7500 EV tax credit update with new bill

[LCIDdreams]

No, I think they have until end of the year. Bill is effective from Jan 1 2023.

If you take delivery before end of this year, EV credit qualification determination will follow the current rule (regardless of when order is confirmed).

If you take delivery next year, EV credit qualification will follow the new (soon to be) law. It’s possible that confirming before the bill is signed into law will grandfather the order in under the current rules but that ultimately depends on what IRS determines constitutes a “binding sales contract”. IRS will establish that after signing and before end of year.

 

[Draco_Malfoy]

A binding purchase contract is not the same thing as a non-refundable deposit. If one can back out and only forfeit the deposit, I don't see that qualifying.

I'm not a lawyer and this could likely come down to state contract law (which varies state by state.) But in general I think Steve is correct. If the only penalty for failure to complete is forfeiture of deposit then I'm pretty sure it is not a binding purchase contract. A non-refundable deposit is not a binding purchase contract. Also -- some states have laws that all vehicle deposits must be refundable. So a potential purchaser can sign an agreement stating a deposit is non-refundable but the deposit is still refundable if state law requires deposits to be refundable. As always - check with a lawyer in your state before you sign anything.

 

[digiboxer]

I'm not a lawyer and this could likely come down to state contract law (which varies state by state.) But in general I think Steve is correct. If the only penalty for failure to complete is forfeiture of deposit then I'm pretty sure it is not a binding purchase contract. A non-refundable deposit is not a binding purchase contract. Also -- some states have laws that all vehicle deposits must be refundable. So a potential purchaser can sign an agreement stating a deposit is non-refundable but the deposit is still refundable if state law requires deposits to be refundable. As always - check with a lawyer in your state before you sign anything.

I think the IRS would argue, regardless of what the document calls itself, that it's essentially an option to buy the car, for which the buyer paid a $1,000 option fee.

 

[Tesla2.0]

I think the IRS would argue, regardless of what the document calls itself, that it's essentially an option to buy the car, for which the buyer paid a $1,000 option fee.

Option right <> ownership

 

[misanoblue]

This is getting ridiculous. If a non-refundable deposit on a written binding contract to purchase a car is not a binding contract, then what is?

For a contract to buy a house, I put up earnest money, and have a written contract to purchase the house. If I fail to honor the contract, I lose my earnest money. Both buyer and seller agree on the consideration provided in a contract, not the IRS. If the IRS doesn't specify minimum consideration, then buyer and seller can determine it themselves.

 

[Drendino]

This is getting ridiculous. If a non-refundable deposit on a written binding contract to purchase a car is not a binding contract, then what is?

For a contract to buy a house, I put up earnest money, and have a written contract to purchase the house. If I fail to honor the contract, I lose my earnest money. Both buyer and seller agree on the consideration provided in a contract, not the IRS. If the IRS doesn't specify minimum consideration, then buyer and seller can determine it themselves.

I’m in real estate and essentially what this sounds like is a purchase option, which includes a binding contract and typically a non-refundable deposit for the option to purchase at a later date. In a purchase option there are not any tax benefits until payment is made in full and ownership transfers, even though there is a ratified contract and a portion of the payment changing hands.

Unless congress enacts a carve-out, my sense is that it won’t hold up and the tax credit will lapse in 2023. The only way I could see it working is if title to the car changes hands in 2022 and there is an agreement for physical transfer to happen in 2023. This would require a VIN of course, so I don’t even know how that would work.

I hope I’m wrong because I’m scheduled to take delivery of an R1S in 2023.

 

[idiot900]

I’m in real estate and essentially what this sounds like is a purchase option, which includes a binding contract and typically a non-refundable deposit for the option to purchase at a later date.

What's the difference between that and a regular new vehicle purchase agreement, that stipulates that the purchase price is to be paid on delivery, with the addition of a penalty for backing out of the deal?

 

[Steveinarizona]

I am in the minority here. If one can afford a Lucid, one can afford to pay without a taxpayer subsidy. It makes sense for the credit to be limited to lower cost cars. What doesn't make sense, right now, is that even lower priced cars can't qualify because of the battery sourcing issue.

 

[Drendino]

What's the difference between that and a regular new vehicle purchase agreement, that stipulates that the purchase price is to be paid on delivery, with the addition of a penalty for backing out of the deal?

A contract is the promise to complete a sale. Transfer of title completes it. I’m sure there are some high caliber attorneys working on it, but if they can figure out how to transfer tittle in 2022, that should do it.

 

[idiot900]

A contract is the promise to complete a sale. Transfer of title completes it. I’m sure there are some high caliber attorneys working on it, but if they can figure out how to transfer tittle in 2022, that should do it.

