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Fed tax credit eligibility - who typically doesnt get it?

Fed tax credit eligibility - who typically doesnt get it?

My accountant will verify that, but I heard someone saying that married couples making $300K/year and no children would be the type of profile who would not benefit from the fed tax credit.

Is that true?

I always thought it is more like how much you have paid in fed income tax.

Shock | November 13, 2017

Not true. If you pay $7500 in fed taxes you can get the credit as long as the car also qualifies for the full amount.

NumberOne | November 13, 2017

Perhaps it is true only because they type of car that most couples making 300k per year would purchase would not be a 35k tesla, but a luxury car of some sort. The Tax credit is based on tax liability, so if your tax liability is at least 7.5k then you would get the full credit. If your tax liability is less then you would get less. At this point other manufacturers stand to benefit significantly more than Tesla from the tax credit, since they have almost reached the point of having it phase out, while other manufacturers still have a long way to go.

NumberOne | November 13, 2017

Typo: 'they type' should have been 'the type.

Yodrak. | November 13, 2017

"Îs that true?"

In the sense that such people really need another $7,500 and it would make a significant difference in their financial situation - yes, it's true.

Or maybe the credit might push such people into the AMT?

Carl Thompson | November 13, 2017

Perhaps the person you heard was talking about your _state_ EV incentive. Here in California higher income people do not get the state incentive.

NoMoPetrol | November 13, 2017

My wife and I are at the opposite end of the financial spectrum from your hypothetical $300K couple (less than $50K). Out of a possible $7,500 that our 2012 Chevy Volt qualified us for, we saw a $48 reduction of our tax liability because, for other reasons, we had almost no net taxes that year.

Carl Thompson | November 13, 2017

NoMoPetrol:
"My wife and I are at the opposite end of the financial spectrum from your hypothetical $300K couple (less than $50K)."

You should not be buying a new Model 3 or even a Chevy Volt. You can't afford them. Absolutely makes no sense that a family making $50k should be buying a new $40k+ car. I have no problem with my taxes going to help people who make little money. But don't waste my money by buying expensive things you can't afford.

That sounds harsh because it is.

hsadler | November 13, 2017

Yes, what you said may be harsh, but life savings get used for such things. Making 50k or less has nothing to do with what has been stashed for the later years. Don't ASSume.

Carl Thompson | November 13, 2017

@hsadler

That's true. They could be an elderly couple in retirement with quite a bit of savings. If that's the case then I apologize.

Rutrow | November 13, 2017

Yodrak, The EV tax credit is applied on line 54 of the 1040, whereas the AMT is entered on line 45. Therefore the EV credit can't push you into the AMT.

Yodrak. | November 13, 2017

Rutrow, thanks for clarifying that for me.

Rocky_H | November 13, 2017

@Carl Thompson, Quote: "You should not be buying a new Model 3 or even a Chevy Volt. You can't afford them."

...says the guy who has apparently never heard of saving up money to pay for things.

Rutrow | November 13, 2017

* I am not a tax expert. Consult your accountant on how credits may affect your tax liability. :-)

Carl Thompson | November 13, 2017

@Rocky_H

It just doesn't seem like good advice to me to encourage someone to spend so much for a car when they make so little. That seems like a sure fire way to get into a debt cycle. (Unless of course they make so little money because they're retired and / or sitting on a such a large pile of cash it doesn't matter how much they earn.)

andy.connor.e | November 13, 2017

You should never sacrifice your way of life, or even RISK your way of life for a thing. Its just a thing.

Rocky_H | November 13, 2017

@Carl Thompson, Quote: "It just doesn't seem like good advice to me to encourage someone to spend so much for a car when they make so little. That seems like a sure fire way to get into a debt cycle."

Again from the guy who lives in a bubble, where he thinks everyone buys a new car every 3 or 4 years. The people with lower incomes who budget, DON'T do that ridiculously stupid nonsense. They are satisfied with cars that work and will keep them for 10 years. You know what a $40,000 car is spread out over 10 years? It's $33 a month. That fits into the budget of $50K per year. Care to rethink your attitude?

johnmann | November 13, 2017

I think you’re off by a power of 10. 40000 over 10 years is around $333 per month. I’ll leave it to the individual buyers to decide what they can and cannot afford.

Rocky_H | November 13, 2017

@johnmann, Oh, shoot, you're right. I fat fingered 1200 months in there. You are totally right. I should have realized that wasn't in the ball park.

