Federal Tax Credit?

[Sid432]

Hi guys - trying to understand how to Federal Tax Credit would work?

I have already upgraded my Pure reservation to Touring. However, I noticed on the portal, they have the price listed and a deduction of Federal Tax credit of $7500.
For the people who had already received their Air's, was this deducted outright from the price or you would claim it on next year tax filing

Appreciate the clarity and guidance

 

[CLTGT]

It is actually a credit on your tax return, not a deduction, making it that much more valuable/useful. It is deducted from whatever the bottom line of your tax return is. Theoretically, if you planned your taxes perfectly and ended up neither owing taxes or receiving a refund, the credit would result in you getting a refund of that amount.

 

[Impatient7536]

It is actually a credit on your tax return, not a deduction, making it that much more valuable/useful. It is deducted from whatever the bottom line of your tax return is. Theoretically, if you planned your taxes perfectly and ended up neither owing taxes or receiving a refund, the credit would result in you getting a refund of that amount.

but you gotta make sure you owe at least 7500 right? so if you like owe 6000, they only give you the 6000 and you "lose" the 1500.

im still trying to figure out how much to adjust my withholdings by for the year when i get the car

 

[CLTGT]

I do not think so. That is why a "credit" is so much more valuable than a "deduction". If the credit results in changing your bottom line to a "refund" from a "you owe", you actually get the refund.

In your example, you do not lose the $1500, you get it as a refund.

I am not currently a CPA, but I used to be and my wife was actually a tax accountant and she also verified that, but, as the disclaimer reads, do not take this as tax advice, consult your personal accountant.

 

[Impatient7536]

I do not think so. That is why a "credit" is so much more valuable than a "deduction". If the credit results in changing your bottom line to a "refund" from a "you owe", you actually get the refund.

In your example, you do not lose the $1500, you get it as a refund.

I am not currently a CPA, but I used to be and my wife was actually a tax accountant and she also verified that, but, as the disclaimer reads, do not take this as tax advice, consult your personal accountant.

https://evadoption.com/resources/federal-electric-vehicle-ev-tax-credit-works/

"To claim the credit, you must have a tax liability that you report on your Federal tax return. You can only claim the credit up to the amount of your tax liability."

seems like we gotta owe the 7500. that "credit" terminology really got me bamboozled, since how you explained it is how I understood at it first too, until recently.

 

[Sid432]

That's what my understanding was. Yet, few of my friends got the refund back when Tesla was eligible and some said that you must owe atleast $7500 to utilize that Tax credit. So, you won't pay a dime on it. CPA's also tend to have mixed answers on them..

 

[CLTGT]

A "Tax Liability" is just part of the equation. You can have a "tax liability" and still get a refund. The difference is how much you paid in and credits. The tax liability is a bit further up on the return and adjusted by several items such as withholdings, estimated payments and credits.

 

[larry]

(I am not an accountant but I know a couple things...) If you think you'll get the car this year and get the tax credit, it's worth talking to an accountant. Talk to them this year, not by next April. The tax credit only covers the tax liability. There's no refund AND the tax credit does not roll over to other years (like solar or geothermal install credits do).

Part of the confusion, I think, comes from what a "tax liability" is. This is not the same as the amount of money you over- or underpaid in the year. As I understand it, assuming what the 1040 says you should have paid in federal taxes--without any tax credit--is $5k, then...

• If you already paid in $6k, your tax liability was $5k and you get a refund of $1k.
• If you already paid in $4k, your tax liability was $5k and you owe another $1k.
• If you get a $7500 EV credit and you already paid in $4k, your tax liability is $0 and you get a refund of $4k and the remaining tax credit disappears.

I'm still not an accountant and I've been known to be wrong before, but this is how I understand it. But! if you get the car by or in Q4, you can talk to an accountant to do a rough calculation of your tax liability. Then you might be in a position to create more tax liability, for example by doing something with a retirement account.

EDIT: Or, more simply, "what CLTGT just said"

 

[CLTGT]

Yep, that explains it a bit better, but I will go a step further. Say your tax liability is $10k and you paid in (from whatever sources, withholdings, est payments, K1 impacts) $5k, you would owe another $5k before credits. The $7500 credit will result in a refund of $2500, of which you would get the entire amount ($2500) as a refund. Let's say you were almost perfect and your tax liability was $10k and you paid in $10k, resulting in a total due of $0 before credits. The $7500 credit would result in your return showing a $7500 refund and you would get all $7500 back because your original "tax liabilty" was in excess of that number.

 

[Impatient7536]

(I am not an accountant but I know a couple things...) If you think you'll get the car this year and get the tax credit, it's worth talking to an accountant. Talk to them this year, not by next April. The tax credit only covers the tax liability. There's no refund AND the tax credit does not roll over to other years (like solar or geothermal install credits do).

Part of the confusion, I think, comes from what a "tax liability" is. This is not the same as the amount of money you over- or underpaid in the year. As I understand it, assuming what the 1040 says you should have paid in federal taxes--without any tax credit--is $5k, then...

• If you already paid in $6k, your tax liability was $5k and you get a refund of $1k.
• If you already paid in $4k, your tax liability was $5k and you owe another $1k.
• If you get a $7500 EV credit and you already paid in $4k, your tax liability is $0 and you get a refund of $4k and the remaining tax credit disappears.

