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Updated Projection of US Tax Credit Phase Out (UPDATED 10/02/17 after announcement of Q3 on M3 deliveries)

Updated Projection of US Tax Credit Phase Out (UPDATED 10/02/17 after announcement of Q3 on M3 deliveries)

(UPDATED 10/02/17)
With the announcement of 26150 MS's and MX's and 220 M3's delivered in Q3, I have updated my "US Tax Credit Phase Out" projection numbers. (Skip to the last to paragraphs of this post if you don't care to see the math worked out.)

Total cars sold by Tesla (worldwide):
Through 2012 = 5,100
In 2013 = 22,442
In 2014 = 31,665 (41% increase over 2013)
In 2015 = 50,658 (60% increase over 2014)
In 2016 = 76,234 (51% increase over 2015)
Cumulative at end of 2016 = 186,098 (worldwide)
Assume 58% of sales are in the US = Total US Sales through 2016 = 107,937 (will round up to 107,950)
(58% of the sales from the US - seemed to be a historical average, and may be lower in future quarters as Tesla expands into more countries)

With the assumption of a continued 10% increase of MS and MX sales per quarter (equivalent to a 46% yearly increase) - then .....

Quarter : Future quarterly US sales / Cumulative US Sales (including M3, assuming 100% of M3's go to US customers)

Q1-2017 : 14,500 / 122,450

Q2-2017 : 15,950 / 138,400

Q3-2017 : 15,387 / 153,787 (26,150 x 0.58 assumed to be US = 15,167 + 220 M3's all assumed for the US) therefore did not hit a cumulative 200,000 US sales during this quarter

Q4-2017 (estimate w/ 10% increase in MS & MX): 16,925 / 170,713 (+ ??? Model 3's) - therefore hits 200,000 US deliveries during quarter if over 30,000 M3's are delivered in the US during Q4. Therefore, it would seem that the 200,000 threshold would be reached in Q1-2018, as any M3 over 30,000 could easily be stockpiled or sold overseas)

So my non-binding summary and conclusion is:

$7,500 Federal Tax Credit through 06/30/18
$3,750 Federal Tax Credit 07/01/18 through 12/31/18
$1,875 Federal Tax Credit 01/01/19 through 06/30/19
No Federal Tax Credit after 06/30/19

Thoughts ?? Mistakes ??? Ridicule ???

KP in NPT | April 19, 2017

Civicrick don't take this the wrong way - I'm just trying to get your perspective - but how old are you?

noleaf4me | April 19, 2017

The first one without the credit will be the very first day of a quarter. Which one is yet unknown but my bet is Tesla hits the 200k this year in the 4th quarter.

Civicrick | April 19, 2017

You first ; )

Civicrick | April 19, 2017

At least I'm trying to keep it light when someone says awesome to a thread about murdering me

KP in NPT | April 19, 2017

I'm 47. (I had to think about it. ha)

KP in NPT | April 19, 2017

You are. I give you credit for that.

Just wondering based on the whole. ;)

Civicrick | April 19, 2017

So about this US tax credit phase out...

Civicrick | April 19, 2017

jk. 54

KP in NPT | April 19, 2017

lol. ok I will file that away. ;)

Civicrick | April 19, 2017

And you know what? Because you are kind I am going to up my maturity level to HALF MY AGE. And you can imagine, that's gonna be a stretch for me

Red Sage ca us | April 19, 2017

Once again, Elon said that Tesla will do the 'obvious thing' to maximize the Federal EV Tax Credit benefit to buyers.

Since the IRS is very specific that acquiring an eligible vehicle is contingent upon transfer of title, I expect there will be a whole bunch of very happy Canadian and Mexican Model 3 Reservation holders in the closing weeks of December 2017. They will be joined by a deluge of U.S. Customers in January 2018.

KP in NPT | April 19, 2017

now that's more like it.

HA!

KP in NPT | April 19, 2017

+1 RS - I hope they are able to stick to that.

M3forMe | April 19, 2017

"Since the IRS is very specific that acquiring an eligible vehicle is contingent upon transfer of title, I expect there will be a whole bunch of very happy Canadian and Mexican Model 3 Reservation holders in the closing weeks of December 2017. They will be joined by a deluge of U.S. Customers in January 2018."

Amen to that.

mntlvr23 | April 19, 2017

I would imagine that it would be much more Canada (and Mexico not as much) - but I am on board with the Red Sage's timing (though if Tesla surprised us and started pumping out high volume starting Q3-2017, I would not be unhappy).

The weekend at the cabin will not involve any murders, although there might be a box game of "Clue" for all to play.