Rocky_H | November 13, 2017

So I should reduce my harshness a little, but the main point is still there, that buying a nice car once in 10-15 years isn't that out of line. Our other car is a 12 year old Civic.

johnmann | November 13, 2017

I like to get lots of years out of my cars too. Our Forester was 13 years old when it was replaced by the Leaf. Although the Leaf will be replaced after a mere 6 or 7 years. Tesla has forced my hand!

Tesla2018 | November 13, 2017

I dont make enough to get the full credit but I have an inherited IRA that I plan on taking the money out of. I have to take a small amount out each year based on life expectancy since I am under 59 1/2. I will take out just enough so I qualify for the credit if it is still available. I heard you can also turn your regular IRA into a Roth so you pay taxes on it now and then its tax free when you retire.I made the mistake if doing that years ago and the value of the stocks I put in there went down to about 1/3 of the amount I put in. I keep my cars for about 15 years and have about 20 years of income saved up so I can easily afford the car.

burdogg | November 13, 2017

If you own a business and make some of the purchase through the business, then yes, AMT will reduce the ability to take the full credit - BUT that will carry over from year to year.

Sorry to add to the confusion :)

Simply - if 100% business use - AMT COULD only allow 5,000 of the 7500, leaving 2500 for the next year.

Personal does NOT carry over.

So, if 50/50 (just to make it easy):

Business gets $3750 but say AMT gets in the way - you can only claim 3,000 - then 750 gets carried over to the next year
Personal gets 3750 - this is straight up and AMT has nothing to do with this - the only reason you can't take this full amount is if you just don't have enough tax liability - and in that case, the personal portion does not roll over that you don't get to take.

So AMT CAN come in to play if you are using this for business use (It has you break the credit out along the percentage of business and personal use).

Last, as far as money situation - I will dabble - I grew up with one parent stay at home, the other a school teacher. They saved like crazy, but there is no way they would have been able to purchase a $50,000 car without robbing their bank and putting them in the hole. So yes, I would never tell anyone you shouldn't, but I do agree with some of Carl's thoughts - it is not wise to sell the farm for 1 car. This is from my personal life experience. Again, my parents were very frugal and saved to be able to retire. I know what their retirement savings is, and had they taken $50,000 anywhere along the road, they would not have been able to retire when they did. I think Carl's main advice should be - you need to really have a firm budget in place, savings plan instigated, and NOT be selling the farm to get this car :)

msmith55 | November 13, 2017

It may make economic sense to withdraw money from an IRA account to pay for the car, and then use the tax credit to pay for the taxes due on the withdrawal!

mntlvr23 | November 13, 2017

@msmith55 - what? That is crazy talk

@CT - don't give advice to people about whom you do not know their circumstance

The goofballs are out in force tonight

Yodrak. | November 13, 2017

The earnings on an IRA can and do vary from year to year, but on average the growth rate on an IRA is substantially greater than the interest rate on a car loan.

NoMoPetrol | November 14, 2017

@ Carl "You should not be buying a new Model 3"...

Coulda, Shoulda, Woulda is the mantra of those who are not only incapable of living in the present, but insists that others be dragged into their netherworld of regrets and missed opportunities.

Without justifying the affordability of a CPO S85, a Chevy Volt or the Prius I owned for five years before the Volt, in the early 2000's I was seriously considering converting my '86 Honda Civic wagon into a do-it-yourself EV using the information on DIY web sites such as Honda With A Cord. My calculations of $15,000+ to make such a conversion drove me to the Prius for a season. When an actual plug-in vehicle became available that fit my budget (such as it is), I converted to the Volt.

The fact that I was fortunate enough to fulfill my dream of the last 20 years by owning an all electric car, and at the same time owning something at the very top of the automotive food chain, speaks to my personal good fortune for which I am extremely grateful.

And besides, only the nobodies walk in LA.

andy.connor.e | November 14, 2017

$40,000 over 10 years may be $333 per month, but that statement is irrelevant.

Car loans dont go over 72 months, unless you take out a home equity loan on your mortgage. So not even accounting for interest, $40k over 6 years is $555 per month. Thats a number that ALOT of people cannot afford. Sure the cost of ownership is relative to the last 4 years of paying nothing, and thats how it balances out. But for the first 6 years you're forking over 10 years worth of value. Reality of which, those on a "BUDGET" are not buying forty thousand dollar cars. They're buying used Toyotas/Fords/Kias/Chevys/Nissans/Hondas from $8k-$15k. And since you're paying so dirt cheap for your car, and it loses 33% of its USED purchase price after the first year, thats why we hang on to them for almost 10 years. Its not even worth trying to re-sell it. That way you can at least OWN the vehicle and not be tied down to some dreadful 2 year lease contract. But what do i know.