I'm still not an accountant and I've been known to be wrong before, but this is how I understand it. But! if you get the car by or in Q4, you can talk to an accountant to do a rough calculation of your tax liability. Then you might be in a position to create more tax liability, for example by doing something with a retirement account.

EDIT: Or, more simply, "what CLTGT just said"

Yep, that explains it a bit better, but I will go a step further. Say your tax liability is $10k and you paid in (from whatever sources, withholdings, est payments, K1 impacts) $5k, you would owe another $5k before credits. The $7500 credit will result in a refund of $2500, of which you would get the entire amount ($2500) as a refund. Let's say you were almost perfect and your tax liability was $10k and you paid in $10k, resulting in a total due of $0 before credits. The $7500 credit would result in your return showing a $7500 refund and you would get all $7500 back because your original "tax liabilty" was in excess of that number.

ooooh ok! thanks for clearing this up I misunderstood what tax liability meant. thought i was gonna have to adjust my withholdings so that I owe 7500 when I file for taxes

 

[LAZARU5]

Keep in mind that the $7500 cannot be applied against all types of taxes. For example, the credit cannot be used to reduce self-employment taxes. The first time I used the $7500 credit I opted not to use Section 179 to take higher first year depreciation on some equipment purchased the same year as the EV. I needed to do that to increase tax liability on ordinary income. Fortunately, the credit can be applied toward capital gains tax.

 

[joec]

Reading through all of this makes me very glad I found an excellent accountant years ago. I'd never be able to figure out half this stuff without screwing something up.

When I get my car next year, I just plan to shoot her an email and let her figure it out.

 

[Impatient7536]

Keep in mind that the $7500 cannot be applied against all types of taxes. For example, the credit cannot be used to reduce self-employment taxes. The first time I used the $7500 credit I opted not to use Section 179 to take higher first year depreciation on some equipment purchased the same year as the EV. I needed to do that to increase tax liability on ordinary income. Fortunately, the credit can be applied toward capital gains tax.

i can tell you this much; i wont be having any capital gains after this year...

 

[KySerenity]

I do not think so. That is why a "credit" is so much more valuable than a "deduction". If the credit results in changing your bottom line to a "refund" from a "you owe", you actually get the refund.

In your example, you do not lose the $1500, you get it as a refund.

I am not currently a CPA, but I used to be and my wife was actually a tax accountant and she also verified that, but, as the disclaimer reads, do not take this as tax advice, consult your personal accountant.

I got the $7500 credit on my Tesla. It is my understanding that @LAZARU5 is correct. You must owe $7500 in taxes to get the full credit. If you owe only $6000, then you only get $6000 credit. They will not give you the credit in a refund.

Obtaining the credit is very tricky. If you do not pay 80% of your taxes in advance, you are penalized. If you pay too much and do not owe $7500, you do not get the full credit. This takes planning and a good accountant.

 

[WildRide47]

I got the $7500 credit on my Tesla. It is my understanding that @LAZARU5 is correct. You must owe $7500 in taxes to get the full credit. If you owe only $6000, then you only get $6000 credit. They will not give you the credit in a refund.

Obtaining the credit is very tricky. If you do not pay 80% of your taxes in advance, you are penalized. If you pay too much and do not owe $7500, you do not get the full credit. This takes planning and a good accountant.

Please explain "if you pay too much and do not owe $7,500 you do not get the full credit" What do you mean by "and do not owe $7,500? Not sure what you are saying.

 

[Tesla2.0]

Forget about federal withholding, advanced Quarterly payment, it’s calculated “calendar year tax liability” amount reduce by 7500 credit by filing out form 8936.

About Form 8936, Clean Vehicle Credit | Internal Revenue Service

Information about Form 8936, Qualified Plug-In Electric Drive Motor Vehicle Credit, including recent updates, related forms and instructions on how to file. Form 8936 is used to figure credits for qualified plug-in electric drive motor vehicles placed in service during the tax year.

www.irs.gov

Please consult your tax accountant.

 

[WildRide47]

Please explain "if you pay too much and do not owe $7,500 you do not get the full credit" What do you mean by "and do not owe $7,500? Not sure what you are saying.

I find it hard to believe that if I overpay my estimated taxes that I will not get the $7,500 credit. Where did you this information?

 

[hellolucid]

If they remove the tax credit in the coming months or put a cap on the price, will it affect people who already took delivery? I believe they already tried to do that last December but the bill didn't pass.

 

[KySerenity]

Please explain "if you pay too much and do not owe $7,500 you do not get the full credit" What do you mean by "and do not owe $7,500? Not sure what you are saying.

One must pay 80% of your tax in advance but not pay too much in advance so that you do not still owe $7500. It is a fine line to avoid the prepay penalty but also be able to claim the entire credit.

It is typical for Uncle Sam and the IRS to make everything difficult.

 

[WildRide47]

Forget about federal withholding, advanced Quarterly payment, it’s calculated “calendar year tax liability” amount reduce by 7500 credit by filing out form 8936.

About Form 8936, Clean Vehicle Credit | Internal Revenue Service

Information about Form 8936, Qualified Plug-In Electric Drive Motor Vehicle Credit, including recent updates, related forms and instructions on how to file. Form 8936 is used to figure credits for qualified plug-in electric drive motor vehicles placed in service during the tax year.

www.irs.gov

Please consult your tax accountant.

I will also be getting a BMW i4M50 in addition to my AGT this year.

Will I be able to receive a $15,000 credit as I will now have two vehicles(BEV) delivered in one year