Federal Tax Rebate-How does that work?

[jjrandorin]

Sorry guys I apologize for this dumb question but I'm still confused on how this federal tax credit works even though I've ready many posts regarding it. What I know is that if you have to pay less than the $1875 in taxes, you wont get the full $1875, but if you have to pay at least that amount, you get the full amount.

What I don't get is this: for example, let's say I filed my taxes and I have to pay $2500 in taxes. Since I am above the $1875 bracket, I'll get the full refund.

However, does that mean I still have to pay back the IRS $2500 - $1875 = $625?

Essentially what I am asking is, given the above example, how much of a refund will I get back without paying anything back to the IRS?

Apologize once again if I'm over-complicating it.

As mentioned, in your example you would still owe.. Lets play with some hypotheticals, maybe it will help.

Lets say you did your taxes, and your tax LIABILITY (how much you would owe in taxes) for the entire year was 10k. Lets also say that you had money deducted from your paycheck twice a month, and you actually already paid 8k in taxes. In this fake example, you still owe 2k. Your tax liability was 10k however, and you already paid 8k of it but still owe. So near the end of the year, you bought a tesla with an 1875 tax credit, so now you only owe $125.


Here is another fake example. Lets say you did your taxes and your tax liability for the entire year was 15k. However, you claimed single and zero, so you actually paid in 18k in taxes. Your tax liability was 15k so you meet the thresshold (obviously), you just pre paid 18k of the 15k you owe. The IRS owes you 3k.... but you bought a model 3 when the tax rebate was 1875, so they now owe you 4875 in a check.

One last fake example. Lets say that you did your taxes, and your tax liability for the entire year was only $500 (either you made almost no money this year or you had a really really good accountant). Lets say you didnt pay anything at all to the IRS during the year either. So, your tax liability is $500, and you would owe $500... but you bought a tesla model 3 that had an 1875 tax credit. The 1875 tax credit would wipe out your liability of $500, BUT the IRS would not be cutting you a check in this case. Remember, in this fake example your entire years tax liability was only $500, so thats all that can be offset.

People get very confused about tax liability vs refunds. Refunds = amount you overpaid your tax liability by. You could absolutely be getting a refund normally, and still get the tax credit. That is fake example number 2 above[/QUOTE]

 

[jjrandorin]

Ah ok thanks alot that means total sense, so essentially the out-of-pocket $1875 that you would have "had to pay" for the taxes can now "technically" go towards your car payments?

Good business tactics on Tesla!

Just to make sure you are not confusing things...

In your example of "owing money to the IRS", for most Americans who work a regular "9-5" so to speak and who get money deducted from each paycheck for taxes, they have taxes collected all year.

Those taxes collected have to do with the withholding you claim with your employer. When time comes to actually file taxes however, you claim your real withholding, deductions etc. So many times, a person "owes" 8k in taxes, but has already paid 9-10k during the year, so gets a 2k refund. In this example, they get money from the tax savings added to their refund, because they owed 8k., and the 1875 reduces the amount they owed by that amount. It doesnt do anything with the amount they already paid the IRS.

Even if you actually owe money (say you didnt have enough withheld to get a refund), you still "get the money". If you paid in 8k during the year, but actually owe 11k, you owe the IRS 3k. If you bought a tesla with a 1875 tax credit, instead of paying the IRS 3k, you would pay the IRS $1125. You are still writing a check, but the amount of the check is reduced by the credit. You are still "getting the money", you just already spent it, during the year.

"Potential savings" either way, nothing nefarious there. The only people who cant take the credit are those who dont have 1875 in tax liability for the year, which is likely a VERY small number of people who can purchase a tesla. Was a bit different when it was 7500 (same process but 7500 in tax liability is different than 1875, for an entire year).

 

[6thDAY]

As mentioned, in your example you would still owe.. Lets play with some hypotheticals, maybe it will help.

Lets say you did your taxes, and your tax LIABILITY (how much you would owe in taxes) for the entire year was 10k. Lets also say that you had money deducted from your paycheck twice a month, and you actually already paid 8k in taxes. In this fake example, you still owe 2k. Your tax liability was 10k however, and you already paid 8k of it but still owe. So near the end of the year, you bought a tesla with an 1875 tax credit, so now you only owe $125.


Here is another fake example. Lets say you did your taxes and your tax liability for the entire year was 15k. However, you claimed single and zero, so you actually paid in 18k in taxes. Your tax liability was 15k so you meet the thresshold (obviously), you just pre paid 18k of the 15k you owe. The IRS owes you 3k.... but you bought a model 3 when the tax rebate was 1875, so they now owe you 4875 in a check.

