Taking advantage of the tax rebate to buy a new Clarity every year

[secret901]

Anyone considered how feasible this is? Depending on your state, you are receiving at least a $7500 rebate for buying a Clarity. As far as I know there are no limits on how many times a person can claim this tax credit in one year or over their lifetime. They are eligible as long as the tax credit is still available.

When a new model comes out, you can trade in your new car or sell it off for about $7500 less. I checked KBB and a 2018 Clarity with 10k miles in excellent condition has a trade in value roughly equal to what I paid out of pocket for my 2019 Clarity minus the tax incentives and rebates. That means you can use the car for a whole year for essentially nothing.

If you want to be even more extreme, you can just sell the car 3 months after buying for a higher price than what you paid (after rebates). You can make a profit from repeatedly buying and selling new Clarities.

Anyone see a flaw with this scheme? I can't seem to find a catch.

 

[petteyg359]

The obvious problem being the wording in said that explicitly forbids "intent to resell". "I swear I was going to drive it a few months before selling it" isn't going to fly if the IRS decides you get the privilege of being audited.

 

[jdonalds]

I heard somewhere that you must keep a car for 20 months before selling or trading it in and then be able to claim the $7,500 credit.

 

[secret901]

As far as I understand the text of the law, there is no limitation on intent to sell. In fact, it explicitly allows the tax credit for business purposes.

 

[secret901]

I heard somewhere that you must keep a car for 20 months before selling or trading it in and then be able to claim the $7,500 credit.

Did everyone who bought the car had to wait 20 months before claiming the credit? That doesn't seem to reflect reality, when you had to claim the credit for the year that you bought the car.

 

[jdonalds]

Ah now that I did some research it is a California limit.

Ownership Requirement
Retain ownership of the vehicle in California for a minimum of 30 consecutive months immediately after the vehicle purchase or lease date. Original lease terms of at least 30 months are required for program eligibility.

Register the new vehicle with the California Department of Motor Vehicles (DMV) for a minimum of 30 consecutive months* for use in California. Any government-owned vehicle not registered with the California DMV is still required to operate within California for 30 consecutive months immediately after the vehicle purchase or lease date.

Rental and car share fleets can select a reduced rebate amount and reduced ownership requirement.

*Note: CARB verifies vehicle ownership through periodic checks of Vehicle Identification Numbers (VINs) in the California DMV database. If a vehicle purchaser or lessee sells or returns the rebated vehicle to the dealer, CARB or its designee reserves the right to recoup CVRP funds from the original vehicle purchaser identified on the rebate form and may pursue other remedies available under the law for unauthorized early termination of vehicle ownership.

If you do not retain ownership or register the vehicle for 30 consecutive months, please contact CVRP staff.

 

[petteyg359]

As far as I understand the text of the law, there is no limitation on intent to sell. In fact, it explicitly allows the tax credit for business purposes.

It's right there on the first page... (d)(1)(B)

 

[Landshark]

Seems like a lot of pain for no gain.

The state in which the vehicle is purchased has no bearing on the Federal tax credit. Finding a Clarity will be the challenge.

It is a Federal tax credit, not a rebate or refund. I can’t say for sure, but I would speculate that the credit is applicable to each vehicle, rather than individual. We don’t intend to sell ours, so I am unable to provide information on possible ramifications on future tax returns should the vehicle be sold within a certain time after the original purchase.

Registration requirements are determined by states that offer additional incentives. Oregon requires the vehicle be registered in the state for 2 years along with written consent to undergo random cavity searches.

California will be the most likely state where you will be able to buy a Clarity. You will get to pay sales tax and so will the next buyer. Don’t forget to factor that cost in to your car flipping operation.

I would like to believe that a person who has sufficient income to qualify for the full tax credit would have more important things to waste their time on than your current proposal.

Do keep us posted.

On edit: I would suggest buying a Clarity and selling the parts separately. Put me first in line to buy the batteries.

 

[Sandroad]

Anyone considered how feasible this is? Depending on your state, you are receiving at least a $7500 rebate for buying a Clarity. As far as I know there are no limits on how many times a person can claim this tax credit in one year or over their lifetime. They are eligible as long as the tax credit is still available.

When a new model comes out, you can trade in your new car or sell it off for about $7500 less. I checked KBB and a 2018 Clarity with 10k miles in excellent condition has a trade in value roughly equal to what I paid out of pocket for my 2019 Clarity minus the tax incentives and rebates. That means you can use the car for a whole year for essentially nothing.

