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Tax Incentives

Tax Incentives

I was informed there would be a $7000 tax incentive for buying a new Tesla. Is this true for first-time buyers like me?

mntlvr23 | 4 mars 2017

Where do you live?

Carl Thompson | 4 mars 2017

@melbryn7

The answer is slightly complicated. The $7,500 starts to be phased out the quarter after Tesla sells their 200,000th electric vehicle in the U.S. For the two quarters after the quarter they sell the 200,000th car the tax incentive goes down to $3,750. Then for the two quarters after that it goes it goes to $1,875.

It's expected that Tesla will reach that 200,000th car early in 2018. So unless you are one of the very first people in line to get a Model 3 it is likely you will not get the full discount. If you are near the middle or end of the line it is possible you may not get a tax break at all if Tesla has delays produces the Model 3 or can't ramp up as quickly as they want to and your delivery gets pushed into 2019.

Carl

Itrnhds | 4 mars 2017

can anyone explain to me how it works, I reserved on first day and live in CA. will I get the rebate amount when I do my taxes?

KP in NPT | 4 mars 2017

It's not a rebate - it's a credit. So you can only claim the full amount if you have more than 7500 tax liability.

https://www.edmunds.com/fuel-economy/the-ins-and-outs-of-electric-vehicl...

Itrnhds | 4 mars 2017

how could I make this apply to me, every year I get a return. I don't owe taxes at the end of the year. should I go exempt this year on my w4 in order to utilize the tax credit?

greg | 4 mars 2017

@Itrnhds
Since you don't for sure when you;ll get your M3, it could be dangerous [tax wise] to do so. And you also do not know exactly how much credit you could be entitled to (it could be the full 7500 or could be half that depending on when you take delivery of the car and how long before you the 200,000th Tesla was delivered in the US.

Others who know more about the tax side of things than me - have suggested doing things like converting funds from IRA to Roth IRA [one time event] which causes a taxable event, to get the necessary tax liability to fully utilise the credit. You can also do other things as well, in advance to ensure you;ll get the credit.

Strongly suggest you talk to a tax adviser to get the best advice on this - it might be worth up to $7500 to you do so, so any money spent getting said advice would be well spent if you got the full amount of the tax credit.

Carl Thompson | 5 mars 2017

@greg

You don't need to owe taxes at the end of the year to get the credit if that's what you mean? It can be applied to taxes you've already paid for the year like income tax payroll deductions or capital gains taxes paid. In other words all you need is to have paid (or need to pay) $7,500 in taxes to get the full credit (if you get your car on time). I assume anyone buying a Tesla has paid at least $7,500 in taxes for the year! If you don't owe $7,500 at tax time they'll send you a refund on what you've already paid.

Carl

greg | 5 mars 2017

@Carl
I ain't no CPA, so you're probably right.

All I know is that others have said that if you don't have enough income to have actually paid $7500 in Federal? taxes and need a little help to "make some additional taxes" those methods I outlined can be used to legally get the most out of whatever tax credit you're entitled to.

But your mileage may vary.

SoFlaModel3 | 5 mars 2017

The original poster still hasn't said if they are US based, but assuming so it works like this....

All US consumers currently buying any Tesla are eligible for a $7,500 tax credit. This has nothing to do with what you owe at the end of the year to the IRS (in other words you can get a refund each year and still get this $7,500). This has everything to do with your overall tax liability.

Now timing is everything....

The $7,500 credit starts a phase out period when the manufacturer sells their 200,000 US based vehicle and Tesla is nearing that number. Most projections suggest they hit in Q4 of 2017 or Q1 of 2018.

So what next you ask?

The phase out period tapers down until it's gone with no limits on number of vehicles sold during the period.

So let's say Tesla sells US based car number 200,000 on December 1, 2017.

All buyers buying a car through March 31, 2018 get the $7,500 credit

All buyers buying a car from April 1, 2018 through September 30, 2018 get the $3,750 credit

All buyers buying a car from October 1, 2018 through March 30, 2019 get the $1,875 credit.

All buyers buying on April 1, 2019 or later get nothing.

Now the credit itself cannot be carried over, so let's say you qualify for a $7,500 credit but have a tax liability of $6,000. You will get $6,000 back and cannot carry the $1,500 over to the next year.

