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Tax Credit Questions

Tax Credit Questions

I understand that the $7500 federal credit is taken off at the year of purchase for that tax year.

Is the tax credit from the tax of the vehicle or is it from income tax? Or would you just get the credit regardless?

Do you have to have income or have paid tax for that year to get the credit? If so, why? and how much income do you have to make in order to get the credit?

What if there are two buyers? How does that get credited?

I just want to make sure I have no surprises and cover everything before we go through with the purchase.

Thank you for all of your help!

stevenmaifert | 29 maart 2013

1) The credit is taken in the tax year you put the car in service. For most folks, that's the day they take delivery.
2) The credit is used to offset what you owe in Federal Income tax.
3) It is a non-refundable credit that must be taken in the tax year you put the car in service and cannot be carried forward or backward to other tax years. To get the credit, you have to owe tax. It's not income dependent. The credit is used to offset up to $7500 in taxes you owe. If you owe less than $7500, they don't refund you the difference.
4) AFAIK, you cannot split the credit between two owners, although if the two owners are spouses, the credit can be applied to a joint tax return.

MSNGIRL | 29 maart 2013

Thank you very much Steven! I understand some of it, but you say "owe" tax. I've never owed at the end of the year. Aways got a refund, so thats where i'm a little confused.

Lets say you don't owe anything on federal because you pay it all during the year and generally end up getting a huge refund every year. Would you still get the 7500 in addition to the refund you receive?

Does anyone have idea roughly how much income it would take to make sure your guaranteed the full 7500 back?

Onamort | 29 maart 2013

It depends on your gross income and tax deductions. Check your previous 1040 tax form.

If you paid $4,000 in taxes you would get the $4,000 tax credit ( refund ) whether it is taken out of your check or not.

If you paid $7,500 or more you would get the full $7,500 credit (refund) or applied to what you owe

hsadler | 29 maart 2013

No. Not what you owe. That's a misunderstanding.

Credit is against your tax bill for the year.
Refund is because you paid more than your tax bill.
Since credit lowers your tax bill, refund would be more.

stevenmaifert | 29 maart 2013

You have to understand the distinction between withholding and taxes. Generally, taxes are owed on the various types of income you can have. If most of your income is from wages, your employer will withhold money from your pay that is applied at tax time against the taxes you owe on those wages. If more money is withheld than what you owe, you get a refund. What I think you are saying is that you've always had enough withheld to where you didn't have to pay any additional money to the IRS. So with the $7500 tax credit, it is applied against what you owe just like your withholding. If the total tax you owe is $7500 or less, you would get back (refund) all of your withholding paid in. The credit is non-refundable so for example, if you only owed $7000, and you have $7000 in withholding, you would only get back $7000 and not the additional $500.

There is no set income to guarantee getting the full $7500 credit. Each person's tax bill is different, based on their sources of income and the exemptions, deductions and other tax credits they can take. You may or may not owe enough in taxes to take full advantage of the tax credit. In my personal case, I could tell in late December, that I was not going to owe enough in taxes to take full advantage of the $7500 tax credit so I withdrew enough from my deductible IRA to make sure I owed enough to use it all. It did not increase the amount of my refund, but that is now money I will not owe taxes on in the future.

aefron | 29 maart 2013

When you are calculating your taxes come this time next year, your tax burden is offset by the $7500 credit irrespective of how much you have already paid. Therefore, the $7500 is factored into your refund or liability.
I ran this by an accountant who agreed. The only person who would not benefit is a person with taxable income resulting in a tax liability of less than $7500. Such a person would not get a check for the balance left over after offsetting a small tax liability.

Kleist | 29 maart 2013

stevenmaifert
4) AFAIK, you cannot split the credit between two owners, although if the two owners are spouses, the credit can be applied to a joint tax return.

If you have two owners - not spouses - can the full amount claimed on one return ?

stevenmaifert | 29 maart 2013

@Kleist - I don't see any difference between that and spouses filling separate returns where one spouse would claim the credit even though both names are on the title as owners... so I think the answer to your question is yes. I would recommend anyone in this situation call the IRS Hotline @ 1-800-829-1040 and see what they say.