Rocky_H | November 14, 2017

@andy.connor.e, Quote: "So not even accounting for interest, $40k over 6 years is $555 per month. Thats a number that ALOT of people cannot afford."

You must have also missed the part about saving up actual money to PAY for things instead of doing a car loan. These people ask, "How much?" not "How much down and how much a month?"

Quote: "They're buying used Toyotas/Fords/Kias/Chevys/Nissans/Hondas from $8k-$15k."

Yes, and when you do that for a long time, you save a lot of money by not constantly having monthly car payments. This goes to the Dave Ramsey saying, "When you live like no one else, later you get to live like no one else." Living cheaper in a lot of ways and not constantly wasting little bits of money all over the place means that you have more saved over time so that once in a while, when there is something very interesting that you really do want, you can get it. This is financial planning.

burdogg | November 14, 2017

Rocky_H - I agree, but at the same time, if you only make $50,000 a year, depending on where you live, it is hard to get enough saved to 1) have backup money for when something goes wrong 2) be able to plop down $50,000 in cash and not rob your savings.

I am a BIG time saver. My parents were too - 5 kids, yard sales to find clothes, payless shoes while everyone else had Nike, etc... and I know what their savings are at age 60 when dad retired from teaching school. I don't think they would have ever diminished their savings to pay $50,000 for a car - just would have really hurt their financial security.

Not saying it can't be done, and every individual is unique. So yes, some could get this vehicle, but it is not the norm for someone making $50,000 a year. Then again, if it is just you or you and a spouse, no kids, that may change the dynamic of finances.

I think unfortunately, we live in a society of spend now and who cares about later - what's another $10,000 in credit card debt, I want it now. The amount of debt is staggering. We are being told by companies what we have to have now. What, your iPhone is just a year old? That is obsolete, you need to trade it in and get the next one. What? you don't have a smartphone? No way you can live today without one (not true by the way). Just phones alone - every kid in your home needs a smartphone - say what? But we have a family plan - yeah, that you pay how much for? My cell phone bill used to be $46 a month. Now??? I have managed to try to reign it in some - 3 smartphones and still costs $138. Yet the world tells me my other 2 kids 14 and 12 should have a smartphone.

That is just one example above - we won't even go into Netflix, cable, premium channels, NFL channel, etc... that we are told we need - oh and the 60+ Gb internet speed that we all need.

Anyway, just pointing out how much the world has changed and why we are so in debt.

Ok, too much said, losing topic here, tax credit is good for whoever has a tax burden of that much :)

Carl Thompson | November 14, 2017

@Rocky_H

Sorry, I don't agree that a family making $50k per year is smart buying a new $40k car. You can say "well it's only $333 per month for only 10 years" as much as you like... It's simply unwise unless you're sitting on enough cash that you don't need to worry about money.

@NoMoPetrol:
"Coulda, Shoulda, Woulda is the mantra of those who are not only incapable of living in the present, but insists that others be dragged into their netherworld of regrets and missed opportunities."

Yeah, I get it. Fear of missing out is a big deal to people these days. But I'm old enough and experienced enough to tell you with absolute certainty that the regret you'll feel not owning an expensive car now is less than the problems you'll cause yourself by making a stupid financial decision that will affect your family for the rest of your working and retired lives. Trust me if you want to. Or don't.

andy.connor.e | November 14, 2017

Its good to know i will get something. Even if its not the full 7500, i will at least get half of that which is more than my car's trade-in value at that time.

Carl Thompson | November 14, 2017

Completely agree with what @burdogg said.

Rutrow | November 14, 2017

If your $50k/year is capital gains from the $1.3M you have in the bank, I'd say go ahead and get you a Model 3.

Without knowing more specifics on your total wealth it'd be tough giving sound financial advice.

andy.connor.e | November 14, 2017

Doesnt matter to me too much right now. I'll have this car paid off by the time im 30. Maybe ill start saving then.

burdogg | November 14, 2017

Andy - you probably know this but if not - the earlier you start saving, the bigger the nest egg in the end.

