property is high and the interest rate is also significantly higher than on someone's primary residence. So, a car loan with no closing cost and sub 3% interest is perfect.. I could have paid cash for my Kona but financed it 100%, including sales tax but I rather have the $40k in my bank account at sub 3% interest than owning the car free and clear. Buying foreclosures that need some work, you can only pay cash and having my money in the bank rather than owning my cars free and clear is the much better option for me. Can't get money much cheaper than for a car loan.. I think that anyone who invests money and routinely gets a higher return then the interest rate on a car loan should finance as much of a car as they qualify for.. At my credit score being in the 800's, I always get the lowest rate on car loans. The only time I pay off one of my cars is when I sell it as it's easier to sell if you have the title in hand.. Otherwise, I max out the money I can borrow at low interest rate..
 
I think leasing is a pretty common option, as -- has been noted -- they can take it right off the cap cost so you don't wait a year (do check the paperwork -- never trust car dealers, lol). That's the route I took. As a northern Californian, I was also able to get a $2000 rebate from the state -- which took about 2 months -- and $800 from the local utility company, Pacific Gas and Electric, which came even quicker. I just put those last 2 rebates where I thought I'd get a decent return and have kept making my lease payments as normal.
 
Glad I found this. Normally I would owe more than $7500 tax, but this year is different due to pandemic. Are we legally allowed to increase allowance so we can reduce withholding tax? Also what’s other ways I can do so I can use up all $7500 tax credit? I’m from California, and installing level 2 charger may even get me another 30% tax credit. This is probably only time I struggle to use tax credit lol
 
BlueKonaEV said:
I didn't change my W4, I just waited for my tax return.. Got $9600 back ($7500 from the tax credit). I did NOT use it to pay down my loan. At 2.90% interest, I have no intention on paying it down faster. I used part of that money to pay cash for my wife's BMW i3.. Even though I own the i3 free and clear, I will take out a loan on it as I can get 2.74% from my Credit Union. I invest in real estate and own several houses free and clear. I could take loans out on them to finance future homes but closing cost on investment property is high and the interest rate is also significantly higher than on someone's primary residence. So, a car loan with no closing cost and sub 3% interest is perfect.. I could have paid cash for my Kona but financed it 100%, including sales tax but I rather have the $40k in my bank account at sub 3% interest than owning the car free and clear. Buying foreclosures that need some work, you can only pay cash and having my money in the bank rather than owning my cars free and clear is the much better option for me. Can't get money much cheaper than for a car loan.. I think that anyone who invests money and routinely gets a higher return then the interest rate on a car loan should finance as much of a car as they qualify for.. At my credit score being in the 800's, I always get the lowest rate on car loans. The only time I pay off one of my cars is when I sell it as it's easier to sell if you have the title in hand.. Otherwise, I max out the money I can borrow at low interest rate..
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Makes sense, though in my case, I don't really have investments to speak of. So the cash wouldn't necessarily be working harder/better somewhere other than paying down a loan, even with low interest.
 
I also leased. I am in southern California. Federal rebate came off of the price by the lease company. I got the $4000 back from the state and $1000 from Southern California Edison for a total of $12,500 off the cost of the car. I really like the Kona and may keep it but there is going to be a lot of new choices when my lease is up in 2022. Maybe a Volvo XC40 or a Mustang Mach E or??? Who knows what will be available in the coming years. The lease allows me the option to upgrade without having to deal with selling the car or paying off a loan.
 
By the way, Californians should note that the state rebates may be in some danger due to the current state budget crisis. Nothing is close to certain yet, but if I was looking to buy an EV in California I'd be inclined not to wait too long. In the short term, though, the program is adequately funded. Regularly updated info can be found here.
 
Clarity20 said:
Glad I found this. Normally I would owe more than $7500 tax, but this year is different due to pandemic. Are we legally allowed to increase allowance so we can reduce withholding tax? Also what’s other ways I can do so I can use up all $7500 tax credit? I’m from California, and installing level 2 charger may even get me another 30% tax credit. This is probably only time I struggle to use tax credit lol
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I'm not a CPA or tax expert, but I believe the tax credit applies to your overall federal tax liability. You generally pay most of your federal income tax throughout the year, and then when you file your annual returns, you settle up by either paying or being refuned the difference. So if you owed $10,000 in taxes and paid $11,000 throughout the year, you get a $1,000 refund. If you owed $10,000 in taxes and got a $7,500 credit, but paid $11,000 throughout the year, you get a $8,500 refund.
The only issue with the credit is if your total tax liability for the year is under $7,500, in which case you can only get a credit for the amount you owe. So if you owed $5,000 in taxes, you can only get a credit for $5,000, and if you paid any amount throughout the year, you get it back at tax time.
If anyone knows better, please correct me.
 
Clarity20 said:
Glad I found this. Normally I would owe more than $7500 tax, but this year is different due to pandemic. Are we legally allowed to increase allowance so we can reduce withholding tax? Also what’s other ways I can do so I can use up all $7500 tax credit? I’m from California, and installing level 2 charger may even get me another 30% tax credit. This is probably only time I struggle to use tax credit lol
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Below is a link to incentives and rebates in California. You can in put your zip code and it will list all of the rebates and incentives for Federal , State, Utility and Air Polution Control Districts (APCD's) in your area. There are some fairly large incentives other than state and federal. I know where I live in kern county there were $1000 incentives from both the utility and the APCD. Some areas have incentives for turning in older polluting cars with incentives up to $9500 to get them of the road. Well worth checking out all your options.

Looks like the zip code part is not working at the moment but if you search for ev incentives in your county you will find them

https://www.coltura.org/electric-vehicle-rebate-california

Here is another link to incentives in California

https://cleanvehiclerebate.org/eng/ev/incentives
 
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First, you need to contact the dealer and discuss the conditions that can be offered to you. Then they will help you proceed from how it will be most convenient for you to pay the car loan later - you are going to buy the car using the loan funds, I understand correctly.
 
Liesovit said:
First, you need to contact the dealer and discuss the conditions that can be offered to you. Then they will help you proceed from how it will be most convenient for you to pay the car loan later - you are going to buy the car using the loan funds, I understand correctly.
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I can also recommend you to read on https://www.greedyrates.ca/blog/how-to-get-a-car-loan-in-canada-when-you-have-bad-credit/ about this. The site provides information for Canada, but it will be relevant to you.
 
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