Carl Thompson | April 19, 2017

@Red Sage ca us:
"Since the IRS is very specific that acquiring an eligible vehicle is contingent upon transfer of title, I expect there will be a whole bunch of very happy Canadian and Mexican Model 3 Reservation holders in the closing weeks of December 2017. They will be joined by a deluge of U.S. Customers in January 2018."

I would doubt very seriously that they would send most Model 3s to Canada and Mexico so early in the production run when there's a possibility they may need to perform some fix on the early cars. I think it's much more likely they'd adjust deliveries of the Model S and X instead since the kinks have already been worked out of those. So I'd say if you're in the U.S. it might be tough to get an S or an X delivered in the last 2 or 3 months of the year but we'll get our Model 3s as fast as they can make them.

Carl

KP in NPT | April 19, 2017

Actually, EM has alluded to doing exactly that. To timing the 200,000th car to fall on the first day of a quarter so the maximum amount of Americans can take advantage of the credit.

https://twitter.com/elonmusk/status/716709914911989760

mntlvr23 | April 19, 2017

For Q1-2018 to happen - they can still sell 20K-25K M3's in the US in 2017 - and then stockpile them, or sell some to other countries. Totally doable.

Carl Thompson | April 19, 2017

@KP:
"Actually, EM has alluded to doing exactly that. To timing the 200,000th car to fall on the first day of a quarter so the maximum amount of Americans can take advantage of the credit. "

Yes, of course. But it makes more sense to do it by diverting Model S and X shipments out of the country not Model 3!

Carl

KP in NPT | April 19, 2017

I think he'll do whatever is necessary to achieve it - but I doubt he'd single out the more expensive/flagship vehicles. JMHO

Carl Thompson | April 19, 2017

They have also acquired a ton of warehouse space so even if they feel they can't delay that 200,000th car by manipulating only S and X shipments I'd think they're more likely to build as many 3s as possible anyway and just sit on them until Jan 1 rather then send them out of the country.

Carl

Civicrick | April 19, 2017

I reserved late but I'm holding some hope on getting a 3 this year for that deduction. Why does making money have to be so expensive. Hey, since Philly is going lets invite KP too and I'll bring Twister

KP in NPT | April 19, 2017

I think it will depend on timing - how far away from the beginning of the quarter vs. how many cars are in the pipeline. It could be several things - divert to outside US, stockpile, or send in transit and hold at delivery centers, if possible. But I don't think they'll single out the S/X - there is already an expected wait for the 3. Not so for the S/X.

KP in NPT | April 19, 2017

Where are we going, Civicrick? lol

Red Sage ca us | April 19, 2017

'The CABIN in the WOODS'...

KP in NPT | April 20, 2017

Oh right. Yeah I won't be getting the booby prize. ;-)

Civicrick | April 20, 2017

I wonder just how "linked" the IRS computers are to EV sales. For example, a business owner claims a deduction for labor with 1099s that have his employer tax # (EID) and SSNs of the workers, link, link, link, blah, blah, blah. If I buy a S this year, would Tesla send that info to the IRS? Is there something that tracks total EV sales in a tax year and provides it to the IRS to compare to total EV deductions so the computer would start flagging returns with that deduction if there was an appreciable imbalance in sales to deductions? Even if I don't get my car until next year (probable), I might be tempted to take the deduction for this year anyway if it is phased out. I know those gambles with the IRS can get pricey with penalties and interest but, hey! A day in Vegas can get pricey too

KP in NPT | April 20, 2017

I think I read somewhere it's determined by VIN number.

dsvick | April 20, 2017

@civicrick

The manufacturers are supposed to submit a quarterly report to the IRS telling them how many qualifying vehicles they sold. The IRS is supposed to have a page where you can go see the totals but the only ones on there are Ford, Mercedes, and BMW. Here is the page: https://www.irs.gov/businesses/irc-30d-plug-in-electric-drive-motor-vehi...

And here is the page that has the reporting requirements for the manufacturers: https://www.irs.gov/irb/2009-48_IRB/ar09.html

Geozeke | April 20, 2017

^^ *Very* helpful! Thanks for this tip :-)

Civicrick | April 20, 2017

I'm sure something in the VIN would signify the vehicle is EV. Hmm. So sales by Tesla, GM, etc are reported to the IRS, VINs are telling amount of EVs sold, IRS computers are really smart these days... That's a lot of VINs tho for ALL vehicles sold in the US in a year. Does the IRS want all those extra numbers in their computer or just gross sales numbers? I'm just curious about my chances on getting the by with the deduction if I don't actually qualify. Well, I guess my chances are 0 now since someones going to forward this to the IRS cuz I'm an ahole ; ). Disclaimer: I do not recommend cheating on your taxes!

