Model 3 pre order and tax credit ?

[dgpcolorado]

Thanks for the detailed answer. It looks like if I want to own this car, I'm not going to get any help from the tax credit. I'm just not into leases.

Not necessarily. For those of us who don't have enough income to qualify for the tax credit, leasing is the way to go. You can then buy out the lease and own the car (or let it go back and buy the latest model). You would benefit from the tax credit because you would buy the car at the residual value but your lease payments would be based on the cost minus the residual value plus the tax credit.

So, say that the cost is $40k and the residual value at three years is 50%, or $20k. The lease payments would be based on $40,000 - $20,000 + $7500 = $12,500. There are some small miscellaneous fees but $12,500 financed at the current 4% would generate payments of about $370/month. After three years you should be able to buy the car for the residual value of $20,000 plus a small fee.

That's how it is supposed to work. What will actually be offered in two years remains to be seen. But now that Tesla is offering leases to individuals it seems likely that they will continue to do so with the Model 3. Interest rates will likely change and the residual value varies depending on the overall estimate of what the car will be worth in three years, as well as the mileage that one signs up for (Tesla currently offers 10,000, 12,000, and 15,000 annual mile three year leases). A higher mileage lease will mean a lower residual value and higher monthly payments.

 

[MP3Mike]

So, say that the cost is $40k and the residual value at three years is 50%, or $20k. The lease payments would be based on $40,000 - $20,000 + $7500 = $12,500. There are some small miscellaneous fees but $12,500 financed at the current 4% would generate payments of about $370/month. After three years you should be able to buy the car for the residual value of $20,000 plus a small fee.

But the lease document states that the $7500 is added to the residual. So if you keep the car you pay it and get no benefit from it.

 

[bigbear]

But the lease document states that the $7500 is added to the residual. So if you keep the car you pay it and get no benefit from it.

I guess the only benefit would be your monthly payments would be lower for the lease years.

 

[smartypnz]

Also, as someone mentioned in another thread..... If necessary, you can 'Increase' your tax liability to get the full $7500 by cashing in some 401K prematurely (which would normally create a penalty). So basically, the Tesla credit pays for the penalty.

I could be wrong, but there are other ways to increase the tax liability.

 

[bigbear]

Also, as someone mentioned in another thread..... If necessary, you can 'Increase' your tax liability to get the full $7500 by cashing in some 401K prematurely (which would normally create a penalty). So basically, the Tesla credit pays for the penalty.

I could be wrong, but there are other ways to increase the tax liability.

How much 401 are we talking? If I'm in the 20% bracket and I take out 10k that would be $2k I get back from just that transaction?

 

[S3XY]

Someone else in that thread pointed out that the 401k early withdrawal penalty can't be offset by the EV credit. Read through that entire thread before you decide to go that route.

 

[dgpcolorado]

But the lease document states that the $7500 is added to the residual. So if you keep the car you pay it and get no benefit from it.

Yes, it is added to the residual for the purpose of calculating payments on the lease (the capitalized cost). However, the actual residual is the amount the car should sell for at lease end. It wouldn't make sense to do it otherwise. I've asked a Tesla finance guy if he knows; it must be a question that comes up a lot. Let you know if I get a response.

 

[EVNow]

Seems many are concerned about getting the tax credit - is it worth it to write our senators and ask for the 200k ceiling to be raised? Or too far out to bother?

My guess is the cap will be raised. It is sort of a bipartisan issue - there are a lot of Rs from TN, for eg - and many Ds from MI, CA (and most Dems would support anyway).

 

[dgpcolorado]

My guess is the cap will be raised. It is sort of a bipartisan issue - there are a lot of Rs from TN, for eg - and many Ds from MI, CA (and most Dems would support anyway).

Really? In this disfunctional Congress? You are an optimist!

 

[Dave85D]

But the lease document states that the $7500 is added to the residual. So if you keep the car you pay it and get no benefit from it.

Better wording would be the sum of the $7500 plus the residual is subtracted from the purchase price to get the lease principal. $40,000 - ($20,000 + $7,500) = $12,500.

 

[neptune2000]

Elon was clear: no founders or signature model 3, all production cars wil be the same from day 1.

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Usually tax credits come off your tax return, so make sure you will owe at least that amount that year. I'm assuming that won't be difficult for most on this board.

Granted, I've only gotten one for an adoption (not a car) so it may work differently in this case.

Federal tax credits always come off your subsequent year tax return. State credits (like the $2,500 in CA) can be received immediately. I got mine within 30 days of purchase.

 

[MP3Mike]

Yes, it is added to the residual for the purpose of calculating payments on the lease (the capitalized cost). However, the actual residual is the amount the car should sell for at lease end. It wouldn't make sense to do it otherwise. I've asked a Tesla finance guy if he knows; it must be a question that comes up a lot. Let you know if I get a response.

Again, if you look at the lease details that someone posted it says "Residual Value: 52 - 63% depending on model/equipment/mileage (industry standard residuals + $7,500)" and "Federal Tax Credit: Goes to lessor; added to residual which reduces payments by $7,500 over lease term"

So it seems like it very clearly spells out that you don't ever get the credit, you just get lower payments and a higher residual.

