How do you know you qualify for the tax credit?

[cpa]

I didn't know that about the sales tax vs income tax, though I would expect your sales tax in most states would be larger for a year in which you bought a new car.

I searched the IRS and it appears they only report on Ford, Mercedes, and BMW. Maybe GM, Tesla, and Nissan are off the hook

IRC 30D – Plug-In Electric Drive Motor Vehicle Credit Quarterly Sales

Wdolson, you obviously do not follow closely us Californians and our wonderful personal income tax rates! (Buy your sister an adult beverage, and let her rant!)

Here is one of my typical clients: Married, filing jointly, both spouses work for wages, so they have withholding.

Adjusted gross income ~$300,000. California personal income tax withheld from pay: ~$21,000. California refund: ~$700.

Sales tax deduction for two people with $300K in income: ~$2,200. Sales tax on a 120K Tesla at 9%: $10,800. So, no sales tax deduction because the state income tax deduction (we also have an additional "income tax" deduction for the mandatory State Disability Insurance that is deducted from wages--that usually maxes out at around $950-$1,000 per employee per year.)

Of course, they were subject to about $4,700 in AMT in 2016. No matter how you slice it, for many who buy a Tesla, AMT will wind up wiping out any deduction for taxes, whether income or sales if you live in California.

Re the IRS website, your results are the same as mine.

 

[cpa]

OK, here is my freebie for all you mathematicians out there who fine-tune your withholding so your refund or balance due each year is in double-digits:

I wholly agree that it makes sense to tweak your withholding by filing an updated W-4 with your employer so that your take-home pay increases, and your refund/balance due come April 2018 is a smallish number because you factored in the $7,500 BEV credit claimed on form 8936.

That said, here are two items to ponder: For those in states who have personal income taxes, can you file your W-4 to increase your exemptions yet maintain your current level of exemptions for your state? I know that California has its W-4 equivalent, called the DE-4. Employees can file both forms with their employers so that they have different withholding statuses for federal and state. I am not current on the other forty-some states who assess personal income taxes. This might be something worth investigating. But you might be in for a little surprise if your balance due to your home state is a larger-than-expected amount unless you do not change your withholding for state purposes.

Second, many folks experience a figurative hangover after the holidays. Many folks forget on January 1 that they tweaked their federal withholding in May 2017 because they anticipated the $7,500 credit. Many employers do not issue new forms W-4 to all their employees each January. Their policy is to leave that decision up to the employee. Some of you might be in for a shock in 2019 when you file your 2018 tax return because you forgot to adjust your withholding exemptions in January 2018.

This is one of those areas that I have found that sometimes it pays to let things be. Most people detest having an unexpected large balance due on their tax returns that did not arise from a windfall or other substantial income, where they had an inkling.

 

[melindav]

Do we have any way of estimating when that exemption will expire? I know its based on the number of qualifying cars sold, but I haven't been able to figure out what that number is or at what rate it is growing.

I did this summary a year or so ago on the M3OC site, but haven't checked back in on it's progress since. At the furthest out, it expires mid 2019, but there is also a $ cap as well with the state evaluating it each quarter. When I wrote up the linked summary, it looked to expire prior to that.

ETA: read my old post incorrectly....

 

[melindav]

I did this summary a year or so ago on the M3OC site, but haven't checked back in on it's progress since. At the furthest out, it expires mid 2019, but there is also a $ cap as well with the state evaluating it each quarter. When I wrote up the linked summary, it looked to expire prior to that.

ETA: read my old post incorrectly....

@Foxhound199 - based on this, there are already over 5000 WA BEVs counting against the exemption (which tops out at 7500), so eek! not so sure it will last thru 2017 now (assuming the Autoalliance.org info is accurate with WADOL)

 

[alseTrick]

Holding them is not a good business practice it's very high risk which is why I didn't even consider it. They'd be foolish to do this.

So then you're admitting Tesla is not going to "game the system" in order to "maximize" the number of full tax credits like mikebvf, Bokonon and seemingly you were suggesting earlier? You seem to think Musk has some sort of fiduciary responsibility to Tesla and its shareholders?

 

[S3XY]

I believe @mikevbf is referring to this Elon Tweet from about a year ago, in which he explicitly says that he is willing to endure "a revenue shortfall in a quarter" in order to "maximize customer happiness" (which, in the context of the exchange, relates to enabling "large numbers of non X/S customers to receive the credit").

