Federal Tax Credit and Tesla buy-back

[xowner]

In 2016, I purchased a MX and claimed the Federal Tax Credit of $7500 for the purchase.

For various reasons, I ended up requesting a buy-back from Tesla, and they agreed (all on good terms.) Are there are requirements regarding the 2016 tax credit that I may need to consider? Looking at the tax code, the only requirement that’s questionable is “the vehicle should not have been purchase for sale”, which is true because selling back to Tesla is not really a sale. But wanted to get opinions here.

Post buy-back, I plan to purchase another MX and am considering applying for the credit again in 2017. This counts as a full new purchase, so I don’t see any problems, but do I need to worry about having the IRS flag two consecutive years of $100K car purchases? (It’s not really two, but the IRS won’t know about the buy back.)

Thanks!

 

[bonaire]

Um...

By chance did you take the tax credit on fed forms filed after the buy-back occurred?

Check with your CPA... You should file a new amended 2016 fed tax form with the 7500 credit removed. Then buy the next MX. Then take another credit for 2017 tax year. That is the legal, ethical and proper action steps.

 

[DrivingRockies]

If it looks like a duck...

 

[travwill]

In 2016, I purchased a MX and claimed the Federal Tax Credit of $7500 for the purchase.

For various reasons, I ended up requesting a buy-back from Tesla, and they agreed (all on good terms.) Are there are requirements regarding the 2016 tax credit that I may need to consider? Looking at the tax code, the only requirement that’s questionable is “the vehicle should not have been purchase for sale”, which is true because selling back to Tesla is not really a sale. But wanted to get opinions here.

Post buy-back, I plan to purchase another MX and am considering applying for the credit again in 2017. This counts as a full new purchase, so I don’t see any problems, but do I need to worry about having the IRS flag two consecutive years of $100K car purchases? (It’s not really two, but the IRS won’t know about the buy back.)

Thanks!

You do have to list the VIN on the tax credit so shouldn't be any issues. Assuming Tesla didn't buy back the sales taxes right?

The IRS shouldn't care about buying another car the next year for sales tax deduction and EV credit deduction, we've done that and claimed it two years in a row - completely valid.

If anything I'd say go for the new MX in 2017 still, I'd worry at this point about the EV credit being cancelled for the 2018 tax year with tax reform - makes sense to cancel it now at this point.

 

[bonaire]

Sales tax is a state issue. Fed Credit is a federal issue.

 

[DrivingRockies]

Assuming Tesla didn't buy back the sales taxes right?

What would that have to do with anything?

 

[travwill]

What would that have to do with anything?

Ah, nothing with the credit. But definitely I'd say if they did NOT, still use the car's purchase in the sales tax deduction portion for year also - should make it more than your standard when combined with your locale. Our sales taxes were like $11K here in Chicago/Cook County - knocked a couple K off taxes as a deduction as well ;-)

 

[MinionBlob]

Assuming you've already filed for your Federal Tax credit for your original MX:

I'm no tax expert, but from the IRS standpoint, if you do replace the MX with another one, it may be simpler to do nothing. I doubt they would ask about the first car but even if they do, it's just going to be another VIN that can be addressed by a simple amended form reflecting the change. Save related documentation for 5 years.

Anyway, that would be my approach under this scenario. It's a Zero-Sum game, but risking confusion and could lead to increased audit risk since re-claiming the credit next year could trigger flags in a situation that's ultimately not of your own making.

At any rate, you should consult with your CPA or Tax specialist, if available to make sure you're in compliance with state and Federal guidelines.

 

[skilly]

Specifically related to the FTC only, on the surface it looks like this:

bought car - paid taxes and fees and claimed FTC
sold car
bought another car - intend to paid taxes and fees and claimed FTC

I dont think there is a way Tesla can undo the sale. They are in effect buying the car back from you, not creating a return. I don't see any issues. They will likely resell the car in the grey market and have to disclose that (except for some states). And you will have 2 unique VINs that you are claiming against.

 

[BerTX]

I'm no expert, but I don't think there is a problem with this IF there is nothing else questionable in the return. This to me can be a big red flag and trigger an audit. If your return is audit-proof and your time is worth less than $7500, then go for it.

 

[EarlyAdopter]

Tesla won't be able to re-sell that car as new, so no one else will be claiming the credit against it. Your intention was not to buy it to then turn around and sell it (flip it), so I would argue you qualify for the federal tax credit, both in the spirit and the letter of the law.

Regardless, you qualify for the credit on a new Model X. Past purchases and credits have no barring on new car purchases and credits.

 

[hmcgregoraz]

We have/will have used the credit 3 times, and will probably use it a 4th time.