Red Sage ca us | April 20, 2017

dsvick: I've never been able to figure out why Tesla isn't listed on that page. But, I believe there is one specifically for them. I believe I saw totals including Tesla listed once, but I can't find it any longer. I believe the IRS page is updated periodically, but randomly, and presents different data each time.

www.irs.gov/businesses/30d-new-qualified-plug-in-electric-drive-motor-ve...

www.irs.gov/businesses/qualified-vehicles-acquired-after-12-31-2009

Red Sage ca us | April 20, 2017

I confirmed through the Wayback Machine Internet Archive that the content of that page changes, showing different manufacturers, particular vehicles within their lines, and their sales totals, individually and cumulatively.

www.irs.gov/businesses/irc-30d-plug-in-electric-drive-motor-vehicle-cred...

Red Sage ca us | April 20, 2017

For the sake of 'doubters'...

Section 5. MANUFACTURER’S CERTIFICATION AND QUARTERLY REPORTS
.01 When Certification Permitted. A vehicle manufacturer (or, in the case of a foreign vehicle manufacturer, its domestic distributor) may certify to purchasers that a motor vehicle of a particular make, model, and model year meets all requirements (other than those listed in section 5.02 of this notice) that must be satisfied to claim the new qualified plug-in electric drive motor vehicle credit allowable under § 30D with respect to the vehicle, if the following requirements are met:
(1) The manufacturer (or, in the case of a foreign vehicle manufacturer, its domestic distributor) has submitted to the Service, in accordance with this section 5, a certification with respect to the vehicle and the certification satisfies the requirements of section 5.03 of this notice; and
(2) The manufacturer (or, in the case of a foreign vehicle manufacturer, its domestic distributor) has received an acknowledgment of the certification from the Service and the acknowledgment states that purchasers may rely on the certification.
.02 Purchaser’s Reliance. Except as provided in section 5.07 of this notice, a purchaser of a motor vehicle may rely on the manufacturer’s (or, in the case of a foreign vehicle manufacturer, its domestic distributor’s) certification concerning the vehicle and the amount of the credit allowable with respect to the vehicle (including in cases in which the certification is received after the purchase of the vehicle). The purchaser may claim a credit in the certified amount with respect to the vehicle if the following requirements are satisfied:
(1) The vehicle is placed in service by the taxpayer in a taxable year beginning after December 31, 2009, and is acquired by the taxpayer after December 31, 2009;
(2) The original use of the vehicle commences with the taxpayer;
(3) The vehicle is acquired for use or lease by the taxpayer, and not for resale; and
(4) The vehicle is used predominantly in the United States.
.03 Content of Certification. The certification must contain the following:
(1) The name, address, and taxpayer identification number of the certifying entity.
(2) The make, model, model year, and any other appropriate identifiers of the motor vehicle.
(3) A statement that the vehicle is made by a manufacturer.
(4) A statement that the vehicle is treated as a motor vehicle for purposes of Title II of the Clean Air Act.
(5) The amount of the credit for the vehicle (showing computations).
(6) The gross vehicle weight rating of the vehicle.
(7) A statement that the motor vehicle is propelled to a significant extent by an electric motor that draws electricity from a battery that has a capacity of not less than 4 kilowatt hours.
(8) The number of kilowatt hours if any, in excess of 4 kilowatt hours.
(9) A statement that the battery is capable of being recharged from an external source of electricity.
(10) A statement that the vehicle has at least four wheels.
(11) A statement that the vehicle is not a low-speed vehicle within the meaning of section 571.3 of Title 49 of the Code of Federal Regulations.
(12) A statement that the vehicle is manufactured primarily for use on public streets, roads and highways.
(13) A statement that the vehicle is not manufactured primarily for off-road use, such as primarily for use on a golf course.
(14) A statement that the vehicle complies with the applicable provisions of the Clean Air Act.
(15) A statement that the vehicle complies with the applicable air quality provisions of state law of each state that has adopted the provisions under a waiver under § 209(b) of the Clean Air Act or a list identifying each state that has adopted applicable air quality provisions with which the vehicle does not comply.
(16) A description of the motor vehicle safety provisions of 49 U.S.C. §§ 30101 through 30169 applicable to the vehicle and a statement that the vehicle complies with those provisions.
(17) A declaration, applicable to the certification, statements, and any accompanying documents, signed by a person currently authorized to bind the manufacturer (or, in the case of a foreign vehicle manufacturer, its domestic distributor) in these matters, in the following form: “Under penalties of perjury, I declare that I have examined this certification, including accompanying documents, and to the best of my knowledge and belief, the facts presented in support of this certification are true, correct, and complete.”
.04 Acknowledgement of Certification. The Service will review the original signed certification and issue an acknowledgment letter to the vehicle manufacturer (or, in the case of a foreign vehicle manufacturer, its domestic distributor) within 30 days of receipt of the request for certification. This acknowledgment letter will state whether purchasers may rely on the certification.