We always try to maximize customer happiness even if that means a revenue shortfall in a quarter. Loyalty begets loyalty.
- Musk tweet

≈

Tesla would game the situation to get the most people in before the tax credit phased out.
- mikevbf comment

Fixed! (alseTrick post)

 

[Bokonon]

Fixed! (alseTrick post)

Much more elegant than the analogy I was going to make with the two Javascript equality operators...

 

[S3XY]

Haha, the good news is that barring significant changes in your tax situation, you can just look at your copy of the 1040. If you use TurboTax or TaxAct or HRB, etc, you can download/print a PDF of your 1040 after filing. Take the credit you're entitled to at the time of acquiring the car (say $7500, but it could be $3750 or $1875 later on). The amount of the credit you take is the smaller of that number and what's on line 47 of your 2016 1040.

I actually just went into TurboTax and modified my 2016 return by adding an EV purchase to it. It was pretty easy to do but it was a bit harder than I expected. When completing the EV purchase section it asks for the VIN of the car and somehow it checks if it's a valid VIN. After a couple attempts to use a fake number I just searched for a CPO Model S and used that VIN. I would've been able to use the full credit this year and that shouldn't change in future years. I could've just looked at the appropriate line number on the 1040 form but I wanted it to calculate the alternative minimum tax to make sure it didn't trigger that. By the way, if you decide to try this yourself be sure to exit out of TurboTax without saving your changes!

 

[JeffK]

So then you're admitting Tesla is not going to "game the system" in order to "maximize" the number of full tax credits like mikebvf, Bokonon and seemingly you were suggesting earlier? You seem to think Musk has some sort of fiduciary responsibility to Tesla and its shareholders?

Yes, yes I do, so delaying car 200k until Q1 2018 is a win-win for US buyers, Tesla, and Tesla shareholders. The easiest way to do that is shipments to Canada. You'll also note that the Tesla website says they will start on the western side of "North America", not just the United States.

 

[alseTrick]

Yes, yes I do, so delaying car 200k until Q1 2018 is a win-win for US buyers, Tesla, and Tesla shareholders. The easiest way to do that is shipments to Canada. You'll also note that the Tesla website says they will start on the western side of "North America", not just the United States.

My point was that it can't be argued that Tesla will maximize the number of full credit recipients while also admitting that Tesla isn't going to "hold" deliveries in order to do so. You cannot do the former without the latter.

You have gotten caught up on the wrong aspect of this.

 

[wdolson]

OK, here is my freebie for all you mathematicians out there who fine-tune your withholding so your refund or balance due each year is in double-digits:

I wholly agree that it makes sense to tweak your withholding by filing an updated W-4 with your employer so that your take-home pay increases, and your refund/balance due come April 2018 is a smallish number because you factored in the $7,500 BEV credit claimed on form 8936.

That said, here are two items to ponder: For those in states who have personal income taxes, can you file your W-4 to increase your exemptions yet maintain your current level of exemptions for your state? I know that California has its W-4 equivalent, called the DE-4. Employees can file both forms with their employers so that they have different withholding statuses for federal and state. I am not current on the other forty-some states who assess personal income taxes. This might be something worth investigating. But you might be in for a little surprise if your balance due to your home state is a larger-than-expected amount unless you do not change your withholding for state purposes.

Second, many folks experience a figurative hangover after the holidays. Many folks forget on January 1 that they tweaked their federal withholding in May 2017 because they anticipated the $7,500 credit. Many employers do not issue new forms W-4 to all their employees each January. Their policy is to leave that decision up to the employee. Some of you might be in for a shock in 2019 when you file your 2018 tax return because you forgot to adjust your withholding exemptions in January 2018.

This is one of those areas that I have found that sometimes it pays to let things be. Most people detest having an unexpected large balance due on their tax returns that did not arise from a windfall or other substantial income, where they had an inkling.

I try to avoid discussing politics with her. She actually knows Keven McCarthy and her SO has said good things about him. Outside of politics we get along fine, so I steer clear.

I know California's tax bite can be pretty deep. Both my sister and father have complained about it over the years.

I am one of those rare Tesla buyers who has never been close to having to pay the AMT, which is probably the case for most Model 3 buyers. I was only able to afford the car by saving for some time, plus having lived well within my means my whole life ( I was driving a 1992 car I bought new until last year). Not having children helps too.

