Need advice regarding EV Federal Tax Credit

[rawminh]

I might have shot myself in the foot before making my purchase…

I took delivery of my Model 3 back in September 2018 but I’m not sure I will have $7500 in liability when taxes come around 2019 based upon my salary and tax deductions. However, I believe my brother will have the tax liability to redeem up to the full $7500.

Would it be possible, as of January 2019, to add my brother to the car title (co-joint ownership) and have his redeem the full EV tax credit of $7500? My concern is his name is not on the title until '2019' while we are trying to redeem the tax credit from '2018'.

 

[remlemasi]

Sounds like tax fraud to me, but I am no tax attorney.*



*This is just my opinion, please consult with a tax attorney.

 

[swaltner]

I’m one that suggests a Traditional to Roth IRA conversion when concerned about being able to claim the full deduction. This is a simple way that many can artificially increase their tax burden one year to make sure they have enough tax liability to take full advantage of the tax credit. Unfortunately, you can’t backdate conversions like you can contributions. You would have needed to do the Roth Conversion last year for it to count on your 2018 taxes.

As far as what you can do in your current situation, I don’t know of much that you can do in 2019 to increase your taxes for 2018. Sorry.

 

[tyanger]

I might have shot myself in the foot before making my purchase…

I took delivery of my Model 3 back in September 2018 but I’m not sure I will have $7500 in liability when taxes come around 2019 based upon my salary and tax deductions. However, I believe my brother will have the tax liability to redeem up to the full $7500.

Would it be possible, as of January 2019, to add my brother to the car title (co-joint ownership) and have his redeem the full EV tax credit of $7500? My concern is his name is not on the title until '2019' while we are trying to redeem the tax credit from '2018'.

Roughly how much of the tax credit will you be able to claim?

 

[tivoboy]

I’m one that suggests a Traditional to Roth IRA conversion when concerned about being able to claim the full deduction. This is a simple way that many can artificially increase their tax burden one year to make sure they have enough tax liability to take full advantage of the tax credit. Unfortunately, you can’t backdate conversions like you can contributions. You would have needed to do the Roth Conversion last year for it to count on your 2018 taxes.

As far as what you can do in your current situation, I don’t know of much that you can do in 2019 to increase your taxes for 2018. Sorry.

I think that conversion would have had to be done PRIOR to the end of the year in 2018 (delivery in Sept 2018), so if that's true then that option is off the table.

At this point there really isn't much one can do to increase EARNINGS in 2018 or reduce deductions from 2018, without a business in place.

 

[SMAlset]

Believe you will be able to take a credit for what you do owe up to the 7500. Anything left on the table unused doesn't carry over so lost. But your tax preparer can verify.

Probably could have done a few things during 2018 to up the "owe" like also increase your withholdings. Too bad you weren't thinking about taxes back when you got the car.

 

[HankLloydRight]

Increasing the withholdings isn’t going to change your total tax liability. It’s just going to increase your refund.

The brother thing will likely work but nobody is going to say for sure one way or another.

 

[ItsNotAboutTheMoney]

I might have shot myself in the foot before making my purchase…

I took delivery of my Model 3 back in September 2018 but I’m not sure I will have $7500 in liability when taxes come around 2019 based upon my salary and tax deductions. However, I believe my brother will have the tax liability to redeem up to the full $7500.

Would it be possible, as of January 2019, to add my brother to the car title (co-joint ownership) and have his redeem the full EV tax credit of $7500? My concern is his name is not on the title until '2019' while we are trying to redeem the tax credit from '2018'.

26 U.S. Code § 30D - New qualified plug-in electric drive motor vehicles

You have to claim the credit for the year you started using the vehicle, 2018.
Only people on the first title can claim the tax credit. So, no, you can't.

Just to be clear, because some people misunderstand, liability is tax based on adjusted income.

And, just to make sure, because some people misunderstand, tax liability is the amount of tax The Man expected you to pay during the year, not the difference between the amount you paid in taxes and what you were expected to pay.

 

[MXWing]

Increasing the withholdings isn’t going to change your total tax liability. It’s just going to increase your refund.

The brother thing will likely work but nobody is going to say for sure one way or another.

Sounds like getting married in 2019 to file jointly on the 2018 returns.

All the IRS wants is the VIN.

Everything is accepted - unless you are audited.

 

[Sophias_dad]

Just to be clear, because some people misunderstand, liability is tax based on adjusted income.

And, just to make sure, because some people misunderstand, tax liability is the amount of tax The Man expected you to pay during the year, not the difference between the amount you paid in taxes and what you were expected to pay.

Exactly... A thumbnail calculation shows as a single person, one would need about 52.5k in adjusted gross income to reach a tax liability of $7500, or married filing jointly would need around 65.7k. The standard deduction(12 or 24k) would apply before AGI, so you'd expect 64.5k or 89.7k as a rough starting point to rack up 7500 in tax liability. This is also ignoring any other deductions you may have(mortgage interest that pushes you beyond the12/24k standard deduction or retirement contributions are the big ones I can think of right off the bat)

 

[HankLloydRight]

Only people on the first title can claim the tax credit. So, no, you can't.