Simple example - my son works for me, started at age 9. He makes about $3,000 a year. It ALL goes into a ROTH IRA. If a meager 6% return (if I remember correctly) and he stops putting money in at age 19 - at age 65 that little tiny bit he put in will be worth 1 million. SO $33,000 became $1,000,000. Try getting 1 million by starting that same savings plan at age 30. I don't think even if you put in $3,000 a year from age 30 to 65 you would even have 1,000,000 (I don't have my calculator in front of me to run it to see). That is the value of time :)

Rocky_H | November 14, 2017

@burdogg, Quote: "Rocky_H - I agree, but at the same time, if you only make $50,000 a year, depending on where you live, it is hard to get enough saved to 1) have backup money for when something goes wrong 2) be able to plop down $50,000 in cash and not rob your savings."

People are making so many judgements about this hypothetical person or family's entire living and financial situation from one number.

My cousin, married with kids, got a sales telemarketer call one day. The person asked whether they owned or rented. She said owned. The person then started asking how much their house payment was and who their mortgage was with. She replied that they didn't have one. He then said, "Oh, so you rent?" No. And he went round and round trying to ask the question four or five different ways because he couldn't understand the concept that someone could actually OWN their house without any mortgage on it. You can save some money when you don't have a house payment. I don't know their income specifically, but it's not all that high, and they live in a smallish paid for house in a small town in Iowa, where cost of living is low, so there's a lot more to the picture than just income.

Awesome time value and Roth IRA example.

np86 | November 14, 2017

@Rocky_H just an observer giving my 2 cents, but @NoMoPetrol said he/she lives in LA, so the cost of living example you gave goes out the window. I have no idea about the individuals age, but 50k/year over 2 individuals definitely cannot be enough to cover the cost of living and the cost of the car unless he/she has gotten an incredible inheritance or something along those lines. As for the capital gains aspect, if NoMo had 1.3m in the bank they would be paying more than enough to qualify for the 7500 tax refund so pretty safe to assume thats not the case.
I'm 31 and make 130k/yr and my wife makes about 50k (for now) and with 1 kid here and another coming soon, I'm even thinking twice about paying $55k for a car and being able to maintain a certain lifestyle and keeping a good size safety net in case of any emergency.

SUN 2 DRV | November 14, 2017

Carl: This thread is about the tax credit. No one asked for anyone's opinion about whether it was wise to buy the car at any particular income level.

Your opinion was not only harsh but unnecessary, uncalled for and frankly irrelevant to this thread.

Rocky_H | November 14, 2017

@np86, Well yes, it doesn't fit for LA, but the discussion was well underway when @NoMoPetrol introduced that bit of information. Someone made an absolute blanket statement which needed some resistance. Housing and cost of living are quite a bit different in flyover country, which a lot of people here don't seem to be familiar with a lot of the time.

burdogg | November 14, 2017

Rocky_H - you are correct :) Some people can be really rich living off an $80,000 salary because of where they live. That is why it is funny that stuff like taxes etc...call a certain income level as being rich :) Sure, $250,000 is a lot of money, but in say LA, or NYC, maybe not so much, compared to Iowa.

And this was all way too hypothetical, but some points are true for any income level, there is money wise, and money dumb out there.

But SUN 2 DRV has brought up the best point - none of this applies to the op - but then again, we have had HOW many threads on the tax credit? At one point I counted like 6 in the first 10-15 threads, and that was just 1 week ago or so. So the tax threads are getting a little overworked, and thus devolve into this stuff :) But hey there are some nuggets in this thread - like that Time Value of Money in a ROTH (Boy I wish someone would have told my parents and me when I was young that I could do such a thing).

NoMoPetrol | November 14, 2017

Another companion strategy to ROTH IRA's is accelerating one's mortgage payments. For just a little extra every month paid against principle, a 30-year loan becomes a 15-year loan. Things like that tend to make cash available for a CPO S85 purchase.

Carl Thompson | November 14, 2017

@andy.connor.e:
"Doesnt matter to me too much right now. I'll have this car paid off by the time im 30. Maybe ill start saving then."

This brought a smile to my face. (Or perhaps it was a grimace?) I myself and I'm sure many other folks here have used pretty much that exact same logic to justify our own mistakes when we were your age.

Maybe the car will be paid off when your 30. And maybe you'll also have $20k more credit card debt when you're 30 than you would otherwise. Or maybe things won't work out financially the way you plan and the car will be repossessed and your credit will be a mess for years. Or maybe your family is wealthy so you'll be fine no matter what.

Carl Thompson | November 14, 2017

@SUN 2 DRV:
"Your opinion was not only harsh but unnecessary, uncalled for and frankly irrelevant to this thread."

