Discussion : All discussion regarding Model 3 and Tax credit in model 3 subforum

[Knightshade]

First, it's really line 18 you want to look at.

The EV credit is not refundable- some others potentially are- non refundable credits get used first.

But assuming the EV one is the ONLY credit you have in the 18-24 section this isn't relevant.

Anyway, you need to understand 3 different concepts:


1) Tax liability- This is the amount of tax, based on your income and deductions and credits, that you owe the government. This ultimately is line 24 (but as I mention there's the refundable/non-refundable bit I'll get back to)

2) Tax withholding- This is the amount of money your employer (or you if self employed) holds back and sends early to the IRS. This is essentially a pre-payment of your tax liability. This has NOTHING AT ALL to do with how much of the EV tax credit you will benefit from. Changing your withholding does not impact how much of the credit you "get" to use.

3) Refund- If item 2 is larger than item 1, you get a refund for the difference. (and if item 1 is larger than item 2, you OWE the IRS the difference).

The EV tax credit reduces the amount of item 1, dollar for dollar, to a max of $7500. If you get item 1 to 0, you lose the rest of the benefit because it's not a refundable credit.


The refundable bit comes in because some credits are refundable (even if item 1 is 0, you still get the refundable part added to your refund-- part of the child tax credit works like this).... and some are not refundable (if item 1 is 0, you get no additional benefit from these credits-- the EV credit is like that)

When doing your taxes you apply your non-refundable credits first.

So if line 18 on your 1040 is already only 5k, you only get 5k of benefit from the EV credit (but might still get benefit after that from any refundable credits you are entitled to)

 

[ItsNotAboutTheMoney]

OP, on your 2022 Tax Year 1040 what was the amount in Line 22?
Assuming you don't have a very complicated tax situation, that's the key number here.

Assuming nothing changes on the 2023 1040, you would be able to benefit from the lesser of Line 22 and the amount of tax credit that can be claimed for the new EV.

To add to what Knightshade said, I find it's easiest to think of tax and tax credits this way:

<tax paid> The amount you actually paid in taxes during the year. There's no upper limit.
<tax liability> The amount the IRS expected you to pay during the year. This is never below 0.

Refund is <tax paid> - <tax liability>

So:

Refundable tax credit: acts like a tax payment. Because taxes paid is unlimited, you would expect to be able to benefit from the full amount
Non-refundable tax credit: reduces tax liability Because tax liability cannot drop below zero, you might not be able to benefit form the full amount.

The EV credit is a non-refundable tax credit.

I wish they called them payment credits and liability credits instead.

 

[EV-EV29]

OP, on your 2022 Tax Year 1040 what was the amount in Line 22?
Assuming you don't have a very complicated tax situation, that's the key number here.

Assuming nothing changes on the 2023 1040, you would be able to benefit from the lesser of Line 22 and the amount of tax credit that can be claimed for the new EV.

To add to what Knightshade said, I find it's easiest to think of tax and tax credits this way:

<tax paid> The amount you actually paid in taxes during the year. There's no upper limit.
<tax liability> The amount the IRS expected you to pay during the year. This is never below 0.

Refund is <tax paid> - <tax liability>

So:

Refundable tax credit: acts like a tax payment. Because taxes paid is unlimited, you would expect to be able to benefit from the full amount
Non-refundable tax credit: reduces tax liability Because tax liability cannot drop below zero, you might not be able to benefit form the full amount.

The EV credit is a non-refundable tax credit.

I wish they called them payment credits and liability credits instead.

Line 22 was 5k, refund of 4k. Just want to know if 5k will be added to my tax refund of 4k bringing the total to 9k?

Or will the EV credit reduce my 5k to zero and still end up with 4k refund? Thanks. Taxes are truly not my thing but I am learning!

 

[GS-7]

Line 22 was 5k, refund of 4k. Just want to know if 5k will be added to my tax refund of 4k bringing the total to 9k?

