How does the EV tax credit work for the model Y?

[steph746]

I was notified by Tesla that my Model Y order (from February) was arriving. I opted to put the order on hold so I can (hopefully) get the tax credit starting on January 1, 2023. I also declined the $3750 rebate offer.

I would like to make sure that I will get the tax credit and was wondering how it works specifically? If I understand correctly, it's limited to a certain number of each model vehicle? How does that work if I wouldn't get the credit until April when I file taxes? Is it a first come, first served tax credit for when I submit my taxes or when the vehicle is actually delivered? Would it be better to file my taxes as soon as the vehicle arrives and I take ownership?

Thanks in advance for further clarification...

 

[snpiperpilot]

So I don’t know where to start. First there is no limit by the number of cars that was what used to be in place that has been removed now.

Second it’s a tax credit and if you get that next year the tax credit applied to next year’s taxes not your current year’s taxes.

Third the IRS hasn’t made clear along with treasury exactly how much tax credit amount of Y is going to be good for. Right now it looks like there will be a brief period between January and March when all model Ys below the right price will be eligible and after that it depends on the battery.

 

[steph746]

Thanks for your reply. Right, so if the purchase is done in 2023, I would take the credit on my 2023 tax year in April of 2024?

My main two questions would be, even if there is no limit right now on the number of cars, it seems that it would be best to purchase sooner than later in 2023? How would it be known, when submitting the 2023 taxes, when I purchased the car?

Also, how would the tax credit work exactly? If, for example, I do get to qualify for the $7500 credit, would I get that full amount even if I owe, for example, $500 in taxes, I would get a refund check for $7000?

 

[hakunamattata]

If you owe $500 in taxes then you get only $500 back as part of the credit. My guess is the only way to get the full amount is to reduce your current withholdings which will create a tax liability, however please consult your tax advisor as every situation is different and I am no expert on tax laws. Also it is different if you plan to lease the vehicle in that case Tesla takes the credit and passes it on to you as a credit when working out lease payments.

As stated we are discovering new information daily and it might be best to keep track of things by subscribing to some reliable articles/blogs, a quick google search gave me this article on NerdWallet EV Tax Credit: How It Works, What Qualifies - NerdWallet

 

[steph746]

If you owe $500 in taxes then you get only $500 back as part of the credit. My guess is the only way to get the full amount is to reduce your current withholdings which will create a tax liability, however please consult your tax advisor as every situation is different and I am no expert on tax laws. Also it is different if you plan to lease the vehicle in that case Tesla takes the credit and passes it on to you as a credit when working out lease payments.

As stated we are discovering new information daily and it might be best to keep track of things by subscribing to some reliable articles/blogs, a quick google search gave me this article on NerdWallet EV Tax Credit: How It Works, What Qualifies - NerdWallet

If you owe $500 in taxes then you get only $500 back as part of the credit. My guess is the only way to get the full amount is to reduce your current withholdings which will create a tax liability, however please consult your tax advisor as every situation is different and I am no expert on tax laws. Also it is different if you plan to lease the vehicle in that case Tesla takes the credit and passes it on to you as a credit when working out lease payments.

As stated we are discovering new information daily and it might be best to keep track of things by subscribing to some reliable articles/blogs, a quick google search gave me this article on NerdWallet EV Tax Credit: How It Works, What Qualifies - NerdWallet

Thanks. Yes, I actually read this article. I can’t imagine that everyone would normally owe over $7500 on their taxes. That’s quite a lot. I would think that the IRS would give you $7500 on top of whatever you owe or whatever tax refund you might already be receiving.

 

[hakunamattata]

Thanks. Yes, I actually read this article. I can’t imagine that everyone would normally owe over $7500 on their taxes. That’s quite a lot. I would think that the IRS would give you $7500 on top of whatever you owe or whatever tax refund you might already be receiving.