The language of the act requires a "written binding contract" and talks about when the car is placed into service, but does not specify as far as I can tell when transfer of title must occur.

I am in the minority here. If one can afford a Lucid, one can afford to pay without a taxpayer subsidy. It makes sense for the credit to be limited to lower cost cars. What doesn't make sense, right now, is that even lower priced cars can't qualify because of the battery sourcing issue.

This makes sense, but there is plenty of precedent for those of us fortunate enough to afford a Lucid to minimize, within the bounds of the law, their tax liability in all other arenas. I see this as no different. If I can't get the credit, it'll be a shame, but I'll still buy the car. But if I can get the credit, I'll take it.

 

[borski]

What's the difference between that and a regular new vehicle purchase agreement, that stipulates that the purchase price is to be paid on delivery, with the addition of a penalty for backing out of the deal?

Nothing. But that’s an option, not a binding contract of sale.

 

[joec]

If I can't get the credit, it'll be a shame, but I'll still buy the car. But if I can get the credit, I'll take it.

This is basically the way I will treat it as well. Whenever I get the car, the following tax season I will send all the pertinent info to my accountant and see what she says. That's why I pay her. Because she'll know this law a heck of a lot better than I ever will.

For my own sanity, though, I'm already assuming the credit will be a no-go. Much better to be pleasantly surprised than greatly disappointed.

 

[idiot900]

Nothing. But that’s an option, not a binding contract of sale.

Put another way, what specific legal elements would it take to convert a standard dealership new vehicle purchase agreement - which surely would be acceptable under the Act - into this type of purchase option? And can Lucid bridge the gap the other direction?

 

[Drendino]

I am in the minority here. If one can afford a Lucid, one can afford to pay without a taxpayer subsidy. It makes sense for the credit to be limited to lower cost cars. What doesn't make sense, right now, is that even lower priced cars can't qualify because of the battery sourcing issue.

In general, I agree with you. However, a lot of car people tend to punch above their weight and give into impulses, rather than make sound economic car buying decisions. A lot of people initially reserved a Pure or Touring and stretched to figure out a GT. I know that the tax credit played into my internal bargaining.

 

[Edward]

Thank you for offering these highlights. I have just reviewed many of them and I am impressed with your accuracy. Now, with that said. the current $7,500 tax credit only applies to those of us who are officially confirmed and have received the Lucid Order Agreement. Thus, I hope Lucid shortly begins a program that reaches out to those who have reserved but have not received a confirmation from Lucid. They should offer those people the choice to confirm their order and lock in the $7,500 tax credit before the end of this year.

I just talked to my SA in Denver and he confirmed that the $7500 tax credit would still be obtainable providing we sat down, pocked out the various features, and wrote up the order agreement.

 

[digiboxer]

This is getting ridiculous. If a non-refundable deposit on a written binding contract to purchase a car is not a binding contract, then what is?

For a contract to buy a house, I put up earnest money, and have a written contract to purchase the house. If I fail to honor the contract, I lose my earnest money. Both buyer and seller agree on the consideration provided in a contract, not the IRS. If the IRS doesn't specify minimum consideration, then buyer and seller can determine it themselves.

I hope I turn out to be wrong...but....there is no income tax credit involved in your house purchase scenario, hence no IRS involvement.

In the EV tax credit setting, the new bill seem to say the rules that exist now will be preserved for buyers who have entered into a "binding purchase agreement" prior to enactment of the new law. That would seem to require a contract that" binds" the buyer to buy the car---not one that let's him walk away from the purchase by paying $1,000..

Ultimately it's a question of what the people who wrote the bill intended ("legislative intent"). But ultimately it's up to the IRS to enforce the law and we all know they interpret all tax law favorably to the government. The taxpayer's remedy would be to go to tax court and argue the IRS's position doesn't reflect legislative intent....no one would do that in the hope of winning $7500....

It's possible Lucid, Rivian, Fisker, etc are getting advice from their (major) law, accounting, I=banking experts that it's worth the effort to encourage these contracts that don't require the buyer to by. That would be a hopeful sign.

One other depressing thought: anyone filing a 2023 Fed return that 1) shows more than $300k in income, and 2) claims the $7500 credit is probably begging to get audited

 

[joec]

I hope I turn out to be wrong...but....there is no income tax credit involved in your house purchase scenario, hence no IRS involvement.

In the EV tax credit setting, the new bill seem to say the rules that exist now will be preserved for buyers who have entered into a "binding purchase agreement" prior to enactment of the new law. That would seem to require a contract that" binds" the buyer to buy the car---not one that let's him walk away from the purchase by paying $1,000..