If you want to be even more extreme, you can just sell the car 3 months after buying for a higher price than what you paid (after rebates). You can make a profit from repeatedly buying and selling new Clarities.

Anyone see a flaw with this scheme? I can't seem to find a catch.

You might want to do a reality check on used prices. Why would anyone buy used at the same price they can buy new, factoring in the incentives on new? For example, our local Audi dealer has a used Etron priced at exactly $7500 less than new. I think it’s extremely unlikely to sell at that price, even though it looks good on the “sale” price sticker!

 

[craze1cars]

Anyone see a flaw with this scheme? I can't seem to find a catch.

None. Entirely legal. Git er dun.

 

[Danks]

You might want to do a reality check on used prices. Why would anyone buy used at the same price they can buy new, factoring in the incentives on new? For example, our local Audi dealer has a used Etron priced at exactly $7500 less than new. I think it’s extremely unlikely to sell at that price, even though it looks good on the “sale” price sticker!

Why would anyone buy a used car at the same price they can buy a new, factoring in incentives on the new? 1. When they can't buy the new because they don't live in California.

 

[Rangavasu]

You might want to do a reality check on used prices. Why would anyone buy used at the same price they can buy new, factoring in the incentives on new? For example, our local Audi dealer has a used Etron priced at exactly $7500 less than new. I think it’s extremely unlikely to sell at that price, even though it looks good on the “sale” price sticker!

Because they don't have 7.5k tax liability...

 

[Sandroad]

Why would anyone buy a used car at the same price they can buy a new, factoring in incentives on the new? 1. When they can't buy the new because they don't live in California.

Good point! I just assumed the OP scheme was being proposed in California because that's the only place to buy new.

 

[Danks]

Good point! I just assumed the OP scheme was being proposed in California because that's the only place to buy new.

I'm assuming the OP is in California as well. My point is that someone selling a Clarity in California might find they have a market to buyers from outside of California who would pay a pretty good price just to get the car. If they can't order a new Clarity in their state and California dealers won't sell to them because they are out of state, then buying used from a private seller may be the best - least bad? - option.

 

[Landshark]

Hypothetical situation:
Touring $37500 MSRP less $6000 = $31500
Add tax, license, reg, etc.
$31500 + $3500 = $34000

Now you need $34000. Cash or loan?
Loan at 3% for 60 months = $610/mo and just under $1000 interest the first year.
Payments = $6399
Loan balance at end of year = $27601

In the mean time a tax return may have been filed and the full $7500 credit may have been realized. If so, that $7500 could be used to partially pay off the balance of the loan and it would be necessary to sell a 1 year old car with 12000 miles for $20000, just to break even.

What would make this a worthwhile venture? A profit of $2000, $3000, $4000?

Theoretically, a buyer outside of California could arrange the same purchase from a CA dealer, pay $1000 in transport fees, take advantage of the federal tax credit and end up with a new car for $25,000. They would have to pay sales tax and registration in their home state regardless of which method the used to buy the car.

 

[Mani Suresh]

Hypothetical situation:
Touring $37500 MSRP less $6000 = $31500
Add tax, license, reg, etc.
$31500 + $3500 = $34000

Now you need $34000. Cash or loan?
Loan at 3% for 60 months = $610/mo and just under $1000 interest the first year.
Payments = $6399
Loan balance at end of year = $27601

In the mean time a tax return may have been filed and the full $7500 credit may have been realized. If so, that $7500 could be used to partially pay off the balance of the loan and it would be necessary to sell a 1 year old car with 12000 miles for $20000, just to break even.

What would make this a worthwhile venture? A profit of $2000, $3000, $4000?

Theoretically, a buyer outside of California could arrange the same purchase from a CA dealer, pay $1000 in transport fees, take advantage of the federal tax credit and end up with a new car for $25,000. They would have to pay sales tax and registration in their home state regardless of which method the used to buy the car.

This is what I did living in Texas. Negotiated everything over the phone and emails. Flew in morning DAL to LAX, sign the paperwork, get the truck to pick it up and fly back that evening back to Dallas.

It did not make any sense to go buy the used clarity's on the dealers lot. But you have to give credit to the dealerships to confuse you into thinking you will not get the $7500 federal tax credit because it is limited funds and what not! They wanted me to buy a 2018 used clarity with about 50k miles on it for 26k.