The dream scenario is Tesla selling car 200,000 on Januar 1, 2018 to maximize the duration of the credit and ultimately ensuring all reservations get a piece, but if it hits in Q4 of 2017 it will be tighter and really depends then upon how quickly production ramps up into 2018.

Carl Thompson | 5 mars 2017

@greg

"All I know is that others have said that if you don't have enough income to have actually paid $7500 in Federal? taxes and need a little help to "make some additional taxes" those methods I outlined can be used to legally get the most out of whatever tax credit you're entitled to."

Yes, you are correct under those circumstances. But it's hard to imagine someone buying a Tesla having not had at least $7,500 in the year they purchase. Even if you're retired and living off of your retirement plan you still pay taxes on realized capital gains from your retirement funds and income tax on social security. I suppose if you are living completely off of cash assets (i.e., have already paid the taxes on the money you're using to live this year in previous years) then you might need to generate some income artificially to collect the tax credit. Or if you're Donald Trump and are so much better than the rest of us and thus shouldn't have to pay income tax!

Carl

andy.connor.e | 5 mars 2017

I would recommend you simulate buying the car given that there will be no tax incentive. Then after buying it, if you do get tax incentive, take that and put it right back onto your finance installment (if you financed), so that way the cost of ownership is reduced that much more. I wouldnt use the Tax incentive as a way to get more options. Make it less expensive for yourself, not add more that you dont need.

Carl Thompson | 5 mars 2017

SoFlaModel3's example is correct and I was incorrect when I stated the phase out period begins the quarter after a car manufacturer sells its 200,000th car in the U.S. (starting in 2010). The phase out period actually begins the _second_ calendar quarter after the quarter in which they sell that 200,000th car.

From the IRS code:
" Qualified Plug-In Electric Drive Motor Vehicle Credit (IRC 30D) Phase Out
The qualified plug-in electric drive motor vehicle credit phases out for a manufacturer’s vehicles over the one-year period beginning with the second calendar quarter after the calendar quarter in which at least 200,000 qualifying vehicles manufactured by that manufacturer have been sold for use in the United States (determined on a cumulative basis for sales after December 31, 2009) (“phase-out period”). Qualifying vehicles manufactured by that manufacturer are eligible for 50 percent of the credit if acquired in the first two quarters of the phase-out period and 25 percent of the credit if acquired in the third or fourth quarter of the phase-out period. Vehicles manufactured by that manufacturer are not eligible for a credit if acquired after the phase-out period."
(https://www.irs.gov/businesses/plug-in-electric-vehicle-credit-irc-30-an...)

So if Tesla were on schedule to sell that 200,000th car late in a quarter (Let's say Dec 2017 to be very optimistic) then Tesla could do more of their future U.S. customers a favor by _delaying_ sale of that 200,000th car and beyond to the start of the _next_ calendar quarter. That's because the way the phase our works if they sell that 200,000th car on Dec 31, 2017 then the phase out begins on Apr 1, 2018. But if they sell that 200,000th car a day later on Jan 1, 2018 then the phase out period doesn't start until Jul 1, 2018. In other words, they'd get almost a full quarter's worth of extra sales will the _full_ tax credit. This obviously benefits customers who would probably trade waiting a few weeks for getting double the tax credit they would have otherwise. And it benefits Tesla because obviously the the longer the bigger tax credit is available the more cars they'll sell. Tesla probably wouldn't even have to scale back production or sit on inventory to do it. They could simply divert all Model S and Model X sales to other countries for a period of time. (It's very unlikely they'd divert Model 3 production.)