If I lived in California I probably would end up paying more in taxes than I do here. The company I work for as a contractor in Morgan Hill has made it clear they would hire me full time if I wanted to move there, but I couldn't afford a shoe box in the Bay Area for what I could get for my house here and the climate here suits me perfectly.

 

[JeffK]

My point was that it can't be argued that Tesla will maximize the number of full credit recipients while also admitting that Tesla isn't going to "hold" deliveries in order to do so. You cannot do the former without the latter.
You have gotten caught up on the wrong aspect of this.

Holding doesn't make business sense.
It's a simple question, if your choices are delivering the 200,000th US car on Dec 31st or Jan 1st which one, of the two choices, maximizes full credit recipients. The answer is Jan 1st.

If you want to offer situations that don't make business sense then you could say Tesla isn't "maximizing" full credits unless they held 400,000 units and delivered all at once, or 800,000, a million, infinity....

Even holding five weeks worth in Q4 2017 =
[ $72000 (5 * 2000 Model S/X) + $35000 (5 * 5000 Model 3) ] =
[($720 million) + ($875 million)] =
nearly $1.6 billion dollars of potential revenue from the US market, at minimum, that you'd want them to hold. So, holding cars isn't a viable option when maximizing tax credit recipients.

In the context of the EV credit, "gaming the system" involves any way you can "maximize" the number of days left in the current quarter before the phase out period thus "maximizing" the time period in which credits can be received (regardless of production numbers).

 

[Foxhound199]

there are already over 5000 WA BEVs counting against the exemption (which tops out at 7500)

Oh, thanks for this data! I'm surprised it's so low, I feel like I personally see several dozen a day. But I don't think these numbers are as dire as they seem. I believe they only started counting around July 2015 for the purpose of this credit, and of those cars, they are only counting the eligible ones (so no Model S or Model X). That makes me think that most (if not all) Day 1 Model 3 reservations in WA have a good shot at getting the sales tax credit.

 

[melindav]

Oh, thanks for this data! I'm surprised it's so low, I feel like I personally see several dozen a day. But I don't think these numbers are as dire as they seem. I believe they only started counting around July 2015 for the purpose of this credit, and of those cars, they are only counting the eligible ones (so no Model S or Model X). That makes me think that most (if not all) Day 1 Model 3 reservations in WA have a good shot at getting the sales tax credit.

good point. Yeah, would make since the 7/2015 tally would exclude the more expensive EVs - and 7/15 is about when they rejiggered the exemption to exclude the higher priced cars (whereas the original law had all EVs sales tax exempt).
I looked around last night for an official count and couldn't find one. I'll send an email off to DOL and DOR and see if I get a response from either on the current count.

 

[Foxhound199]

I totally missed that you had July 2015 selected in the slider! OK, so it'll be a little tight. Still, just a cursory look around town indicates that a lot of those sales in the past two years have been Model S and X, so I'm hopeful they're only about halfway to 7500.

 

[alseTrick]

Holding doesn't make business sense.
It's a simple question, if your choices are delivering the 200,000th US car on Dec 31st or Jan 1st which one, of the two choices, maximizes full credit recipients. The answer is Jan 1st.

If you want to offer situations that don't make business sense then you could say Tesla isn't "maximizing" full credits unless they held 400,000 units and delivered all at once, or 800,000, a million, infinity....

Even holding five weeks worth in Q4 2017 =
[ $72000 (5 * 2000 Model S/X) + $35000 (5 * 5000 Model 3) ] =
[($720 million) + ($875 million)] =
nearly $1.6 billion dollars of potential revenue from the US market, at minimum, that you'd want them to hold. So, holding cars isn't a viable option when maximizing tax credit recipients.

In the context of the EV credit, "gaming the system" involves any way you can "maximize" the number of days left in the current quarter before the phase out period thus "maximizing" the time period in which credits can be received (regardless of production numbers).

Still hung up on the wrong aspect. I'm not advocating for Tesla to hold or not hold deliveries. It was a thought experiment.

For Tesla to maximize the full credit for the largest number of owners: 1) They would have to hold ALL deliveries at 199,999 until the first day of the following quarter, 2) They would have to build ONLY US-ordered vehicles starting with vehicle 199,999 until the full credit phased out 6 months later. I'm not sure that is arguable.