Ultimately it's a question of what the people who wrote the bill intended ("legislative intent"). But ultimately it's up to the IRS to enforce the law and we all know they interpret all tax law favorably to the government. The taxpayer's remedy would be to go to tax court and argue the IRS's position doesn't reflect legislative intent....no one would do that in the hope of winning $7500....

It's possible Lucid, Rivian, Fisker, etc are getting advice from their (major) law, accounting, I=banking experts that it's worth the effort to encourage these contracts that don't require the buyer to by. That would be a hopeful sign.

One other depressing thought: anyone filing a 2023 Fed return that 1) shows more than $300k in income, and 2) claims the $7500 credit is probably begging to get audited

So long as they leave themselves wiggle room in the wording, the bean counters at Rivian, Fisker, Lucid, etc. are going to suggest to their preorder customers that the credit will still, maybe, just possibly be able to be claimed. If for no other reason than to avoid people canceling their orders. It'll be easy enough AFTER the sale to say "Sorry, the IRS screwed you, I guess."

We'll know for sure how much they believe the credit will still be claimable if they continue to offer the $7,500 off the bottom line cost to lease customers. Because they're only going to continue that if they are 100% certain THEY can claim the rebate for themselves.

 

[DJL]

The more I research this, the more confusing it gets. I just researched IRS documents to see if I could find a definition of the term "binding purchase agreement". I found an April 2013 IRS guidance document that updates its definition of a "binding written contract". While not exactly on point (i.e., it was not written to address EV's )it appears to be pretty close from what I can see. I am not a lawer, only a lay person who wrote proposed statutory language and regulations in a former life 35 to 40 years ago , so take it for what it is worth. You can read the IRS document by clicking HERE. It states:
(1) Binding written contract . A contract is binding only if it is enforceable under local law against the taxpayer or a predecessor and does not limit damages to a specified amount (for example, by use of a liquidated damages provision). For this purpose, a contractual provision that limits damages to an amount equal to at least five percent of the total contract price will not be treated as limiting damages to a specified amount. For additional guidance regarding the definition of a binding contract, see § 1.168(k)-1(b)(4)(ii)(A)-(D).

My reading of it is that unless you actually have the final buy/sell agreement that you sign right before purchase, you are screwed.
I can't wait to see what Lucid come out with on this issue, if, in fact, they do.

If anyone has better insight, I sure would appreciate you posting it.

 

[HC_79]

Fisker is offering to enter into a "binding contract" with any interested buyer. The fine print says if the buyer fails to close the deal Fisker's remedy is forfeiting the $250 deposit....thats the extent of the buyer's exposure.

Whether that's enough to validly grandfather the tax credit per the transition rules isn the Bill----anyone's guess. And Fisker certain doesn't "promise" that it does work.

Looks like Rivian is pursing a similar arrangement---one would expect with advice from legal, accounting, and lobbying experts. Will Lucid follow suit?

How do you know they're not going to do exactly what they did to Ocean One First Edition reservation holders and ask for an additional $5000 that's non-refundable.

Fisker asks Ocean One reservation holders for additional $5,000 downpayment to secure their order

Fisker Inc. is asking its Ocean One reservation holders to shell out an extra $5,000 in a nonrefundable deposit for...

electrek.co

If the contract states $250 non-refundable then no biggie but if they pull the stunt of asking for $5000 I wouldn't go anywhere near them.

 

[digiboxer]

The more I research this, the more confusing it gets. I just researched IRS documents to see if I could find a definition of the term "binding purchase agreement". I found an April 2013 IRS guidance document that updates its definition of a "binding written contract". While not exactly on point (i.e., it was not written to address EV's )it appears to be pretty close from what I can see. I am not a lawer, only a lay person who wrote proposed statutory language and regulations in a former life 35 to 40 years ago , so take it for what it is worth. You can read the IRS document by clicking HERE. It states:
(1) Binding written contract . A contract is binding only if it is enforceable under local law against the taxpayer or a predecessor and does not limit damages to a specified amount (for example, by use of a liquidated damages provision). For this purpose, a contractual provision that limits damages to an amount equal to at least five percent of the total contract price will not be treated as limiting damages to a specified amount. For additional guidance regarding the definition of a binding contract, see § 1.168(k)-1(b)(4)(ii)(A)-(D).

My reading of it is that unless you actually have the final buy/sell agreement that you sign right before purchase, you are screwed.
I can't wait to see what Lucid come out with on this issue, if, in fact, they do.

If anyone has better insight, I sure would appreciate you posting it.

Great research...if this definition is applicable it seems like a contract the buyer could get out of by forfeiting at least 5% would preserve the tax credit.

But I think the transition rules say the contract has to be entered into before the bill is PASSED (i.e next week?), not before the effective date 1/1/23.