Or will the EV credit reduce my 5k to zero and still end up with 4k refund? Thanks. Taxes are truly not my thing but I am learning!

it means your
tax liability = 5k
withhold = 9k
so with no EV purchase, Refund = 9k - 5k = 4k
with EV purchase, Refund = 9k - 5k + 5k (tax liability or 7.5K, whichever is less) = 9k

 

[EV-EV29]

it means your
tax liability = 5k
withhold = 9k
so with no EV purchase, Refund = 9k - 5k = 4k
with EV purchase, Refund = 9k - 5k + 5k (tax liability or 7.5K, whichever is less) = 9k

So I played with TurboTax 2022 and surprisingly the Tesla has 7.5k in credits on the form 8936. I applied it and this is what happened:
5k tax liability - 7.5 EV credit = 0
Tax withholding =3k
Child tax credit = 4+k

It removed my non refundable child credit, and it bumped up my return to 7.5k from 4.5k.

I bumped up my W2 up to 90k and the return stayed the same until I went beyond 100k when I started seeing less.

I guess you can say I am disappointed with just benefitting 3k from it...

 

[SilentWarp]

So I played with TurboTax 2022 and surprisingly the Tesla has 7.5k in credits on the form 8936. I applied it and this is what happened:
5k tax liability - 7.5 EV credit = 0
Tax withholding =3k
Child tax credit = 4+k

It removed my non refundable child credit, and it bumped up my return to 7.5k from 4.5k.

I bumped up my W2 up to 90k and the return stayed the same until I went beyond 100k when I started seeing less.

I guess you can say I am disappointed with just benefitting 3k from it...

Strange, with an income of 90K, your tax liability should be at least $15K, discounts and all. With 100K, it would have to be higher than that.
How could you not be getting the full $7500 if your tax liability is for sure more than $7500?

(Also, withholding has nothing to do with calculating annual taxes owed. Just because you paid more (or less) on each paycheck doesn't mean you can't take advantage of the credit.)

 

[EV-EV29]

Strange, with an income of 90K, your tax liability should be at least $15K, discounts and all. With 100K, it would have to be higher than that.
How could you not be getting the full $7500 if your tax liability is for sure more than $7500?

(Also, withholding has nothing to do with calculating annual taxes owed. Just because you paid more (or less) on each paycheck doesn't mean you can't take advantage of the credit.)

Good question. I did see the tax liability on line 16 increase as I inflated my W2 to 90k

But yes for my scenario, my tax liability is only 5k.
Should I be getting more than a 3k bump in my refund?

Should I even depend on this turbo tax calculation since it is based off 2022?

 

[SilentWarp]

Good question. I did see the tax liability on line 16 increase as I inflated my W2 to 90k

But yes for my scenario, my tax liability is only 5k.
Should I be getting more than a 3k bump in my refund?

Should I even depend on this turbo tax calculation since it is based off 2022?

Understood. So if your tax liability is only $5000, then yes, you can only get $5000 out of the tax credit ('wasting' $2500). Still, $5000 tax liability on a 6 figure income, you should be happy not sad. Think of all the national debt interest on $30T you are not contributing to.

 

[EV-EV29]

Understood. So if your tax liability is only $5000, then yes, you can only get $5000 out of the tax credit ('wasting' $2500). Still, $5000 tax liability on a 6 figure income, you should be happy not sad. Think of all the national debt interest on $30T you are not contributing to.

Sadly I don't make 6 figures... I just wanted to throw different numbers on the program to see any benefit if I were to increase my tax liability by working more or selling stock. For my case it did not have a benefit until the tax liability went beyond 7.5k. the overage had a negative effect on the child credit/tax withholding hence the refund for smaller.

Conversely, I entered an income of 45k and noticed the tax refund was around 8.5k.

 

[Mayer]

If my 23 year old single daughter earns $35k and has no deductions, is it likely she will benefit fully by the $7,500 credit?

 

[MP3Mike]

If my 23 year old single daughter earns $35k and has no deductions, is it likely she will benefit fully by the $7,500 credit?

No. Just as an estimate she would likely get about $2,000 of the tax credit.

 

[Mayer]

Sure is difficult to grasp how anyone gets the $7,500 credit if someone who only earns $35k won’t even get half.

I guess you need to be earning over $70k to enjoy full credit for deduction?