I am not saying Tesla should, will, shouldn't or won't employ that strategy. What Tesla actually does is irrelevant to the discussion between myself and two other posters which you also joined. They made the claim that Tesla will game the system to maximize the full credit. I'm arguing Tesla will not maximize the full credit, because doing so would require them to do both 1 & 2 above.

You seem to agree with me that Tesla will not do 1 & 2 above, but you also seem to be suggesting Tesla will maximize the full credit anyways. You've also said several times that Tesla won't hold deliveries, which is reasonable, but then give examples of how Tesla could hold deliveries from December 31 to January 1.

Yes, yes I do, so delaying car 200k until Q1 2018 is a win-win for US buyers, Tesla, and Tesla shareholders.

Holding doesn't make business sense.

Yes, I readily admit holding deliveries for one day would likely have a negligible impact. But what if vehicle 199,999 is delivered on November 31 instead of December 31? What happens then? Delivering to Canada instead of the US in December doesn't maximize the tax credit. It would merely be more beneficial than continuing US deliveries throughout December.

One more time: I'm not arguing for/against holding deliveries. I'm arguing that Tesla isn't going to maximize full credits.

 

[wdolson]

I don't think Tesla is going to get all the way to 199,999 and hold all US deliveries. They have a pretty good idea how long it takes to deliver cars at this point. When they start getting up around 190K to 195K American cars sold, they just shift to delivering to other countries and slow down production of US destined cars. The last week of the quarter they can shift back to producing US cars and concentrate more on US orders for the next 6 months. That won't get everybody in the US wanting a Model 3, into the max credit, but it will definitely increase the number as much as possible.

 

[Red Sage]

Holding doesn't make business sense.
It's a simple question, if your choices are delivering the 200,000th US car on Dec 31st or Jan 1st which one, of the two choices, maximizes full credit recipients. The answer is Jan 1st.

...

In the context of the EV credit, "gaming the system" involves any way you can "maximize" the number of days left in the current quarter before the phase out period thus "maximizing" the time period in which credits can be received (regardless of production numbers).

Precisely. This is why Elon Musk said that Tesla will "do the obvious thing" relative to maximizing the Federal Tax Credit for buyers. Understand that the further along they can push the beginning/end of the Phaseout, the more likely that Production of Model ☰ will have increased to/beyond 10,000 units per week. A lot of people forget that Mexico is part of 'North America'. So they will get their cars too, along with Canada. Very well said. Thank you.

 

[Red Sage]

I don't think Tesla is going to get all the way to 199,999 and hold all US deliveries. They have a pretty good idea how long it takes to deliver cars at this point. When they start getting up around 190K to 195K American cars sold, they just shift to delivering to other countries and slow down production of US destined cars. The last week of the quarter they can shift back to producing US cars and concentrate more on US orders for the next 6 months. That won't get everybody in the US wanting a Model 3, into the max credit, but it will definitely increase the number as much as possible.

I agree... But please note it is all about Deliveries. The IRS doesn't care when the cars were built, only that they were 'acquired' after December 31, 2009. And they don't consider a qualified vehicle acquired until "...the time when title to the vehicle passes to the taxpayer under state law." So, Tesla will certainly be building and shipping cars for foreign markets, but doesn't have to stop building the ones for the U.S. either. It's a good situation to be in for them. They can still manage to make projections for Q4 2017 Sales, while being able to show massive results for Q1 2018. And I'm rather certain that certainly by the Q4 2018 Earnings Conference Call in early 2019 they will be able to report four consecutive profitable quarters (maybe even five) as well, thereby allowing Tesla Naysayers, $#0r+s, Bear$, and ANALysts to simply [SIERRA TANGO FOXTROT UNIFORM] once and for all over the dang ole 'profitability' question that they love to harp over all the time. Heck, I'd be satisfied if they were profitable by $1, $2, $3, $4, and $5 all in a row, just to get over this stupid 'burning cash' barrage of FUD (but it would probably have to be $10,000,000 or more each quarter to actually shut them up). Then, of course, they would start screaming, "Where are the dividends?" and actual long term investors would simply point to the stock valuation, and smile.

 

[alseTrick]

When they start getting up around 190K to 195K American cars sold, they just shift to delivering to other countries and slow down production of US destined cars. The last week of the quarter they can shift back to producing US cars and concentrate more on US orders for the next 6 months. That won't get everybody in the US wanting a Model 3, into the max credit, but it will definitely increase the number as much as possible.

It literally will not do that.