Tax Credit Clarification

[SageBrush]

Even though I can afford this car, I still cringe about the thought of buying a "new" car. Almost every vehicle I've owned has been pre-owned or CPO'd, just because I don't want to be the sucker who takes the initial depreciation. Having said that, I am quite curious about the depreciation curve of these vehicles versus their ICE counterparts. I've followed prices for pre-owned Model S cars online (both at the Tesla store and on Cargurus.com). Overall I noticed a smaller depreciation curve compared to similar year/class cars (especially for the CPO'd cars on the Tesla website store). Any thoughts??

In a rational world, the lease residual would be close to depreciation.

 

[thx1139]

I saw something yesterday that indicated that through 2015 that Tesla had sold about 67K vehicles that qualified for the US Tax Credit. Figure 55% of cars sold in 2016 will be sold in the US. So at the high end that is 50K more in the US. So at end of 2016 117K tax credits used. Lets assume another 50K for the 1st 3 quarters of 2017. That leaves 33K cars to deliver last quarter of 2017. Would be advantageous for Tesla to make US customers happy do focus on 2 things. Concentrate on fulfilling overseas sales to push the 200K US sale to very early January, and build up an inventory without delivering cars. Then massive deliveries starting 1st qtr 2018. These cars would all be configured and non-refundable deposits put down. So should be easy for Tesla to convince a bank for additional financing if needed.

 

[SmarterMotors]

Thanks, nice post and fair conclusion. However, I think it is clearer to write "I totally think that most buyers WILL get at least partial Tax Credit."

You are correct...I really mean "I think that most buyers will receive some tax credit ($7500, $3750, or $1875)".

I wish I could edit posts to adjust mistakes/misstatements.

Do you know of anyways to do that here on this forum? I tried looking and there is no editing once I post.

 

[Big-T]

Considering this car is meant to be a mass market vehicle with a lower price point. I think many people are relying on the tax credit to make it more affordable while moving into the EV market and getting really good mileage and quality.

I'm one of those people. I love the idea of helping out the environment and all, but it has to make financial sense for me to plunk down 40k on a car. The tax credit is key to the purchase making financial sense for me.

Oh and thank you OP for the original post. I was unclear if the full credits phased out at the end of the quarter of the 200,000th vehicle, or if there was an extra quarter before the rebates started phasing out. Your post cleared it up nicely.

 

[Big-T]

With the way things have been lately you have a lot of people in their mid 20's who can afford this car if they don't have rent or mortgage (who still live at home). I'm not saying there's anywhere near a majority out there but in middle America I think the numbers add up. They are thinking they have 3 years to figure it out so they plopped down $1000 and they will reevaluate when their time comes. I know of people who had $35 audis and bmws right out of college who still lived at home. Just my 2¢

If my kids are still living at home in their 20's and think they can go finance a new car while they live rent free in my house they'll have a rude awakening.

 

[JBare]

Do you really think the person making $15/hr has enough, or any, in an IRA to be able to create enough tax liability?

Probably Not. I make a little more than that but I haven't paid any taxes in a few years. I'm assuming that I won't need to figure this out until 2018 but as this year gets closer I may start thinking about this more. Might be time to cash out a few stocks in the green and take a few extra deductions that year.

 

[AlexT]

...

That might actually work very well. I've tried to put this into actual numbers.

Disclaimer: assumptions were made in creating this spreadsheet! This serves only as a mental exercise.

2017 Q4 and 2018 Q1 deliveries are pushed back two months (and delivered to abroad instead, swapping around two months later)
2018 Q2, Q3 and Q4 cars are delivered in USA only

Changed picture into spreadsheet for future changes:

Tesla Sales - Mental Excercise

Old version:

EDIT: Updated data and added GoogleDocs Spreadsheet.

 

[spiderguy]

That might actually work very well. I've tried to put this into actual numbers.

Disclaimer: assumptions were made in creating this spreadsheet! This serves only as a mental exercise.

2017 Q4 and 2018 Q1 deliveries are pushed back two months (and delivered to abroad instead, swapping around two months later)
2018 Q2, Q3 and Q4 cars are delivered in USA only

Alex, Phase 2 & 3 should be 2 quarters each. Therefore, in your hypothetical, Phase 2 should go through the end of 1Q of 2019 and Phase 3 should go through 3Q of 2019.

 

[AlexT]

Alex, Phase 2 & 3 should be 2 quarters each. Therefore, in your hypothetical, Phase 2 should go through the end of 1Q of 2019 and Phase 3 should go through 3Q of 2019.

Thank you for pointing that out. Fixed.

Can you check if you can open the spreadsheet?

 

[mistermonty705]

The credit score updates monthly, so the utilized to available_credit ratio does not matter now. And you can always grab another card if that is the issue.

Or do you mean that you paid down a debt that you carry and pay interest on ? If that is the case then having a 'car savings bucket' while paying credit card level interest rates is a poor strategy.

To clarify, the last credit card that I have open has 0% interest. The ones I paid off had 12% interest. So I do not think that it's a poor strategy to have multiple savings buckets . I apologize if my post was confusing

 

[igotzzoom]

If I was going strictly off financial rationality, I would probably be best off with a 10-year-old Camry or Prius. Although I'm not quite as fanatical as some on here, my motivations are a combination of philosophical, economic and image. I do consider myself to be somewhat of an "early adopter" type, but not bleeding-edge, most of the time. I also want to hasten the United States' independence from oil, decrease OPEC's influence on geopolitics, and by extension, weaken ISIS, Al Qaeda and other nefarious organizations funded by petro-dollars. I know it's not an overnight process, but the quicker we can get there, the better, IMHO.