If you believe in cold, calculated business competitive maneuvering (and who doesn't) then you could make the case that the phase out is why GM is delaying producing more EVs. Since they can make plenty of money from non-electric cars in the meantime they can wait as long as they need. They know that Tesla can't delay U.S. sales very long because Tesla only sells _electric_ cars and the U.S. (especially California) is their biggest market. So if you're GM and you want to have a competitive advantage in EVs you _wait_ until _Tesla's_ tax credits have already started to phase out (or are completely gone if you are really patient) to sell GM's own 200,000th car. (The tax credits and phase out are separate for each manufacturer.) That way, GM could be in a position to sell for a couple of quarters where GM EVs have a government funded $7,500 (or $3,750 depending on the timing) price advantage. GM sells 10 _million_ cars per year and if they wanted to could produce millions of EVs in two quarters. In other words a Bolt with longer range, hatchback and more base options would cost $30,000 net but a Model 3 would cost (at least) $35,000. A lot of buyers would go for the added range, utility of a hatchback and cost savings. Waiting of course also gives GM the advantage of benefiting from new EV manufacturing efficiencies AND they'd capitalize on Tesla doing most of the work to prime the market and getting people to actually _want_ to buy EVs.

So the way that wonderful tax credit is structured it actually _benefits_ the big companies that delay the longest to produce high numbers of EVs and gives them a huge competitive advantage for a period of time.

Carl

greg | 5 mars 2017

@Carl
"GM sells 10 _million_ cars per year and if they wanted to could produce millions of EVs in two quarters."

Hyperbole, maybe GM *could* produce millions of Electric Cars in 2 quarters.
But I truly doubt even they could make - or source - the "mlllions" of battery packs to put in them in just 2 quarters though, anytime soon.

The only EV maker on the planet that could make even a million EVs with batteries in them is Tesla, and even they're not able to achieve that for a couple of years yet.

GM has no hope of matching that anytime soon.

Carl Thompson | 5 mars 2017

greg:
"Hyperbole, maybe GM *could* produce millions of Electric Cars in 2 quarters.
But I truly doubt even they could make - or source - the "mlllions" of battery packs to put in them in just 2 quarters though, anytime soon."

They wouldn't have to make them all in just two quarters of course. Last year a million PEVs were sold worldwide and Tesla made only a small fraction of them. Those batteries all came from somewhere. If GM told battery suppliers "we need 1,000,000 EV batteries delivered by end of year 2019" it could probably get them if it wanted to. We're talking about possible future events 1.5 to 2 years from now. The EV market has nearly doubled every year for the last several. When things really take off (maybe this year?) I wouldn't be surprised to see 400% or more growth worldwide year over year. The battery manufacturers of the world will of course expand to keep up because they to sell their products and make money.

"The only EV maker on the planet that could make even a million EVs with batteries in them is Tesla..."

Wow, now _that's_ hyperbole. No car manufacturer but Tesla could possibly make a million EVs a year in the time frame we're talking about if they set their mind to it? GM, Ford and all of the big manufacturers which _already_ have the capacity and resources to make many millions of cars per couldn't possibly do it? Only Tesla?

Tesla has not shown an ability to even sell one tenth of that number of cars in a year and has executed extremely poorly in every single product roll-out and ramp up so far. And in order to sell a million cars building their own batteries they would have to get the gigafactory working at full capacity ahead of schedule and also build a _second_ gigafactory just like it and get that one working at capacity. That's simply not going to happen for many years so if Tesla wants to sell a million cars a year before then they'd need to source batteries from other manufacturers just like everyone else.

The probability of GM making a million EVs a year within 2 or 3 years I'd guess is very low truthfully. But the probability of Tesla making a million EVs a year even within 5 years is about as close to 0 as you could possibly get given their projected resources and past execution history. The only way I could Tesla could do that is if they were bought and made a sub-brand of GM!

Carl

orusosowellington01 | 5 mars 2017

hi

akgolf | 5 mars 2017

Hi Kathy,

My name is Jimmy and thanks for the useless info. Just to let you know your post will be seen soon by owners and flagged out of existence.

Do you know EaglesPDX?

SoFlaModel3 | 5 mars 2017

But I really want this magical ATM card that gives free mone ;)

Carl Thompson | 5 mars 2017

The best part is the line "Hoping and praying it was not a scam."

Badbot | 5 mars 2017

I hope he will post visiting hours for the big house.
hell i'll go just to laff in his face

lilbean | 6 mars 2017

Kathy, you belong in prison. :-)

sbeggs | 6 mars 2017

Flag her

andy.connor.e | 6 mars 2017

Times like this im sad that i missed all the posts that got flagged. Must have been a real sit-com

dsvick | 6 mars 2017

Kathy is also the niece of a recently deposed general from some country in Africa and has his millions of dollars. Now she needs your help to move that money away from the evil dictator who took over, she compensate you well for your trouble.

dsvick | 6 mars 2017

Back the conversation at hand .... For the poster that had mentioned reducing his deductions to qualify for the credit and to the others who have mentioned how much tax that pay or how much tax they owe...