I agree that my opinion isn't on topic. But I was hoping that I could help NoMoPetrol avoid making what seems like a mistake that could hurt him and his wife. If I saw him crossing the street and it looked like he was about to get hit by a bus he didn't notice I'd try to help him if I could too.

burdogg | November 14, 2017

NoMoPetrol - good point - but with mortgage rates so low right now and have been for several years, you are almost better investing that money (remember value of time money) - you should be able to beat the 3-4% mortgage rate you are getting, and hence have way more money in the end by investing, then paying off the house early. But it never hurts to pay off debt either, just two different options but both good advice :)

burdogg | November 14, 2017

Ok, so I got to my simple calculator - those that are interested :)

If at age 9, you put in $3,000 a year until you turn 19 (10 years worth):
You put in $30,000, at 7% per year return, when you turn 65, you would have $996,678

IF at age 30, you put in $3,000 a year until you are 65 (35 years worth):
You put in $105,000, at 7% per year return, when you turn 65, you would have (drum roll) - $443,740!

Yikes, that is HUGE. Time does matter, to get the same amount as the 9 year old at age 65, starting when you are 30, you would need to put in $6700 a year - a total of $234,500 of your own money:

Age 9 - $30,000 = age 65 $996,678
Age 30 - $234,500 = age 65 $991020.

There you go, hope you enjoyed this little exercise :)

Carl Thompson | November 14, 2017

@burdogg

Just curious as I have no kids... Can a child really have their own Roth IRA account?

Either way your example is eye-opening. You can give your kids a huge retirement head-start before they even leave the house! Pretty awesome that you have the foresight to do that. A lot of people don't (including my own parents).

NumberOne | November 14, 2017

IRAs for those who are curious is only available for earned income. In other words, you can only put away as much as you earn. Up to the current max amount of $5,500. If you earn $3k per year, then that is what you can put into the account. If a parent of grand parent feels generous they can give a working teen an amount equal to their income up to the max amount. Interesting thought for those who care. Of course this has nothing to do with the tax credit topic.

Keelandb | November 14, 2017

People like me, who are retired with no current earned income cannot claim the $7,500 federal tax credit. We are buying a Model 3 because it is somewhat affordable, it is battery powered electric and it is a TESLA. We are not buying it because of the tax credit, but I will take any credit that I can get.

Keelandb | November 14, 2017

When I was 9 years old my I did not earn anywhere near $3,000/ year and my parents could not afford the $3,000/ year for me or the additional $15,000/ year for my brothers and sisters. When I was in the first grade our rental house did not have running water or an indoor toilet. Truck drivers without a high school diploma did not make much money. Saving that much money in savings based on 10 years of deposits would have been great, but I had to wait until I was in the army to start saving money.

burdogg | November 14, 2017

Sorry to derail a little more, but here is the situation: I first caught wind of this from someone who talked to my parents way back when savings accounts were getting 10% or so (we are talking 1980's) My parents, as I have described above, could no way afford to do this for me and my siblings. But she mentioned it to me, and I thought - you know, I am in a position that I can do this, and it is my way to give something to my kids. They still have to pay for their own college though, as I think that is important, but a retirement account would be huge if they leave it alone (as I have shown).

So the gist - yes, a 9 year old can have their own ROTH IRA. It is true, any IRA has to be from EARNED INCOME. So at 9 years old, by owning my own business, my kids can work for the business doing simple tasks, like scanning. There are lists of things they cannot due, and at age 9 it is a small list they can do. The list of things they can do grows as they age. They get paid wages and hence have SS and medicare taken out of the wages, and my business has to match those tax payments as well. With this earned income and actual proof of employment and Pay stubs - I was able to find OptionsXpress that would allow me to set up custodial ROTH IRA's for them. (Since now moved over to Charles Schwab).

So, while yes, this may not apply to many people, but others have pointed out good things too - a 15 or 16 year old that makes money - can have a parent or grandparent give them the equal amount of money to put in the IRA (So the kid could keep his money to do with what he pleases, but put in the grandparent money to the IRA). The main point is, even if you can't do this for your kid, if you teach them to do even a small amount every year from the time they start working (so even if it is 16) if they put $3,000 in from 16 - 30 - at age 65 and 7%, they would have almost $773,000. That is for putting in just $42,000.

Anyway, again, just a fun tip to try to teach kids of the value of time and money - while they are young, if they sacrifice a little, it pays huge in the end (and they don't have to worry about saving at age 45, instead, they can then play all they want with their money :)

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