 

[Bender]

In the mean time a tax return may have been filed and the full $7500 credit may have been realized. If so, that $7500 could be used to partially pay off the balance of the loan and it would be necessary to sell a 1 year old car with 12000 miles for $20000, just to break even.

Not following your "break even". Break-even would be $26.5 in your example. Your $20k would be for "no negative equity".

No need to wait on a tax filing for tax credit. W4 can be adjusted to reduce withholding earlier throughout the year.

Some people will put less than 12k miles in a year. I'm probably going to be around 6k miles. The house I purchased is near work.
I paid $28.4k including TTL for a 2018 touring last June. If I could sell it for ~$26k this april-Jun and find a 2020 for around 33k (including TTL), then I may swap out. Not in CA either though, so makes it a little tougher with the flights. But flights often aren't too bad if booked a week or two in advance.

 

[Landshark]

Hypothetical situation:
Touring $37500 MSRP less $6000 = $31500
Add tax, license, reg, etc.
$31500 + $3500 = $34000

Now you need $34000. Cash or loan?
Loan at 3% for 60 months = $610/mo and just under $1000 interest the first year.
Payments = $6399
Loan balance at end of year = $27601

In the mean time a tax return may have been filed and the full $7500 credit may have been realized. If so, that $7500 could be used to partially pay off the balance of the loan and it would be necessary to sell a 1 year old car with 12000 miles for $20000, just to break even.

No need to wait on a tax filing for tax credit. W4 can be adjusted to reduce withholding earlier throughout the year.

Math above seems correct.

An individual would need a significant income in order to underpay $7500 in Federal withholding in a few weeks or months. One would also need to know how to manipulate the data required on the new for 2020 W-4 form in order to accomplish the task.

Best of luck to you on selling a used 2018 for $26K.

 

[Landshark]

This is what I did living in Texas. Negotiated everything over the phone and emails. Flew in morning DAL to LAX, sign the paperwork, get the truck to pick it up and fly back that evening back to Dallas.

It did not make any sense to go buy the used clarity's on the dealers lot. But you have to give credit to the dealerships to confuse you into thinking you will not get the $7500 federal tax credit because it is limited funds and what not! They wanted me to buy a 2018 used clarity with about 50k miles on it for 26k.

Glad to see my hypothetical situation was actually accomplished by someone. Our purchase was similar in that we had a dealer in Eureka, CA deliver a car to Brookings, OR.

We attempted to work with Sierra Honda in Monrovia, CA who seemed willing to do anything necessary to sell us a car, until I asked them to deliver it to Oregon. They then tried to explain how the Clarity was a “special” car which could not be sold without charging CA sales tax even if I arranged and paid for transport from their lot. They also said the sales tax would be refunded once I registered the car tax in Oregon.

Would you mind sharing the name of the dealer you worked with on the purchase?

 

[Bender]

Math above seems correct.

An individual would need a significant income in order to underpay $7500 in Federal withholding in a few weeks or months. One would also need to know how to manipulate the data required on the new for 2020 W-4 form in order to accomplish the task.

The numbers you put were the amount needed to pay off the remaining loan (and ignoring the principle payments made over the first year). Not breakeven on purchase price.

Yes $7500 in a few weeks or months would need a lot but I didn't suggest that. But 6 months doesn't take absurd income if one is not MFJ. Certainly one need not wait until the following April to receive the benefit. When I purchased in last June, basically after I adjusted the W4, I had already paid in all my necessary withholding for the year and had no more withholding for the rest of the year. It's not rocket science to adjust the old W4s or the new W4s. The IRS has a calculator to do so (https://www.irs.gov/individuals/tax-withholding-estimator), you just punch in a few numbers. AFAIK in the new W4 you might even be able to punch in those numbers directly into the W4 and not even go to the calculator.

Best of luck to you on selling a used 2018 for $26K.

It's not far out of line for limited reports I've seen in a few forums of recent sales/purchases private party in other states than CA, it's actually about $3k lower than the reports I've seen. Not sure in a month or so, though. NADA currently shows $23325 dealer trade-in value estimate with 4500 mi, or $27625 clean retail.

I'd be more only looking if there's a few $k lower sales price for a 2020 than in your example (in line with what there was for 2019's around april-may of last year). I wouldn't be looking to turn a profit but to be in a better position if I were to swap to a different model EV vehicle in a year or two from now.