I totally agree with your opinion however unfortunately that is not the case you get the amount of taxes you up to $7500, at least that is way credits have worked so far. This article explains in more details Every electric vehicle that qualifies for US federal tax credits (electrek.co)

It is best to consult a tax advisor who will know better

 

[steph746]

Right. After reading some more articles, it does appear that is the case. Rather than messing with tax configurations, perhaps it’s better to take the $3750 Tesla rebate?

 

[ord3r]

looks like tesla is offering 7500$ rebate now to take before end of year.

https://twitter.com/x/status/1605730849336557568

 

[steph746]

I did not know this. This would be the best option then.

 

[FastEddieB]

If you owe $500 in taxes then you get only $500 back as part of the credit. My guess is the only way to get the full amount is to reduce your current withholdings which will create a tax liability, however please consult your tax advisor as every situation is different and I am no expert on tax laws.

I‘m pretty sure changing your withholding makes no difference. I think it’s your total tax liability that matters, not whether you owe an amount in excess of withholding.

But I’m also not a tax expert. So grain of salt and all that.

 

[slybriguy44]

Thanks. Yes, I actually read this article. I can’t imagine that everyone would normally owe over $7500 on their taxes. That’s quite a lot. I would think that the IRS would give you $7500 on top of whatever you owe or whatever tax refund you might already be receiving.

I think you're thinking of this incorrectly. 7.5k in annual tax liability is not alot. This isn't how much you owe with the return itself but the actual tax liability of the whole year, before other credits and withholding.

 

[RandyS]

The benefit of getting the car before the end of the year is that you get the now-$7500 discount right off the top of the purchase price, which means less sales tax and less registration fees (if your car registration is based on the value of the car). Coupled with the 10K free supercharger miles, it's actually a better deal than the IRA tax credit (and you don't use up one of your IRA tax credits)...

 

[hsfrank]

Save on sales tax?Not in Delaware ,where sales tax ( called Doc Fee {different from dealers doc fee}) is based on your net or NADA book value less trade in WHICHEVER is higher. For example my net tax would have been $1500. I paid $1700. and although I have a year and a half left on tags, NO CREDIT for unused portion.

 

[EVer Hopeful]

you'll need a definition of the word "owe"

If, when you do your taxes in April you have to send a check for $500, you could argue that you "owe" that amount, however, unless you haven't been working that year, have no Social Security income, no interest bearing accounts, no business or partnership income and didn't sell any shares at a profit (in which case, why would you be buying a Tesla?), then your "tax burden" would probably be significantly higher than the $500 you "owe" when you send in your forms

My understanding is that the $7,500 is applied to the total tax burden, not the settlement amount (for want of a better word). and if you think about it, for it to be otherwise would make no sense

 

[steph746]

Thanks everyone for your replies.

 

[hsfrank]

 

[MacO512]

Income limit is for either 2022 or 2023, 150k single 300k joint.

You'd need 7500 tax liability to fully utilize the credit, it's a line before withholding on your return. So withholding or final payment due don't matter. So you need enough income to have 7500 federal tax to fully benefit.

Unused credit cannot be carried to future year, it must all be used in year of purchase.

 

[MacO512]

I haven't seen anything on number of times the credit can be claimed, so could me and my wife each buy one vehicle, then trade it in for buying a second in 2023 for 30k of total credits?

Maybe there is a rule only allowing one per taxpayer or one per return. If not, could be opportunity of pocketing a bunch of credits if there's any vehicles where trade in is close to a vehicle sale price. There were example of that 6 month ago, but now with falling prices there might be too much depreciation when driving off the lot for it to make sense.

 

[woolymammoth17]

Assuming standard deduction you need to make around $67,500 as a single filer to owe at least $7,500 in federal taxes to take full advantage of the credit. You must also make less than $150,000 per year to qualify.

 

[KaptainKloss92]

If we look about it realistically, the current administration would want to incentivize EV sales. I think personally this is more so true after Elon met with the administration on Friday.

But what does everybody else think? Do we think the full credits will extend or will the criteria for eligibility change? Is domestic battery production really a factor in this decision? Would Tesla also sacrifice margins for another quarter for the credits. Just asking as I’m thinking about the Model Y with new camera upgrades.