2012 Plug in Prius (not the full $7500)
2014 Nissan Leaf (full $7500)
2017 Model X (full $7500)

Expected 2018 Model 3

Even if you no longer own the vehicle in the tax year, it counts.

Ie, if your vehicle as in an accident, and was totaled before the year ended, it would still count.

The only issue if it was purchased with intent for resale, which even if you got Tesla to buy it back, it was not purchased with that intent.

It may be a bit harder to argue if you sold it back within the tax year (ie before the end of 2016) but even then, the letter and intent of the tax credit would still apply.

-Harry

 

[bonaire]

Tesla won't be able to re-sell that car as new, so no one else will be claiming the credit against it. Your intention was not to buy it to then turn around and sell it (flip it), so I would argue you qualify for the federal tax credit, both in the spirit and the letter of the law.

Regardless, you qualify for the credit on a new Model X. Past purchases and credits have no barring on new car purchases and credits.

The way this is worded, what's to stop Tesla from lining up parties like the OP to buy a car, then sell it back with no miles added and Tesla chalk up "new car sales" in larger numbers while the buyer benefits with FTC and the company benefits with sales - then can sell "new-ish" CPOs with very low miles and lower than typical discounted prices? This is why the FTC can be gamed if enough parties get involved. (this was even a bigger issue in First Time Registrations in Hong Kong in Q1 - far larger benefits in pre-registering many cars ahead of the removal of that FTR). The whole tax credit needs to reworked or eventually run out so this kind of thing (small or large) cannot happen. I would like to see the FTC be granted after one full year of ownership. Not applicable to cars crashed out of service due to circumstances such as equipment failure or joy-riding (launches or other aspects). Once someone proves they owned an EV for a year - they should be paid. If a per-mile rebate could be done instead, that would be more realistic. Commuters or Uber drivers piling on the miles, they should benefit. Not someone holding a cherry in their garage and driving 3000 miles a year.

On the non-Tesla side, many Chevy and Nissan dealers bought some of their inventory and offered it for sale as "used" with 7500 lower prices so people could buy it who couldn't qualify for the FTC. This is "not supposed to be done". That is why credits and other government incentives can be gamed since many times, it is up to the IRS to go investigating rather than rely on the trust of the businesses to do it right.

The problem with the letter of intent of the credit is that it allows some advantage to those who want to take advantage of it. Imagine the Model 3 buyers who get first cars, take the tax credit and then sell them at premium for others who just want one now? That's scalping with benefit.

 

[182RG]

That is the legal, ethical and proper action steps.

There’s nothing I can find in any IRS publication that stipulates length of time to own the vehicle. Only the language about filing for the credit the year when it is put in service. The OP put it in service. Not any different than selling or trading, which creates no liability back to the IRS for the credit.

The OP needs to do nothing. VW TDI owners have researched this extensively.

 

[boaterva]

I believe the main question is ‘intent’ on when the car was purchased. Which, as any lawyer would tell you (and IANAL), is extremely hard to determine. The deal was entered into normally and ‘stuff happened’. If it happened twice, then perhaps we have a problem.

 

[xowner]

By chance did you take the tax credit on fed forms filed after the buy-back occurred?

Sorry if it was unclear from the timing or about US tax filing deadlines, 2016 taxes were filed by April 2017. The buy-back has not happened yet, as I wrote “Post buy-back, I plan to…”.

You should file a new amended 2016 fed tax form with the 7500 credit removed. Then buy the next MX. Then take another credit for 2017 tax year. That is the legal, ethical and proper action steps.

I appreciate the advice, but is there anything to back that up, is essentially what I am asking? Sure, it’s a no-brainer to amend the 2016 return, but I have not yet found a reason to, by looking at the applicable laws and IRS publications, so I figured I’d ask here if people have had any first hand experiences around this.

The IRS shouldn't care about buying another car the next year for sales tax deduction and EV credit deduction, we've done that and claimed it two years in a row - completely valid.

Thanks, the only difference here is that the first car is being sold, although not purchased with the intent to sell.

bought car - paid taxes and fees and claimed FTC
sold car
bought another car - intend to paid taxes and fees and claimed FTC

I dont think there is a way Tesla can undo the sale. They are in effect buying the car back from you, not creating a return.

Tesla’s offer price for the buy-back reflects that there was likely a FTC claimed.

[/QUOTE]

Tesla won't be able to re-sell that car as new, so no one else will be claiming the credit against it. Your intention was not to buy it to then turn around and sell it (flip it), so I would argue you qualify for the federal tax credit, both in the spirit and the letter of the law.