 

[dgpcolorado]

Again, if you look at the lease details that someone posted it says "Residual Value: 52 - 63% depending on model/equipment/mileage (industry standard residuals + $7,500)" and "Federal Tax Credit: Goes to lessor; added to residual which reduces payments by $7,500 over lease term"

So it seems like it very clearly spells out that you don't ever get the credit, you just get lower payments and a higher residual.

Heard back from Tesla and you are correct: the buyout price is the residual plus the tax credit, as you said, meaning that the credit is not given to the buyer (as Nissan does, for example). So, I stand corrected.

This is disappointing for those prospective Model 3 buyers who do not qualify for all or most of the tax credit. Of whom I am one. I'm glad our Colorado state tax credit of $6000 is refundable, unlike the federal tax credit.

 

[MP3Mike]

Heard back from Tesla and you are correct: the buyout price is the residual plus the tax credit, as you said, meaning that the credit is not given to the buyer (as Nissan does, for example). So, I stand corrected.

This is disappointing for those prospective Model 3 buyers who do not qualify for all or most of the tax credit. Of whom I am one. I'm glad our Colorado state tax credit of $6000 is refundable, unlike the federal tax credit.

Good to have confirmation.

One thing to remember is that you aren't leasing a Tesla from Tesla. I think currently the "Tesla" lease is done by/through US Bank, so US Bank isn't giving you the federal tax credit.

But who knows, that could change in the next two years...

 

[RichardL]

This is disappointing for those prospective Model 3 buyers who do not qualify for all or most of the tax credit. Of whom I am one.

Doesn't this mean that a lease would be more worthwhile in your situation. If you can get the credit by a purchase, then great - but by leasing they increase the residual by $7500 - regardless of whether you would have qualified for the tax credit, so that is a way to take advantage of the federal credit, through those lesser payments.

 

[MP3Mike]

Doesn't this mean that a lease would be more worthwhile in your situation. If you can get the credit by a purchase, then great - but by leasing they increase the residual by $7500 - regardless of whether you would have qualified for the tax credit, so that is a way to take advantage of the federal credit, through those lesser payments.

As long as you don't want to keep the car, otherwise you are trading those lower up-front payments for paying the $7,500 all at once at the end.

 

[dgpcolorado]

^ Yes, the problem with leasing is that you pay all that money and then don't have a car. But with EVs the technology is changing so rapidly that leasing can allow one to get the latest, considerably improved, model every few years. But it does mean perpetual car payments.

 

[Tanquen]

They should not raise the 200k ceiling. Why do the tax payers need to help someone that makes 200k a year save $7500 on a $70-$120K car. They should lower it.
- The federal $7500 credit is a tax credit not a rebate. You need to owe the government $7500 after you have itemized all your deductions for it to help you get money back. This favors people that make a lot more money and don’t need the credit but anyway. So if you only owed $7000 in taxes but through deduction then owed $3000, that $3000 is you max tax credit and you can’t carry it over to the next year and so on.
- The federal $7500 credit is a tax is the max amount you can get. It’s based on the price of the car. If the Model 3 totals 50K with some options then your credit will be $5000. You’ll get it after you do that same years taxes the following year.
- The CA $2500 rebate is a rebate and you get the full amount and should have it in a few months after purchase. The income cap was changed to 250k (should be lower) in effect by March or so. Rebate amounts will be increased by $1,500 per rebate for consumers with household incomes less than or equal to 300 percent of the federal poverty level.

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They should not raise the 200k ceiling. Why do the tax payers need to help someone that makes 200k a year save $7500 on a $70-$120K car. They should lower it.

- The federal $7500 credit is a tax credit not a rebate. You need to owe the government $7500 after you have itemized all your deductions for it to help you get money back. This favors people that make a lot more money and don’t need the credit but anyway. So if you only owed $7000 in taxes but through deduction then owed $3000, that $3000 is you max tax credit and you can’t carry it over to the next year and so on.

- The federal $7500 credit is a tax is the max amount you can get. It’s based on the price of the car. If the Model 3 totals 50K with some options then your credit will be $5000. You’ll get it after you do that same years taxes the following year.

- The CA $2500 rebate is a rebate and you get the full amount and should have it in a few months after purchase. The income cap was changed to 250k (should be lower) in effect by March or so. Rebate amounts will be increased by $1,500 per rebate for consumers with household incomes less than or equal to 300 percent of the federal poverty level.

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Oops, how do I edit the post?

 

[gregincal]

They should not raise the 200k ceiling. Why do the tax payers need to help someone that makes 200k a year save $7500 on a $70-$120K car.

You misunderstand what people are talking about when they mention the 200K ceiling. It has nothing to do with how much somebody makes. It simply means that the government starts phasing out and ultimately stops providing credits to a manufacturer that has made 200K eligible vehicles. The issue is that Tesla will reach that limit before any other manufacturer, at which point car companies that have invested nothing in promoting EVs will have an advantage because consumers will still get a $7500 credit buying their vehicles but not Tesla's.

 

[S3XY]

His point is that many of the people that are getting the tax credit are buying $70-$120K cars. And those people must have pretty high income so we shouldn't be subsidizing them. (BTW, I'm not complaining about this, just clarifying what Tanquen said)