One last fake example. Lets say that you did your taxes, and your tax liability for the entire year was only $500 (either you made almost no money this year or you had a really really good accountant). Lets say you didnt pay anything at all to the IRS during the year either. So, your tax liability is $500, and you would owe $500... but you bought a tesla model 3 that had an 1875 tax credit. The 1875 tax credit would wipe out your liability of $500, BUT the IRS would not be cutting you a check in this case. Remember, in this fake example your entire years tax liability was only $500, so thats all that can be offset.

People get very confused about tax liability vs refunds. Refunds = amount you overpaid your tax liability by. You could absolutely be getting a refund normally, and still get the tax credit. That is fake example number 2 above

Thanks for taking the time to explain this!

This makes complete sense now, especially example 2 because my co-worker also bought a Tesla back when the credit was $7500 and he told me he got the full credit, which didn't make sense at the time based on my previous understanding, but your elaborated example made it more concise.

 

[vickh]

I’ll be curious to see if TurboTax has all of the data to keep track of the dates and corresponding rebate amounts for 2019. It would have to keep track by manufacturer since Chevrolet is on a different timetable from Tesla.

I'd be surprised to see if the software is manufacturer and date specific. TT 2019 is already available for us to check.

 

[OCR1]

I'd be surprised to see if the software is manufacturer and date specific. TT 2019 is already available for us to check.

I use TaxCut and I already plugged in my March purchase date and it confirmed I was eligible for a $3,750 tax credit. So it is up to date based on manufacturer and purchase date.

 

[jjrandorin]

Thanks for taking the time to explain this!

This makes complete sense now, especially example 2 because my co-worker also bought a Tesla back when the credit was $7500 and he told me he got the full credit, which didn't make sense at the time based on my previous understanding, but your elaborated example made it more concise.

No problem. I am not in the finance industry at all (I am in IT, like a lot of Tesla owners) but I educated myself on this last year to understand what was happening. In my own personal case, I purchased my tesla last year (2018) in december. Due to changes in the tax laws, when I filed my taxes, I "would have owed" an additional 5k (additional compared to what was withheld from my paycheck vs what I actually owed at filing time). Since I bought a tesla with a 7500 tax credit, I got a check for 2500 from the IRS. I "got the whole credit" but got a check for 2500.

Kind of sucked because I normally would get a refund of 1k or so, so I was expecting a check for 8k to 8500... but the changes to itemized deduction and mortgage interest deductibility changed my personal tax situation more than I expected.

Anyway, glad that helped some.

 

[vickh]

No problem. I am not in the finance industry at all (I am in IT, like a lot of Tesla owners) but I educated myself on this last year to understand what was happening. In my own personal case, I purchased my tesla last year (2018) in december. Due to changes in the tax laws, when I filed my taxes, I "would have owed" an additional 5k (additional compared to what was withheld from my paycheck vs what I actually owed at filing time). Since I bought a tesla with a 7500 tax credit, I got a check for 2500 from the IRS. I "got the whole credit" but got a check for 2500.

Kind of sucked because I normally would get a refund of 1k or so, so I was expecting a check for 8k to 8500... but the changes to itemized deduction and mortgage interest deductibility changed my personal tax situation more than I expected.

Anyway, glad that helped some.

you're not alone. I ended up owing a lot more due to changes in deductions + exemptions, ended up with a $200 penalty for under payment/ withholding. I would have bought the 3 last year, except they didn't release the SR till 2019.

 

[Sherlo]

Unfortunately you cannot roll it forward:

“If you cannot use part of the personal portion of the credit because of the tax liability limit, the unused credit is lost."

 

[Atreyu]

https://www.irs.gov/pub/irs-dft/i8936--dft.pdf
https://www.irs.gov/pub/irs-pdf/f8936.pdf

Federal credit per car.
IRC 30D New Qualified Plug-In Electric Drive Motor Vehicle Credit | Internal Revenue Service

Full details about everything your heart desires.

 

[Gasaraki]

As mentioned, in your example you would still owe.. Lets play with some hypotheticals, maybe it will help.

Lets say you did your taxes, and your tax LIABILITY (how much you would owe in taxes) for the entire year was 10k. Lets also say that you had money deducted from your paycheck twice a month, and you actually already paid 8k in taxes. In this fake example, you still owe 2k. Your tax liability was 10k however, and you already paid 8k of it but still owe. So near the end of the year, you bought a tesla with an 1875 tax credit, so now you only owe $125.