That’s what I’m thinking. The “intent to sell” argument is easily disproven because the purchaser is Tesla, not a third-party.

Regardless, you qualify for the credit on a new Model X. Past purchases and credits have no barring on new car purchases and credits.

Leaning towards that, yes, because even in this thread so far, nobody seems to have provided a solid reason to do anything different.

Even if you no longer own the vehicle in the tax year, it counts.

Ie, if your vehicle as in an accident, and was totaled before the year ended, it would still count.

Exactly, that’s the territory we are in, I think. While not totaled, a buy-back was initiated because of problems beyond our control, and in line with lemon laws. We had the car for more than a calendar year.

The only issue if it was purchased with intent for resale, which even if you got Tesla to buy it back, it was not purchased with that intent.

It may be a bit harder to argue if you sold it back within the tax year (ie before the end of 2016) but even then, the letter and intent of the tax credit would still apply.

Right, nothing in the IRS publications say anything about the length of time the car must have been held, only about the “intent to sell”, as 182RG says below.

There’s nothing I can find in any IRS publication that stipulates length of time to own the vehicle. Only the language about filing for the credit the year when it is put in service. The OP put it in service. Not any different than selling or trading, which creates no liability back to the IRS for the credit.

The OP needs to do nothing. VW TDI owners have researched this extensively.

Thank you!

 

[bonaire]

If the buy-back has not yet happened, then don't worry about it. You have had it for about a year, it seems. If Tesla cannot make a vehicle for you that is acceptable for a short period such as a year, Tesla should credit the IRS for the credit that you have already taken.

 

[EarlyAdopter]

The way this is worded, what's to stop Tesla from lining up parties like the OP to buy a car, then sell it back with no miles added and Tesla chalk up "new car sales" in larger numbers while the buyer benefits with FTC and the company benefits with sales - then can sell "new-ish" CPOs with very low miles and lower than typical discounted prices? This is why the FTC can be gamed if enough parties get involved. (this was even a bigger issue in First Time Registrations in Hong Kong in Q1 - far larger benefits in pre-registering many cars ahead of the removal of that FTR). The whole tax credit needs to reworked or eventually run out so this kind of thing (small or large) cannot happen. I would like to see the FTC be granted after one full year of ownership. Not applicable to cars crashed out of service due to circumstances such as equipment failure or joy-riding (launches or other aspects). Once someone proves they owned an EV for a year - they should be paid. If a per-mile rebate could be done instead, that would be more realistic. Commuters or Uber drivers piling on the miles, they should benefit. Not someone holding a cherry in their garage and driving 3000 miles a year.

On the non-Tesla side, many Chevy and Nissan dealers bought some of their inventory and offered it for sale as "used" with 7500 lower prices so people could buy it who couldn't qualify for the FTC. This is "not supposed to be done". That is why credits and other government incentives can be gamed since many times, it is up to the IRS to go investigating rather than rely on the trust of the businesses to do it right.

The problem with the letter of intent of the credit is that it allows some advantage to those who want to take advantage of it. Imagine the Model 3 buyers who get first cars, take the tax credit and then sell them at premium for others who just want one now? That's scalping with benefit.

This has been hashed over a bunch, but the wording on the tax credit is there to prevent scalpers and car dealers from purchasing a car with no intention of putting it into service, reselling it, then later claiming the tax credit. The example you give with Nissan and Chevy dealers is clearly in violation of the law.

An individual who buys a car, puts it into service (registers it, titles it, and drives it), even for 1 mile and just 1 day, who then decides to sell it to someone else is perfectly entitled to claim the tax credit.

Look at it this way, we are all going to probably sell/trade-in our EVs at some point. The law doesn't stipulate any time period, just the "in-service" requirement. Doesn't matter if it's 5 years, 10 months, or 2 days.

As for the arrangement you mention with Tesla, that won't work without putting miles, titling, and registering the car. Otherwise, you'd fall short of the "in-service" requirement with the IRS. Putting it into service means Tesla is getting back a car they can only re-sell as used. The letter and the intent of the law are intact.

 

[xowner]

Sounds great, thanks for all the replies!

Looks like we’re in the clear.

 

[Big John]

I'm no tax expert, but from the IRS standpoint, if you do replace the MX with another one, it may be simpler to do nothing. I doubt they would ask about the first car but even if they do, it's just going to be another VIN that can be addressed by a simple amended form reflecting the change. Save related documentation for 5 years.

This is what I did with a i3 lemon. I replaced it with another i3 and did not request another credit. Slept easier at night. Actually bought a significant upgrade with the buyback funds (price dropped).. So I was happy and felt I complied with the intent of the law. IRS audits are a pain!!