.05 Quarterly Reporting of Sales of Qualified Vehicles. A manufacturer (or, in the case of a foreign vehicle manufacturer, its domestic distributor) that has received an acknowledgment of its certification from the Service must submit to the Service, in accordance with section 6 of this notice, a report of the number of qualified plug-in electric drive motor vehicles sold by the manufacturer (or, in the case of a foreign vehicle manufacturer, its domestic distributor) to consumers or retail dealers during the calendar quarter. The quarterly report must contain the following:
(1) The name, address, and taxpayer identification number of the reporting entity.
(2) The number of qualified vehicles sold by the reporting entity to consumers or retail dealers during the calendar quarter.
(3) The make, model, model year, and any other appropriate identifiers of the qualified vehicles sold during the calendar quarter.
(4) A declaration, applicable to the quarterly report and any accompanying documents, signed by a person currently authorized to bind the manufacturer (or, in the case of a foreign vehicle manufacturer, its domestic distributor) in these matters, in the following form: “Under penalties of perjury, I declare that I have examined this report, including accompanying documents, and to the best of my knowledge and belief, the facts presented in support of this report are true, correct, and complete.”
.06 Acknowledgment of Quarterly Report. The Service will review the original signed quarterly report and issue an acknowledgment letter to the vehicle manufacturer (or, in the case of a foreign vehicle manufacturer, its domestic distributor) within 30 days of receipt of the report. This acknowledgment letter will state whether purchasers may continue to rely on the certification.
.07 Effect of Erroneous Certification, Erroneous Quarterly Reports, or Failure to Make Timely Quarterly Reports.
(1) Erroneous Certification or Quarterly Report. The acknowledgment that the Service provides for a certification is not a determination that a vehicle qualifies for the credit, or that the amount of the credit is correct. The Service may, upon examination (and after any appropriate consultation with the Department of Transportation or the Environmental Protection Agency), determine that the vehicle is not a new qualified plug-in electric drive motor vehicle or that the amount of the credit determined by the manufacturer (or, in the case of a foreign vehicle manufacturer, its domestic distributor) to be allowable with respect to the vehicle is incorrect. In either event, or in the event that the manufacturer (or, in the case of a foreign vehicle manufacturer, its domestic distributor) makes an erroneous quarterly report, the manufacturer’s (or, in the case of a foreign vehicle manufacturer, its domestic distributor’s) right to provide a certification to future purchasers of the new qualified plug-in electric drive motor vehicles will be withdrawn, and purchasers who acquire a vehicle after the date on which the Service publishes an announcement of the withdrawal may not rely on the certification. Purchasers may continue to rely on the certification for vehicles they acquired on or before the date on which the announcement of the withdrawal is published (including in cases in which the vehicle is not placed in service and the credit is not claimed until after that date), and the Service will not attempt to collect any understatement of tax liability attributable to such reliance. Manufacturers (or, in the case of foreign vehicle manufacturers, their domestic distributors) are reminded that an erroneous certification or an erroneous quarterly report may result in the imposition of penalties, including, but not limited to, the penalties:
(a) Under § 7206 for fraud and making false statements; and
(b) Under § 6701 for aiding and abetting an understatement of tax liability in the amount of $1,000 ($10,000 in the case of understatements by corporations) per return on which a credit is claimed in reliance on the certification.
(2) Failure to Make Timely Quarterly Report. If a manufacturer (or, in the case of a foreign vehicle manufacturer, its domestic distributor) fails to make a quarterly report in accordance with section 5.05 of this notice and at the time specified in section 6.02 of this notice, the acknowledgment letter issued under section 5.04 of this notice may be withdrawn, and purchasers will not be entitled to rely on the related certification for quarters beginning after the date on which the Service publishes an announcement of the withdrawal (generally, quarters beginning after the due date of the report). If the quarterly report is filed subsequently, the Service may reissue the acknowledgment letter and retract the withdrawal announcement.

www.irs.gov/irb/2009-48_IRB/ar09.html#d0e2563

Civicrick | April 20, 2017

Sounds like theres something keeping track. Might pass on that gamble. Found out the hard way a couple years ago when I underreported on some investment income that theres the "substantial tax understatement penalty". 20% of the tax due if I remember right. Wonder if The Donald ever paid that one

Civicrick | April 20, 2017

Lol! KP said booby

Civicrick | April 20, 2017

I threw that last one in there to give all the flag boys something to do

dsvick | April 20, 2017

@Red Sage - "I believe the IRS page is updated periodically, but randomly, and presents different data each time."

