Forums

Tax Credit for Model 3

Tax Credit for Model 3

Had a question about the $7,500 Tax Credit how much of that will be taken off of what I owe to the IRS? For example, I owed the IRS $6,000 last year with deductions of $9,000 in medical, $5,000 in work-related expenses, 5,000 work miles, and $4,000 school credit. After all those deductions I only got back $250 from my Tax Return. From what my CPA told me each category has a percentage of deductions applied to what I owe. She is not familiar with the electric car tax credit (Form 8834) so what percentage of the $7,500 will be taken out of the $6,000? Thank you.

EVMan | 25 februar 2017

You will only be credited with the amount of tax due or the full amount of the EV credit which ever is lesser. We installed solar panels a couple of years ago and it took two years to get the full credit back since our total tax due was less than the credit.

In your instance, you would be credited with the $6,000.00 since that is what you are due prior to deductions. The remaining $1,500.00 would be applied to the following years taxes.

bmalloy0 | 25 februar 2017

Krdenault, you can use it over multiple years? Are you sure about that?

SoFlaModel3 | 25 februar 2017

I'm not sure that's a true statement. I'm also not sure it's false.

I have seen numerous posts suggesting you would get $6,000 since that is your tax liability and the extra $1,500 would be forfeited since you did not have enough liability.

I would confirm if it could be applied to the next year's tax return.

SCCRENDO | 25 februar 2017
EVMan | 25 februar 2017

I don't know if the EV tax credit works differently than the solar panel rebate, but I believe a tax credit is a tax credit. As I said it took us two years to get our full credit for our solar panels. We got most of it on our 2014 tax return and the rest on our 2015 return.

stevenmaifert | 25 februar 2017

For starters, consider getting a new CPA. The IRS Form for the $7500 Qualified Plug-in Electric Drive Motor Vehicle Credit is Form 8936: https://www.irs.gov/pub/irs-pdf/f8936.pdf Form 8834 is used to claim credit for the purchase of a two or three-wheeled electric vehicle, or a low-speed four-wheeled electric vehicle (like a golf cart) between February 17, 2009 and December 31, 2011. REF: https://turbotax.intuit.com/tax-tools/tax-tips/IRS-Tax-Forms/What-Is-Tax...

The $7500 Qualified Plug-in Electric Drive Motor Vehicle Credit is a non-refundable credit and cannot be carried forward or backward to other tax years. What that means is you have to use it in the tax year you took delivery of a qualifying vehicle and if, after all your exemptions and deductions are applied to your adjusted gross income, your tax liability is less than $7500, you would owe nothing in taxes, but the IRS doesn't refund the difference.

Any withholding from wages or other sources of income does not affect eligibility for the full amount of the tax credit. Once your tax liability is calculated, the $7500 tax credit (and any other tax credits) are subtracted from that figure. If the remaining balance is zero or less, you would get back all your withholding as a tax refund. If there is a remaining balance, your withholding would be applied against that balance, with any excess withholding refunded or you might owe if not enough was withheld.

carlk | 25 februar 2017

It's pretty simple. You will get full amount long if you have more than $7500 tax liability in the year you purchased the car. Or amount that equals to whatever your tax liability is if it's below $7500. Most people will not have problem having that tax liability by doing some simple things like taking capital gains or IRA distrubutions, move mortgage interests payment to previous or following year,... etc in that particular tax year.

Haggy | 25 februar 2017

When you say you owed the IRS $6000, I'm assuming you mean that was your total tax liability for the year. In that case, the tax credit would wipe out the whole thing and nothing would carry forward. If you meant you owed them that amount because that's how much you still had to pay them, then you wouldn't have to pay them anything, and you'd get a refund of up to $1500, not to exceed payments you already made.

You might have other options, but you'd have to take care of it in the taxable year, not the one when you file, so you'd have to be keeping track of your finances throughout the year. It won't be a problem if you get your car early in the year, but if you are expecting it in December and plan for it, but you get it in January instead, it could backfire.

Assuming you feel safe, you could take steps to create an additional $1500 in tax liability. For example, suppose you have a traditional IRA. If rolling over a portion of it or all of it would generate a tax liability of $1500, you'd get that back as a tax credit. You wouldn't see more cash in your pocket but you wouldn't pay tax on the money down the line. If you have appreciated securities and could sell enough to generate a $1500 capital gain, then you could sell enough of the security to generate the tax liability, then buy the security back at the same price (or very close to it.) The result would be that you'd see no cash, your tax liability would go up, and the credit would cover it. When you sold the security down the road, it would have a higher cost basis, and thus you'd pay a lower gain down the line.

You really want to speak to a competent CPA who knows about all this off the top of his head.