Kleist | 29 maart 2013

stevenmaifert - thanks. I asked the same question for the CA credit and the offical answer was the same - a single person can claim the entire credit for a co owned vehicle.

cmlaff | 8 april 2013

My accountant told me that I couldn't claim this because I am subject to the alternative minimum tax. He has "a number of clients who are not happy with this." I'm one of them. Anybody with a way around this?
Thanx

shop | 8 april 2013

The AMT strikes again. A way around it? Vote for politicians who want to reform the tax code to eliminate the AMT.

shop | 8 april 2013

BTW, the AMT is there because certain politicians think the rich weren't paying their fair share. So congrats, you're rich.

Darmok | 8 april 2013

@cmlaff - Found a thread over on a Volt board saying this was, but is no longer, the case.

http://gm-volt.com/forum/showthread.php?10035-7500-tax-credit-and-the-AMT

Darmok | 8 april 2013

This from a USA Today article:

Taxpayers who pay the alternative minimum tax are eligible. A few years ago, some taxpayers who purchased hybrids were dismayed to discover that, because they owed the alternative minimum tax, they couldn't claim the credit. (The alternative minimum tax is a parallel tax system designed to prevent wealthy taxpayers from avoiding tax.) In addition, some taxpayers who were close to the threshold for the AMT saw the amount of their credit reduced.

That won't happen to taxpayers who buy plug-in vehicles, says Mildred Carter, federal analyst at tax publisher CCH. Taxpayers who are subject to the AMT can claim the full credit, she says.

http://usatoday30.usatoday.com/money/perfi/columnist/block/2011-03-14-ta...

sagebrushnw | 8 april 2013

If you have a Traditional IRA, you can convert it to a Roth and use the tax credit for that up to $7500. The conversion has to be done IN the tax year that you are taking the tax credit.

Darmok | 8 april 2013
DouglasR | 8 april 2013

The $7500 plug-in vehicle tax credit may be claimed against the AMT. The 30% credit for alternative fuel infrastructure (up to $1000?) may not be claimed against the AMT.

jjaeger | 8 april 2013

+1 wrt DouglasR's summary - that is the correct interpretation. Anyone reading Dilbert these days :-)

djm12 | 8 april 2013

Thanks for the summary. Because of AMT, I did not get a credit for "alternative fuel infrastructure" on my 2012 tax return. I would be very upset if my 2013 return cannot claim the $7500 EV credit.

mdemetri | 8 april 2013

I am no accountant, but it appears to me that the $7,500 EV tax credit and EV charging station credit cannot both be taken in the same tax year regardless of AMT. My read is that Line 15c (the $7,500 EV tax credit) will reduce your regular tax by $7,500 such that line 18 becomes negative and prevents you from taking the EV charging station credit. Can anyone verify this or show me my error?

DouglasR | 8 april 2013

@mdemetri - I believe the credits are taken on different forms.

mdemetri | 8 april 2013

DouglasR: Yes, they are different forms (Form 8936 EV credit and form 8911 charging station credit). However, on form 8911, you need to bring over the EV Tax credit onto line 15c which reduces your 'regular tax' before credits on the EV charging station form (8911), such that you cannot claim the charging station credit. At least thats how I interpret it.

DouglasR | 8 april 2013

@mdemetri

Line 15c of Form 8911 refers to credits from Form 8834, not Form 8936. Form 8834 is for credits for "certain two- or three-wheeled vehicles or low-speed four-wheeled plug-in electric vehicles
acquired before 2012." The credit for regular four-wheeled electric vehicles like the Model S is taken on Form 8936.

I have to admit, however, you had me going there for a while.

mdemetri | 8 april 2013

@DouglasR

Whew!!!!!! Many thanks for pointing this out.

olanmills | 9 april 2013

I can't believe you guys pay money to accountants who just say random crap. Even lay people know that tax rules change year-to-year. All you have to do is read the form. It's one page. It doesn't mention AMT anywhere on it.

DouglasR | 9 april 2013

@olanmills -- the credit form doesn't have to mention the AMT. But if the AMT form does not let you apply a particular credit, and if you owe the AMT (rather than the regular tax), then the credit will not help you. That's the case with the alternative fuel infrastructure credit.

olanmills | 9 april 2013

TurboTax - $30 - doesn't make assumptions - knows how to follow instructions

DouglasR | 9 april 2013

So if you pay AMT, does the alternative fuel infrastructure credit provide you any benefit (according to TurboTax)?

cmlaff | 10 april 2013

According to the Journal of Accountancy, June 2011, "Plug-In Electric Cars Get a Jolt From Tax Incentives";

"The credit is treated as a nonrefundable personal credit and is limited by the taxpayer's amount of tax liability for the year the car is placed in service (including AMT)."