Here is another fake example. Lets say you did your taxes and your tax liability for the entire year was 15k. However, you claimed single and zero, so you actually paid in 18k in taxes. Your tax liability was 15k so you meet the thresshold (obviously), you just pre paid 18k of the 15k you owe. The IRS owes you 3k.... but you bought a model 3 when the tax rebate was 1875, so they now owe you 4875 in a check.

One last fake example. Lets say that you did your taxes, and your tax liability for the entire year was only $500 (either you made almost no money this year or you had a really really good accountant). Lets say you didnt pay anything at all to the IRS during the year either. So, your tax liability is $500, and you would owe $500... but you bought a tesla model 3 that had an 1875 tax credit. The 1875 tax credit would wipe out your liability of $500, BUT the IRS would not be cutting you a check in this case. Remember, in this fake example your entire years tax liability was only $500, so thats all that can be offset.

People get very confused about tax liability vs refunds. Refunds = amount you overpaid your tax liability by. You could absolutely be getting a refund normally, and still get the tax credit. That is fake example number 2 above

[/QUOTE]

Your second example is WRONG. The IRS will only owe you $3000 not $4875. This is a tax CREDIT, not a tax REBATE. The 1875 will only come in to play if you owe taxes. If you are getting a rebate, you will not get $1875 more on your rebate.

 

[jjrandorin]

="Gasaraki, post: 4307321, member: 118274"
Your second example is WRONG. The IRS will only owe you $3000 not $4875. This is a tax CREDIT, not a tax REBATE. The 1875 will only come in to play if you owe taxes. If you are getting a rebate, you will not get $1875 more on your rebate.

In my second example, you are "getting a refund" because you overpaid in taxes. The tax credit would be against taxes owed. In that example You owed 15k in taxes. The tax credit would go against that 15k in taxes you owed, so instead of owing 15k without the purchase of the tesla, you would owe 13,125 in taxes. What you paid in during the year is what you paid in and has nothing to do with your actual tax liability.

In the example, you "owed 15k in taxes, then at the end of the year, you bought a tesla which goes against your tax liability and reduces it to 13,125. In that example you already paid (during the year, in payroll deductions) 18k because you had your withholdings set so. On your IRS form your tax liability would be 13,125, and you would have paid 18k, so you would get the refund (not rebate) I said.

When someone gets a tax "refund" (not "rebate") its because they overpaid their taxes based on what they owe. The confusion from many, comes in thinking that because they got a refund they did not have XXX tax liability.

 

[gcmak]

I’ll be curious to see if TurboTax has all of the data to keep track of the dates and corresponding rebate amounts for 2019. It would have to keep track by manufacturer since Chevrolet is on a different timetable from Tesla.

Same. I use TurboTax. Hoping it'll be a simple process...and accurate lol.

 

[TydalForce]

People get very confused about tax liability vs refunds. Refunds = amount you overpaid your tax liability by. You could absolutely be getting a refund normally, and still get the tax credit.

It's amazing how many people think a refund is free money; it's your money, you just lent it to the Government for 1-12 months.
They need to teach this stuff in schools.

 

[SMAlset]

While no extension of the Federal Tax Credit for Teslas after 2019, the govt did pass an extension that will be retroactive for the purchase/installation of EVSEs (home chargers). This originally ended at end of 2017 -- 30% or max of $1K. We weren't able to take advantage of it back then due to some other tax provisions in the IRS laws but I know other here on the forum were able to. Here's an Electrek article on the passage:

US extends tax credits for EV chargers, motorcycles, fuel cells, again retroactively - Electrek

So come tax time, don't forget about this if you would qualify for it. Since it's retroactive to include 2018 as well, might consider an amendment for that year.

 

[Atreyu]

If you could time travel back to 2018 you could buy like 1000 Teslas and sell them on eBay for full price and pretend you were a Tesla dealer, and then write off all of the taxes and make $7.5m in just tax rebates. Then hop back in your time machine to Feb 2013 and buy $7.5m in Bitcoin back in at $20 for 375,000 Bitcoin. Then you could sell all that Bitcoin at Dec 2018 price of $19,000, and pocket $7.125B, and then cry yourself to sleep because you realize you invented time travel, went through all this effort, and still don't have even a 1/3 of what Elon Musk is worth.

 

[vickh]

While no extension of the Federal Tax Credit for Teslas after 2019, the govt did pass an extension that will be retroactive for the purchase/installation of EVSEs (home chargers). This originally ended at end of 2017 -- 30% or max of $1K. We weren't able to take advantage of it back then due to some other tax provisions in the IRS laws but I know other here on the forum were able to. Here's an Electrek article on the passage:

US extends tax credits for EV chargers, motorcycles, fuel cells, again retroactively - Electrek

So come tax time, don't forget about this if you would qualify for it. Since it's retroactive to include 2018 as well, might consider an amendment for that year.

hmm. this is great news. I might put in a charger now.