The $7,500 is a tax credit and can be used to reduce the amount of taxes you need to pay for the year. You need to have a high enough taxable income to make your tax liability greater than the $7,500. For form 1040 you need to look at line 44, that is the amount of tax you owe based on your taxable income. That is determined after any deductions you may get. Next you add up all of your credits, the EV credit, foreign tax credit, child care credit, education credits, etc. You subtract all of your credits from the amount of tax you owe, it cannot go below zero though, so if you have more credits than you owe for taxes you would lose any credit over the amount of taxes you owe.

Then you subtract the amount of taxes you paid from the amount you owe and you get refund or owe more.

With all of that being said, you really should consult a tax professional before making any decisions to try to increase you tax liability since it will likely also affect your state taxes where there may not be a tax credit. And, consider what would happen if you take steps to increase your tax liability but, for some reason, don't get the car in the year you thought you would.

topher | 6 mars 2017

"And in order to sell a million cars building their own batteries they would have to get the gigafactory working at full capacity ahead of schedule and also build a _second_ gigafactory just like it and get that one working at capacity. "

Here is the (well, 'a') contradiction in your position. Tesla has been working on the Gigafactory for years, isn't done, and will need to get it to full capacity before being able to make 1 million cars. GM has no gigafactory, nor is one available for purchase, they would need to build one from scratch before they can have a hope of catching up. The gigafactory at full capacity will represent well over 50% of ALL li-ion battery production in the world. GM could make a million EVs, but they would need to buy batteries from Tesla.

"also build a _second_ gigafactory"

This is just a factual error. The current output predicted for the gigafactory is 150 GWh / year. This is 3 times the total global production. It is enough for 2.1 Million cars. By the way, Tesla has plans for Gigafactory 3 and 4 (2 is a solar panel plant), does GM have plans for even one?

Currently, as far as I can tell, GM isn't building ANY electric cars. They are putting bodies on LG-Chem Drive systems. Much like lotus made bodies for the Tesla Roadster.

Thank you kindly.

jacknleela | 6 mars 2017

Is anyone considering the possibility that with the 2018 budget there will no longer be a $7500 credit? Both Ryan and Trump have spoken out against it. To me it seems likely that they will kill this in the next budget. If so there will be a lot of angry Model 3 reservation holders! My reservation was made mid day 03/31, but I live in Florida, and do not own a Model S or X, so I am beginning to think I am SOL with regards to the credit. I sure would love to see Tesla prioritize deliveries in a more equitable fashion such as the time stamp of your reservation rather than some convoluted order that works best for Tesla.

SoFlaModel3 | 6 mars 2017

Jack I am also a 3/31 reservation (pre reveal) in Florida. Optimistically I am expecting the car in Q1 2018 and this fully expecting a $7,500 credit unless of course 2018 tax laws are changed...

Carl Thompson | 6 mars 2017

topher:
"Here is the (well, 'a') contradiction in your position. Tesla has been working on the Gigafactory for years, isn't done, and will need to get it to full capacity before being able to make 1 million cars. GM has no gigafactory, nor is one available for purchase, they would need to build one from scratch before they can have a hope of catching up."

No. GM would simply buy batteries from battery manufacturers.

"The gigafactory at full capacity will represent well over 50% of ALL li-ion battery production in the world. GM could make a million EVs, but they would need to buy batteries from Tesla."

No. That was never true and will never be true. That was just hype at the gigafactory unveiling. In order for that to have come true Tesla would have had to ramp up the gigafactory to full capacity (which Tesla hasn't) and other battery manufacturers would have to NOT increase capacity and stay at the same level they were at the time of the announcement in 2014 (which they of course haven't). It was just hype and I think most people understood that. If you re-read the announcement you'll see they were comparing their hopefully / maybe / eventually one-day capacity to 2014.

"The current output predicted for the gigafactory is 150 GWh / year. This is 3 times the total global production. It is enough for 2.1 Million cars."

