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Business purchase and the $7500 FEDERAL tax credit

KBurbridge14

Member
Sep 20, 2016
63
40
Placer County, California
(Please only reply if you can speak with authority, or personal experience, on this topic. Thank you.)

My business purchased an X in September of 2016. The vehicle is in the business's name and qualifies for the Hummer Deduction--so on that issue I'm good.

I've looked at IRS form 8936 in an attempt to apply for the $7500 Tax Credit, but my CPA says that form indicates only a $2500 Tax Credit--not $7500. Is this the right form? Any suggestions?
 

BruceR61

Member
Jan 21, 2017
294
579
Thousand Oaks, CA
I have no authority so I am not asking about the tax credit - but do you know if I was willing to accept only whatever credit I could get (whether that was $2,500 or $7,500), if I put this in the name of my corporation whether I could depreciate the entire car (I think Rule 179 - also called the Hummer deduction)?
 

Spatters805

Member
Jan 26, 2017
22
12
Ventura, CA
Same thang happened to me when I tried to claim the credit on my wife's Volvo XC90 T8. Instead of a $4600 credit, it listed a $2500 credit.

I was adamant and my accountant reviewed the Form 8936 in his tax software. You have to make sure to list the battery kWh and the credit should apply in most tax software. Make sure your accountant has all the data (VIN and battery size) to enter.

Hopefully that solves the issue.
 

Spatters805

Member
Jan 26, 2017
22
12
Ventura, CA
IMG_4787.PNG


Also on line 10 on form 8936, it looks like you can only claim $2500 for business use. I think the full deduction only applies to personal use.
 

Nomad

Member
Dec 19, 2014
103
55
NE Indiana
View attachment 218568

Also on line 10 on form 8936, it looks like you can only claim $2500 for business use. I think the full deduction only applies to personal use.

Not so. Take a closer look at Line 6. It says that lines 7-10 only apply to 2-wheel vehicles. Line 11 then says to enter the amount from Line 6, which is the percentage of business use multiplied by $7500. So if the car is used 50% for business, you get the a $3750 credit for business use. But Part III allows you to take the rest of the credit for personal use, which is another $3750, for a total of $7500.

P.S.
This confused the hell out of me. Just spent 30 minutes looking at the various forms and instructions. Half way through realized I was looking at the wrong credit, and then I caught the 2-wheel caveat. Made it a bit more simple, haha.
 

cpa

Active Member
May 17, 2014
3,246
4,409
Central Valley
Your vehicle will qualify for the $7,500 vehicle credit at the business level. You do not say if your business is a flow-through entity or not. There are limitations to this credit when the vehicle is used in business. First the credit is limited by the income tax on the income generated by the business--i.e., if the business has a loss for the year--no current year credit, of if the income was a small number, then a small credit.

Second, it is subject to AMT. The credit cannot reduce your income tax below AMT. The good news is that the unused credit can be carried forward up to twenty years. I highly recommend that you find form 3800, General Business Credit, and read the instructions thereon to understand how all this flows.

Third, the depreciable basis of the vehicle must be reduced by any credit taken thereon. So, right from the git-go, your basis is reduced by $7,500. I would also go so far as to reduce the basis by any additional rebate (like we get in California.)

Fourth, there may be recapture of the credit if business use falls below 50%--that is an obscure rule, and I have not researched it in years. So don't quote me, but be aware of this twist.
 
  • Informative
Reactions: bhzmark and MikeC

pete8314

Vendor
Jun 4, 2012
2,360
677
DFW, ex UK
More on this subject as I've been having a similar conversation with my accountant. On the most basic level - my business mileage is 35% of the total mileage, and I declare a mileage deduction on that basis. However, my accountant (who's new to this form) believes that I can only claim the business part on Form 8936, as I'm claiming the mileage, and the only way to get the full $7500 is to declare no business use. I think I can claim the business part in Part 2, and the personal mileage in Part 3, still totaling $7500. Who's right?
 

cpa

Active Member
May 17, 2014
3,246
4,409
Central Valley
Vehicles are "listed property." As such, business usage must be >50% in order to be able to deduct the pro-rata share of all operating expenses, including depreciation. Furthermore, any business income tax credits are only available to the extent that the vehicle is used >50% for business.

Accordingly in your situation, your business will not be able to take the pro-rata share of operating expenses or the Section 30D credit. I cannot recall any situation where the Code allows a Solomon-like decision to split the baby.

It all boils down to that fact that you will receive the $7,500 credit against your personal income tax liability. I do not understand what the fuss is all about trying to get the credit to come through one's business, because that decision makes everybody's life more difficult. Tax prep fees increase, taxpayer record keeping increases, and the back door surprises like depreciation recapture and Section 179 recapture make for unhappy taxpayers.

I have been cranking out income taxes for a lot of people and businesses over the years. I used to keep a journal years ago that compared the deductions for utilizing the standard mileage rate as opposed to using the actual method. The results seemed to reflect that over a five-year period the income tax savings were negligible. This was primarily due to the fact that most business usage claimed was 70-80%. They were greatest of course in the first two years and then dropping in year three. Moreover, as I mentioned above, there are traps embedded into the Code that can be expensive to the uninformed. I personally believe that the income tax benefits derived by owning a vehicle in one's business are more illusory than real.

Business ownership makes great sense when the vehicle is garaged at the workplace and is used 100% for business by the owner and employees. I have some clients who have this sort of operation, and we utilize this approach.
 

LyftupX

Member
Jul 19, 2017
210
80
Seattle
Vehicles are "listed property." As such, business usage must be >50% in order to be able to deduct the pro-rata share of all operating expenses, including depreciation. Furthermore, any business income tax credits are only available to the extent that the vehicle is used >50% for business.

Accordingly in your situation, your business will not be able to take the pro-rata share of operating expenses or the Section 30D credit. I cannot recall any situation where the Code allows a Solomon-like decision to split the baby.

It all boils down to that fact that you will receive the $7,500 credit against your personal income tax liability. I do not understand what the fuss is all about trying to get the credit to come through one's business, because that decision makes everybody's life more difficult. Tax prep fees increase, taxpayer record keeping increases, and the back door surprises like depreciation recapture and Section 179 recapture make for unhappy taxpayers.

I have been cranking out income taxes for a lot of people and businesses over the years. I used to keep a journal years ago that compared the deductions for utilizing the standard mileage rate as opposed to using the actual method. The results seemed to reflect that over a five-year period the income tax savings were negligible. This was primarily due to the fact that most business usage claimed was 70-80%. They were greatest of course in the first two years and then dropping in year three. Moreover, as I mentioned above, there are traps embedded into the Code that can be expensive to the uninformed. I personally believe that the income tax benefits derived by owning a vehicle in one's business are more illusory than real.

Business ownership makes great sense when the vehicle is garaged at the workplace and is used 100% for business by the owner and employees. I have some clients who have this sort of operation, and we utilize this approach.


Taking delivery closer to year end so I can adjust business use to the most optimal %. Going forward use will always be > 50%

Question , so the $7500 if I use 1099 expensing has to count towards the specific 1099 liability? If so does that include the (SE Portion)? I notice in the case of sec 179 it rolls up and can be household included.

I was planning on no business use to make the $7500 come in clean versus personal (some here noting the issues with splitting the credit) , but it would be nice to expense the $6k sales tax that I can’t count on regular as we will surpass the SALT deduction amount on items we already have.

So I may do 80% + business use and utilize the sales tax and try and capture total credit. This does
Not make it easy as I usually allocate 1099 $ towards solo 401k and trying to nail down that declaration is tricky with the moving Pieces.
 

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