 

[Gasaraki]

In my second example, you are "getting a refund" because you overpaid in taxes. The tax credit would be against taxes owed. In that example You owed 15k in taxes. The tax credit would go against that 15k in taxes you owed, so instead of owing 15k without the purchase of the tesla, you would owe 13,125 in taxes. What you paid in during the year is what you paid in and has nothing to do with your actual tax liability.

In the example, you "owed 15k in taxes, then at the end of the year, you bought a tesla which goes against your tax liability and reduces it to 13,125. In that example you already paid (during the year, in payroll deductions) 18k because you had your withholdings set so. On your IRS form your tax liability would be 13,125, and you would have paid 18k, so you would get the refund (not rebate) I said.

When someone gets a tax "refund" (not "rebate") its because they overpaid their taxes based on what they owe. The confusion from many, comes in thinking that because they got a refund they did not have XXX tax liability.

Yes, it's a refund because you paid the government more than you owe. They are giving back your money. Still doesn't change the fact that they are not giving you 1875 more on your refund. If you paid less taxes than you owed, then they would you this 1875 credit against what you owed. If you don't owe anything cause you overpaid, then this CREDIT will not apply.

Refund = You overpaid, you get the extra you paid back.
Rebate = You get money from the government directly. (I get a check from NYS for school taxes)
Credit = Credit is applied to your debit. What you owe is your debt, the credit is applied to that.

 

[SMAlset]

The IRS will be creating a Form 8911 for 2019 (Alternative Fuel Vehicle Refueling Property Credit). Since nothing is available yet, if you are interested here are links to Form 8911 (2017) and it's instructions to see how it will likely look. Not everyone will qualify for this 30% ($1K max) credit so be aware of this going into it. You may get knocked out by Line 17 (on the 2017 form) which factors in Alternative Minimum Tax cacluations.

For Comparison (2017 tax year):

Form: https://www.irs.gov/pub/irs-prior/f8911--2017.pdf
Instructions: https://www.irs.gov/pub/irs-prior/i8911--2017.pdf

 

[Knightshade]

Yes, it's a refund because you paid the government more than you owe. They are giving back your money. Still doesn't change the fact that they are not giving you 1875 more on your refund. If you paid less taxes than you owed, then they would you this 1875 credit against what you owed. If you don't owe anything cause you overpaid, then this CREDIT will not apply.

This is not correct at all.


The amount you "paid" in during the year has nothing to do with the amount of taxes you owe for the year.


The first gets used to cover the second, but it doesn't change the amount of the second where is what the credit is applied to.

An actual tax credit- what the $1875 is- does


So simple #s:

You have $5000 in tax liability for 2019. (what you "paid in" is irrelevant to this and doesn't change it in any way).

$1875 comes off the top as a credit against your liability.

Now you only owe $3125.


NOW they look at "how much you paid in" during the year. If it's less than $3125 you still owe them money. If it's equal you're done.

If it's more, then every dollar you paid in over $3125 comes back to you as a refund.


Thus you're net $1875 ahead, even if you "overpaid" by a lot during the year.


The only way to not get the full $1875 value is if (again REGARDLESS of what you paid in during the year) you had less than $1875 in tax liability for the year.

Which is virtually impossible for anyone who can afford a new Tesla.

 

[jjrandorin]

Yes, it's a refund because you paid the government more than you owe. They are giving back your money. Still doesn't change the fact that they are not giving you 1875 more on your refund. If you paid less taxes than you owed, then they would you this 1875 credit against what you owed. If you don't owe anything cause you overpaid, then this CREDIT will not apply.

Refund = You overpaid, you get the extra you paid back.
Rebate = You get money from the government directly. (I get a check from NYS for school taxes)
Credit = Credit is applied to your debit. What you owe is your debt, the credit is applied to that.

Correct.. the credit is applied to your tax debt. your tax debt in this case was 15k and now would be 13,125. do you agree with that statement in my fictitious example? If so, then the "refund" would be what I said, because what does not change is how much you paid in taxes that year. What does change is your tax liability in that example, going from 15k to 13,125. Since your liability in that example is only now 13,125, the government would owe you the difference between that tax liability and what you paid in, which is 18k.

Not sure what I am messing up there.

The 1875 credit reduces your tax liability in my example, so you "overpaid" taxes by even more, so the check you would get back is larger...

In the same example, if you didnt pay taxes at all that year, but would have owed IRS 15k, then bought a tesla before the end of the year, reducing your tax liability to 13,125, then you would be writing a check for 13,125, instead of 15k... but its the same thing.