Umm, no. That is completely made up. From Tesla:
"The name Gigafactory comes from the factory’s planned annual battery production capacity of 35 gigawatt-hours (GWh)."
- https://www.tesla.com/gigafactory

So saying "The current output predicted for the gigafactory is 150 GWh / year" is probably the biggest lie I've seen on these forums yet which is really saying something.

Carl

Carl Thompson | 6 mars 2017

jacknleela:
"Is anyone considering the possibility that with the 2018 budget there will no longer be a $7500 credit? Both Ryan and Trump have spoken out against it. To me it seems likely that they will kill this in the next budget."

It's definitely a possibility and if that's the case I might have to settle for a Bolt now when I can get the credit rather than a Model 3 later when I can't. That would suck.

But I don't really think the credit will go away. The way the credit rules are worded strongly benefits the big companies that wait to get to 200,000 EVs sold in the U.S. If GM, Ford, etc. want to compete at all in EVs then they'll not want to give up this future ability to undercut Tesla's prices by thousands of dollars when Tesla's credit is phased out. So I'd expect them to lobby strongly to keep the credit so they can benefit from it the way Tesla will have already done.

Carl

m.g.trumble | 6 mars 2017

Carl:
Just one question on your GM EV sales strategy: Who wants a Chevy Bolt? I mean, really? To me it looks like a long range, hard-top golf cart. (Okay, a golf cart with a hatchback.) As Elon says, it's a "punishment car." I'm glad GM is getting in the green game, but the Bolt is the best they can do? No, they just want to punish consumers who would dare ask for a zero emission vehicle. I think I'll wait for my Model 3 even if I don't get the tax credit.

Carl Thompson | 6 mars 2017

m.g.trumble:
"Just one question on your GM EV sales strategy: Who wants a Chevy Bolt? I mean, really? To me it looks like a long range, hard-top golf cart. (Okay, a golf cart with a hatchback.) As Elon says, it's a "punishment car." I'm glad GM is getting in the green game, but the Bolt is the best they can do? No, they just want to punish consumers who would dare ask for a zero emission vehicle."

HeHe. Yup, agree. But my currrent commute car is an i3 so a Bolt would be a step up in looks (and utility) from that!

Carl

Red Sage ca us | 6 mars 2017

m.g.trumble: GM has at least three vehicles that cost less than the BOLT that are 'better'...

$30,975 ___ Chevrolet Malibu Premier
$32,065 ___ Buick LaCrosse
$36,595 ___ Cadillac ATS

There are certain vehicles that have always seemed to be 'penalty box' configurations, and the BOLT appears to be one of them.

lomunchi | 6 mars 2017

My rendering: If line 44 of your 1040 is greater than $7500 (If you're one of the lucky ones to get in on the full amount) you'll get the full value credit. If it's less, you're total tax burden will be zero and you'll get everything you've paid in back. Per the 2016 tax calculation that means if your taxable income (line 43) is >$56,183, you'll have made enough to get the full credit. If it's less than that maybe you shouldn't be buying a new $35,000 car (nothing personal).

stevenmaifert | 7 mars 2017

It's line 47 of the 1040. From that line, you will subtract the sum of the non-refundable tax credits listed on lines 48 through 54. The Qualified Plug-in Electric Drive Motor Vehicle Credit is listed on line 54. You check Box C and enter 8936 in the space next to the box. If line 56 is zero, you will get back all of your withholding as a refund, unless you owe any of the taxes listed on lines 57 through 62, which are not subject to offset by non-refundable tax credits like the Qualified Plug-in Electric Drive Motor Vehicle Credit.

lomunchi | 7 mars 2017

@stevenmaifert Thanks

johnse | 8 mars 2017

On battery production:
When the Gigafactory was announced, the projected equaling the then-current world production of batteries as a way to impress the scale of their ambition. I don't think they ever believed the rest of the battery industry would stand still.

This article shows that, large as Tesla's factory is, there are rivals in the works. http://oilprice.com/Energy/Energy-General/Battery-Wars-China-Beating-Tes...

The article projects China and South Korea holding 62% and 13% market share, with the US at 22%, of a global production of 174GWh in 2020.