I think you're right, I want to think one other time I looked and the only two on there were Ford and BMW.

In any case though, I would hope that, when a manufacturer reaches the 200K, they let everyone know. Otherwise people will continue to claim it on their taxes even if it accidentally, and that would be that much more work for the IRS to go back and audit everyone that claimed it, then go back and try to collect half of it back.

socaldave | April 20, 2017

So let's say someone... anyone, doesn't matter who (not me maybe me), has to decide pretty quickly whether or not to make decisions that will result in having a larger tax consequence for 2017. This someone stood in line to reserve their M3, and also lives in California...........................

Should that someone trust they'll take possession of their M3 in 2017 and make those choices to maximise their tax credit opportunity? Do you take that risk? I'm torn. And so is that other guy I was talking about. Or girl. =)

KP in NPT | April 20, 2017

SoCal - even if they reach it in the 4th quarter of this year, the 2 following quarters also get the full credit. I'd say you're fine.

socaldave | April 20, 2017

@KP oh, I don't have any worries about being eligible for the full $7500, I'm just more worried about whether my car will be delivered to my this calender year so I can claim it on my 2017 taxes. If I take delivery Jan 1, 2018, then any financial decisions I made to have a larger tax bill for 2017 will not have the benefit of being offset with the tax credit. I'm likely explaining myself very poorly, I apologise!

socaldave | April 20, 2017

It's just about my own risk aversion, that's all. If I'm eligible for a $7500 tax credit, I want to be able to use all of it!!!

SamO | April 20, 2017

You can always convert IRA to ROTH if you need extra taxes.

KP in NPT | April 20, 2017

Gotcha socaldave. ;) Well fingers crossed you made the right decisions for this year! Risky! ;-)

Carl Thompson | April 20, 2017

@socaldave

I'm not sure I understand? Are you saying you wouldn't owe $7,500 in taxes in a normal year so you need to do something to make it so you would? I don't mean to pry but how does one get a tax burden so as to not owe way more than $7,500 and still be able to live and pay bills? Are you retired and all of your retirement distributions are tax-free or something?

Thanks,
Carl

greg | April 20, 2017

@socaldave
I ain't no Tax Accountant, but there are legal ways for you to "pre-load" your tax liability, that then to allow you to "pull the trigger" on the tax liability so that it happens in the same Tax year you get your Tesla.

One way I've read about is doing a (one time?) Roth IRA conversion. Presumably you can have [or can get sufficient] IRA funds ready to be "converted" like this, and then do the Roth IRA conversion *shortly* before you take ownership of your M3, thus ensuring you align the tax years of your Tax Credit and the Tax liability.

However, you should get some serious/proper advice on this 'cos this stuff is all greek to me.

Red Sage ca us | April 20, 2017

KP in NPT: I call your attention to the phrase 'calendar quarter'. There are four of them per year...

1) JANUARY | FEBRUARY | MARCH
2) APRIL | MAY | JUNE
3) JULY | AUGUST | SEPTEMBER
4) OCTOBER | NOVEMBER | DECEMBER

If the 200,000th qualifying vehicle is sold, acquired by an end user by way of transfer of title, during any day of any month of a particular 'calendar quarter', the phaseout begins in the 'second calendar quarter after' that event. So, if it were to take place during October, November, or December of 2017? The phaseout would begin on April 1, 2018. Not necessarily allowing the full credit for 'the 2 following quarters' as you noted above, though it might come close.

SamO | April 27, 2017

My prediction: Tesla delivers US EV #200,000 and ramps production on January 2, 2018.

Full credit continues through end of Q2 2018.
1/2 credit Q3
1/4 credit Q4.

dsvick | April 27, 2017

@SamO each part of the phase out is two quarters. So if the full credit was available through the second quarter, the half credit would be there through the end of the year, and then the quarter credit through the first half of 2019.

And yes, Red Sage, I mean calendar quarters :)

SamO | April 27, 2017

@dsvick,

thanks for the correction.

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