IMO, it would still be the "first" title... they're only adding someone to the existing title. The car isn't changing hands to trigger a second title/second owner.

Like MXWing said, all they want is the VIN on the form. If the brother is audited, show the IRS the title and registration (change that too) with his co-ownership on it, and you'll likely be fine. I am not a tax professional this is only my opinion. Your mileage may vary. The IRS auditor probably isn't going to dig deep to see if/when/how the title changed. And if the brother is audited, it would likely be for some other reason (unreported income, too many deductions, etc) and the EV tax credit might not even be an audit item. Unless you get one of those very very rare complete audits where they go over every single line.. but your chances of that are really really small.

 

[ItsNotAboutTheMoney]

IMO, it would still be the "first" title... they're only adding someone to the existing title. The car isn't changing hands to trigger a second title/second owner.

Like MXWing said, all they want is the VIN on the form. If the brother is audited, show the IRS the title and registration (change that too) with his co-ownership on it, and you'll likely be fine. I am not a tax professional this is only my opinion. Your mileage may vary. The IRS auditor probably isn't going to dig deep to see if/when/how the title changed. And if the brother is audited, it would likely be for some other reason (unreported income, too many deductions, etc) and the EV tax credit might not even be an audit item. Unless you get one of those very very rare complete audits where they go over every single line.. but your chances of that are really really small.

Original use of the car must have commenced with the taxpayer and the car must have been acquired by the taxpayer.

Clearly, that would not be the case with what the OP is trying to do.

What's really bad here is that it'd be the _other_ person who'd be most at risk as they'd be the ones committing tax fraud and they aren't the one who has the car.

 

[SWMONTY]

What's really bad here is that it'd be the _other_ person who'd be most at risk as they'd be the ones committing tax fraud and they aren't the one who has the car.

The other person is at risk, but the other person got the tax credit. Depends on how/if they plan on sharing the tax credit.

For me, I wouldn't do it. I would be mad at myself for not getting this straighten out last year, heck, I have nightmares about forgetting to tell my tax guy to take the credit, even though I already told him.

 

[HankLloydRight]

Original use of the car must have commenced with the taxpayer and the car must have been acquired by the taxpayer.

You're quoting me like I don't know that. Of course putting your brother on the title and allowing him to take(share) the tax credit is going a little "off book" of the rules, sure. What I'm saying is that the chances of it turning into a problem are very very small. Unlike other forms of tax fraud which are extremely risky like under or not reporting income or taking larger deductions. I've been field audited, and it's hell, for sure. But for individuals, the most common audit is a correspondence audit where they just need some additional information on a form. A Field audit is most common for businesses. The only audit you really need to worry about is a compliance audit where they go over every single line, and these are random and very very rare.

 

[cpa]

Sounds like tax fraud to me, but I am no tax attorney.*



*This is just my opinion, please consult with a tax attorney.

I am not a tax attorney. But I am a licensed accountant. This definitely is tax fraud. If I were to be complicit in preparing your brother's return and claim the credit and get caught, a lot of real nasty things could befall me. Because of the dollar amount, this would amount to civil fraud. A 20% negligence penalty would attach plus interest on the deficiency. There might be a second penalty if the agent were convinced that this was willful--not sure about that since I try to stay on the straight and narrow.

There is some confusion here about how the IRS works in this area. The Service is concerned with the bottom line of tax owed. This will be the sum of the regular tax, AMT, shared responsibility payment and the like, less allowable credits like the $7,500 vehicle credit, general business credits, child credits, plus other taxes like SE tax, NIIT, Additional Medicare Tax, 10% penalty for premature pension distributions, less refundable credits like the EIC and additional child tax credit. It makes no difference how the net amount of tax is determined; a deficiency can arise from diverse areas.

It is true that the Service likely will not examine this area. They are woefully understaffed, and focus their audits on nastygrams and selected taxpayers who have complex returns or who might not be applying some of the more arcane provisions properly like the passive loss rules.

Really, $7,500? A mentor of mine once advised, "If you are going to commit an unlawful act, do but one, and make sure that whatever you receive will support your lifestyle for the rest of your life."

 

[Ciaopec]

Exactly... A thumbnail calculation shows as a single person, one would need about 52.5k in adjusted gross income to reach a tax liability of $7500, or married filing jointly would need around 65.7k. The standard deduction(12 or 24k) would apply before AGI, so you'd expect 64.5k or 89.7k as a rough starting point to rack up 7500 in tax liability. This is also ignoring any other deductions you may have(mortgage interest that pushes you beyond the12/24k standard deduction or retirement contributions are the big ones I can think of right off the bat)

This is something I have wondered about when listening to people worry about losing the tax credit . I am not convinced that all people buying the car would receive the full credit anyway. I didn't because of other items being deducted. Didn't stop me but I wonder how many people find later that they cannot even use the full credit to offset taxes?

 

[OCR1]

Just to clarify the point though, had the OP originally added his brother to the title at the time of purchase, I don’t see any reason why his brother could not take the $7,500 deduction. I agree that modifying the title after the fact is asking for trouble, even though the chance of an audit is likely very small.