Oh well………….

astraussmd | 10 april 2013

The Federal EV Tax credit is income dependent > I received $47 in 2010 and $2500 in 2012 for my Roadster/Model S, respectively. Penalty for having high income! Kind of misleading for Tesla to imply that everyone will get a $7500 credit toward the purchase of their cars.

DouglasR | 10 april 2013

@astraussmd - Your credit should only be that low if your federal income tax liability is low. If your tax liability is $7500 or more, you should get the full amount. Generally that means people with a high income get $7500 (unless you have so many other deductions that your income tax obligation is less than that). It's the people with low income who are penalized.

@cmlaff - Yes, the EV tax credit can be claimed against the taxpayer's tax liability, including AMT. However, there is a second credit (alternative fuel refueling infrastructure) that can be claimed against the taxpayer's tax liability, NOT including AMT.

They don't make it easy.

safrank | 11 april 2013

Anyone hear anything about Obama's 2014 budget proposal calling for an increase in the tax credit to $10,000 per year?

stevenmaifert | 11 april 2013

@astraussmd@gmail.com - Could you provide a little more detail? I could not find anything in the instructions that said the credit is reduced based on adjusted gross income.

@sandy_frank@ver - Didn't happen, but he is calling for conversion of the $7500 credit to a point of sale rebate: http://www.whitehouse.gov/sites/default/files/other/fact-sheet-one-milli...

Brian H | 11 april 2013

The 10K applied to cars under 45K. Not relevant.

olanmills | 11 april 2013

Regarding astrausses's post, I believe the tax credit we have now has some different rules (more favorable to the EV buyer) than they had in past years.

burias | 12 februari 2015

I am curious to know if the arrangement below is allowable:

-No Personal Income
-Own LLC with Multiple Managers
-Transfer Credit to "Manager B" (not me)

-Treat Model S as 100% Business Use in LLC
-Use Form 8936 Part II, Line 14 result ($7,500 Credit)
-Business Reports on Form 1065 Schedule K, Line 15f
> "Manager B" in Business:
- Credit Appears on Schedule K-1, Line 15, Code P
- Enters Credit on Form 3800 Part III, Line 1y
- Use Result of Form 3800, Part II Line 38
> Enter on "Manager B's" Form 1040, Line 54 (Check Box [a] for [3800])
- Manager B results in $7,500 Credit Applied to Taxable Income

Is this allowable?

If so, can it be split between multiple managers of the LLC?

Mathew98 | 12 februari 2015

Federal credit can only be claimed for personal tax.

Business leasing may be more suitable for your LLC.

burias | 12 februari 2015

Still no Carry-forwards?

Opafiets | 12 februari 2015

I'd offer to the OP that if the credit figures in to a buy decision that you may be better off looking at more affordable alternatives. I am very pro Tesla and have been since before the first Roadster was delivered but they are still a bit of a risky purchase not to mention rather expensive compared to other transportation alternatives. That said, I'm a strong believer in paying cash for everything but housing*.

* I will however take advantage of really good financing if I'm fairly confident it's below investment return rates. In these cases 110% of the cash is deposited in a Vanguard account from which all payments are made.

grant | 17 juni 2015

If a model S is purchased in 2015, and then sold a few months later can the 2nd buyer claim the 7500 tax credit since the initial owner doesnt own the vehicle for the end of the tax year hes requesting credit for? What if he incorrectly filed claiming 2014 as he ordered it then, so technically it didnt qualify could the 2nd buyer claim it correctly for 2015? Anyways to find out?

LostInPA | 17 juni 2015

Short answer is No.

http://www.edmunds.com/fuel-economy/the-ins-and-outs-of-electric-vehicle...

"Only the original registered owner of an eligible vehicle can claim the federal tax credit. Even if the original registered owner didn't apply for the credit for some reason, it cannot be passed along to a subsequent buyer."

rdainer | 1 april 2016

can the federal tax credit for charging infrastructure be claimed for multiple charge point installations if you are a residential customer (not a business)?