SageBrush
REJECT Fascism
Hmm ... I'm not sure. The EV credit is written on line 54
Where is the IRA to Roth income on the 1040 ? One Google search said Line 16, but in any case I have to say above the credits area.
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[Incorrect post] EV Tax credit mischaracterization
- Thread starter PhysicsGuy85
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Where is the IRA to Roth income on the 1040 ? One Google search said Line 16, but in any case I have to say above the credits area.
I believe the Roth conversion is fine. It's triggering a tax penalty by an early withdrawal from your standard IRA that's no good. The tax penalty is reported on Line 59.
SageBrush
REJECT Fascism
I think that he's proposing changing his monthly savings from a 401k to a Roth 401K, which should increase his tax liability. This is different from what I am doing which is converting my IRAs to Roth IRAs.
I'm not financial expert by any means, but if I were I might tell people not to buy $35k+ vehicle if their tax liability is considerably less than $7500 (with caveats that they are not retired millionaires etc.). Me and my wife pay fair bit more than $7500 on taxes, but still I was very hesitant to get car this expensive.
I get what you're saying. We're still hesitant and we'll just say we can easily take 2 full tax credits. Still, everyone's expenses and priorities in life are different. I mean, if they live at home and the car is their only expense... well, why not? I know at least one person on the M3 list like that, and they live in an area where there's no way they can afford a house on their own so it's not even worth saving for.
The key is delivery date. One definitely needs to be in 2018 and one in 2019. If yes and yes, you can claim a 7500 each year. If both deliver in 2018 or 2019, then no.
BluestarE3
Active Member
Except that by 2019, the tax credit available for a Tesla won't be $7,500 (if at all).
BluestarE3
Active Member
As for which line on Form 1040 is the relevant one to determine tax liability for the EV tax credit, please refer to Form 8936, Qualified Plug-in Electric Drive Motor Vehicle Credit (it's line 47 on Form 1040).
C141medic
Active Member
Here's an informative article from Turbotax:
Filing Tax Form 8936: Qualified Plug-in Electric Drive Motor Vehicle Credit - TurboTax Tax Tips & Videos
Filing Tax Form 8936: Qualified Plug-in Electric Drive Motor Vehicle Credit - TurboTax Tax Tips & Videos
If you're a small business owner in particular, there are many, many ways to find enough deductions that you end up with little to no income. It makes it harder when you need to apply for a loan or something like that, but pretty much every small business owner does that juggling act with their taxes.
Based on what a poster in this thread said, there's also the scenario of a person who's retired, but has lots of savings or can otherwise still afford a car like this.
Or the person who's only expense would be the car. Plenty of scenarios.
If you only think in terms of a person who has your vanilla W-2 job along with a mortgage, etc, then yes, it would be hard for someone like that who didn't have a tax liability of $7,500 to afford such a car.
T34ME
Active Member
Agreed @codex57 take for example a person who has income from rental properties. There is plenty of cash flow to afford a M/S/X/3 but depreciation on those income properties take the tax obligation to near zero. Or take for example a well known personality who claims to be a multi-billionaire but brags that he is smart because he doesn't pay any taxes! I guess he won't be getting a $7500 tax credit on his gold plated Model 3. I don't know how many people on this forum fit into the above scenarios but I am sure there are a few.
That celebrity likely wouldn't be caught dead in an EV, as the mere sight of his orangeness inside one would send his fan base into a tailspin.
But the tax credit is not intended for exactly those scenarios. If you're not making enough income and have to disclose losses, you can still buy an EV but just don't expect to get the rebate (because the government is not getting tax revenue from you already).
T34ME
Active Member
JeffK
Well-Known Member
NOT a rebate... it's a credit.
Easy solution is converting 401K or traditional IRA to Roth, plain and simple. I did this 6 years ago when I had effectively negative tax liability (due to deductions & credits), and converted up to the amount that made my liability zero. That conversion occurs on the first page and is legit for this..
So to do this:
1. Estimate your taxes with no conversion
2. Determine max conversion amount to enable you to get the full credit.
For those talking about the 2018 / 2019 split with two vehicles, I think that person meant filing in those years and receiving the vehicles in 2017 & 2018 (otherwise credit doesn't apply).
Over the past 48 months I have purchased two Tesla Model S vehicles. The two purchases were in two different calendar/tax years. On my tax returns for each year I was able to claim the full $7,500 tax credit - in other words, the federal taxes I owed/paid were reduced by $7,500, for each of those two tax years. For each of these two years my federal tax bill exceeded $7,500, so I was able to make use of all of the $7,500 credit, each year.
As a retire person, my annual income is modest. However, transactions in my investment account generated taxable capital gains which bumped up my taxable income, thus bumping up my federal tax bill. So a strategy for some owners may be to direct their investment advisors to execute investment transactions that generate taxable capital gains, in order to create a larger tax liability (so as to take advantage of the $7,500 credit). You would take the capital gains tax hit now, rather than later, to make better/full use of the EV tax credit. Be sure your vehicle purchase and the investment transactions happen in the same calendar/tax year. We do not have a state income tax in Washington, to complicate the calculation. Of course, consult the person who prepares your tax return(s) to be sure it pencils out.
My plan is to purchase a Model 3 near the end of the year (or more likely in 2018) and we'll do this little tap dance again.
As a retire person, my annual income is modest. However, transactions in my investment account generated taxable capital gains which bumped up my taxable income, thus bumping up my federal tax bill. So a strategy for some owners may be to direct their investment advisors to execute investment transactions that generate taxable capital gains, in order to create a larger tax liability (so as to take advantage of the $7,500 credit). You would take the capital gains tax hit now, rather than later, to make better/full use of the EV tax credit. Be sure your vehicle purchase and the investment transactions happen in the same calendar/tax year. We do not have a state income tax in Washington, to complicate the calculation. Of course, consult the person who prepares your tax return(s) to be sure it pencils out.
My plan is to purchase a Model 3 near the end of the year (or more likely in 2018) and we'll do this little tap dance again.
SageBrush
REJECT Fascism
This is true, but it does not say how much of the EV credit you will receive. That is dependent on your other tax credits.
This seems a subtle distinction but it is not. The practical question is how much additional tax credit savings will a taxpayer receive by buying an EV.
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