 

[MP3Mike]

I guess you need to be earning over $70k to enjoy full credit for deduction?

Yep, about $70k will do it, at least for a single person with no kids.

 

[Mayer]

Any realistic predictions about end of quarter price reductions in September?

Yep, about $70k will do it, at least for a single person with no kids.

thx Mike. Looks like my plans to help my daughter into a 3 just took a heavy hit. She has 2018 Acura ILX, and after she purchased at end of her lease term, she pays $250 per month. I wanted to get her close to that point but this knowledge likely makes that a bridge too far.

 

[gadgetfreaky]

Friend is looking to get a new car. He qualifies because of income the CA $7,500 rebate. And doens't make enough for a tax rebate of $7,500. Should he wait for Jan since 2024 the $7,500 fed rebate would be up front to the dealer? "Beginning in 2024, taxpayers can transfer their tax credit to dealers, enabling them to receive the credit as a rebate at the point of sale."

But elon said it might be only half that since the rules of china batteries might cut it down.

Tesla says Model 3, Model Y tax credits likely to be reduced by 2024 | TechCrunch

Tesla said its Model 3 and Model Y EVs are likely to see reduced federal EV tax credits by December 31 as stricter battery rules are enforced.

techcrunch.com

a model 3 right now is $38K, so he'd only get the 7500 rebate. I'm wondering if jan 2024 he would be able to get a 3 for the same price now? or will prices go back up and if it's only $3,750 tax rebate at Point of sale will be more than the price increase or not. I think it's better off waiting?

 

[MP3Mike]

And doens't make enough for a tax rebate of $7,500. Should he wait for Jan since 2024 the $7,500 fed rebate would be up front to the dealer? "Beginning in 2024, taxpayers can transfer their tax credit to dealers, enabling them to receive the credit as a rebate at the point of sale."

They can only transfer the amount of the tax credit that they qualify for. If they tell the dealer they qualify for $7,500, when they don't, they will have to repay the extra they received when they file their taxes.

So as far as the tax credit is concerned, there is little advantage to waiting. (They could adjust withholdings now to start paying less tax now.)

 

[gadgetfreaky]

They can only transfer the amount of the tax credit that they qualify for. If they tell the dealer they qualify for $7,500, when they don't, they will have to repay the extra they received when they file their taxes.

So as far as the tax credit is concerned, there is little advantage to waiting. (They could adjust withholdings now to start paying less tax now.)

He doesn't make enough to file. Living off of savings. Doesn't have a job, doesn't really need to work. Mostly odds & ends graphic design work when he does.

 

[MP3Mike]

He doesn't make enough to file. Living off of savings. Doesn't have a job, doesn't really need to work. Mostly odds & ends graphic design work when he does.

Then he won't qualify for the tax credit at the time of purchase either.

 

[gadgetfreaky]

Then he won't qualify for the tax credit at the time of purchase either.

Really ? Wouldn't it be based on the upcoming tax

Then he won't qualify for the tax credit at the time of purchase either.

Thanks. I'm assuming then it also doesn't work if he does the lease ? So tesla.com lease calculator doesn't calculate that in their estimate? Since dealers can take the 7500 for leases? Or does?

 

[Mardak]

They can only transfer the amount of the tax credit that they qualify for

The intent of the transfer of credit is to make the clean vehicle credit accessible to more families instead of the "rich" with enough income to get the benefit of the full $7,500, and the law goes further to restrict the "even richer" from getting the credit even with the transfer of credit. That "Limitation based on modified adjusted gross income" is what prevents a single taxpayer with over $150k income from getting the credit and might be causing the confusion here.

Someone with low income qualifies for the full $7,500 credit, but practically because it's a nonrefundable credit, the maximum actual benefit effect is smaller. Filling out Form 8936 would show the full $7,500, and Form 1040 / Schedule 3 would also show an increase in the nonrefundable credit by $7,500; and both of these reflect that the low income qualifies for the full credit. It's only a few lines later on Form 1040 that the "excess" credit can only reduce the total tax to $0.

So the transfer of credit allows a low income family to transfer the fully qualified $7,500 credit to the dealership to offset its total tax presumably well in excess of $7,500.