I also want something cool, fast, and rare (at least initially) that fits my needs. I actually hope that the Model 3 ultimately becomes as commonplace as the Prius, Camry and/or 3-Series, but selfishly, I kind of want the satisfaction of knowing I was one of the early adopters.

 

[brucet999]

Good point. Also there is insurance and some maintenance still needed (tires, brakes, check-ups, etc). So you gotta think about the true total cost of the vehicle.

You can remove brakes from your maintenance list if you use regen. Because of regenerative braking, I hardly ever use the friction brakes except for the last 5mph at a stop. Go by a SuperCharger some time and look at the wheels of the Teslas there (the dirty ones that have not been washed recently). Most of them have almost no brake dust on them, unlike typical ICE vehicles whose silver wheels, especially fronts, look dark gray from brake dust.

 

[SageBrush]

To clarify, the last credit card that I have open has 0% interest. The ones I paid off had 12% interest. So I do not think that it's a poor strategy to have multiple savings buckets . I apologize if my post was confusing

Nothing wrong with 'buckets,' or 'envelopes' as my wife likes to call them. I understand the motivation.

My limited advice was only to avoid carrying high interest debt in order to collect a pile of separate money. Put another way, financing a new Tesla with credit card level interest rates deserves a re-think.

Cheers, and kudos for the forward thinking planning and savings.

-- Eric

 

[SageBrush]

Do you know of anyways to do that here on this forum? I tried looking and there is no editing once I post.

I'm a newbie here, but the only editing I've noticed is available for about an hour after the first posting.

 

[mistermonty705]

Nothing wrong with 'buckets,' or 'envelopes' as my wife likes to call them. I understand the motivation.

My limited advice was only to avoid carrying high interest debt in order to collect a pile of separate money. Put another way, financing a new Tesla with credit card level interest rates deserves a re-think.

Cheers, and kudos for the forward thinking planning and savings.

-- Eric

Thank you ! Yes. I refused to carry high interest rates. I think I mentioned this earlier, but I listen to Dave Ramsey so I learned to pay the highest interest rate down. Now I'm putting what I used to pay on those credit cards in my savings. The 0% interest card is for music gear for our studio. I pay that monthly. I get points with that card lol.

Side bar:

My grandfather and I joke that I have 3 buckets/envelopes. Checking, savings, and whole foods.

 

[SageBrush]

It is easy and common to use incorrect terms related to tax stuff, or to think a term means something it does not.

Keep in mind that I am not a CPA, the number we are interested in is ~ line 63 of the Form 1040 when it comes time to apply the (maybe available) $7500 Federal EV tax credit.

So starting from line 63, and let's say the available EV credit is 'Z,' then:
Line 63 is 0: No EV credit is received
Line 63 > Z: Z is received
0 < Line 63 < Z: The amount in Line 63 is received

 

[dgpcolorado]

True. Good point . I would have preferred the IRS to allow rollover credits. Lower earners may have some trouble applying the full $7500.

Tax Bracket Calculator - TaxACT

^^According to the above you gotta make at least $47K to pay $7500 in taxes.

Not quite. That website calculates the tax based on "taxable income" (Form 1040 line 43) but every taxpayer gets, at minimum, the standard deduction plus one personal exemption. For tax year 2015 those numbers were $6300 and $4000, respectively. Add that to your number and you would need an "adjusted gross income" of at least $57k to qualify for the full tax credit as a single filer. The number for couples filing jointly would be around $77k. Throw in kids or other deductions and the income required for a full tax credit could be considerably higher.

Being long retired and thrifty, I live comfortably on a microscopic income and, at best, I could raise that income enough to qualify for the 25% phase-out tax credit. That being the case, I plan to delay ordering a Model 3 — if I go through with it at all — until the federal tax credit drops (the generous Colorado state tax credit is refundable). I'd rather let someone else have a shot at the full tax credit. Although I take the point of many in this thread that a very large number of USA residents with Model 3 reservations don't understand how the tax credit works and are in for a rude shock when they find out that it isn't "refundable" and requires quite a high income to claim the full credit.

FWIW.

 

[SageBrush]

Not quite. That website calculates the tax based on "taxable income" (Form 1040 line 43) but every taxpayer gets, at minimum, the standard deduction plus one personal exemption. For tax year 2015 those numbers were $6300 and $4000, respectively. Add that to your number and you would need an "adjusted gross income" of at least $57k to qualify for the full tax credit as a single filer. The number for couples filing jointly would be around $77k. Throw in kids or other deductions and the income required for a full tax credit could be considerably higher.

One small detail to correct:

Line 43 on the 1040 is after the personal and standard/itemized deductions. The additional factors that play into the eventual tax liability that the EV federal tax credit might cover are mostly tax credits. I pasted the relevant portion of the Form 1040 into post #96 for easy reference.

Tangential trivia: my CPA mentioned that she knows two people who review their tax returns carefully: herself and me. This thread reinforces the impression that people go out of their way to ignore and not learn the basics about taxes. I suppose I can understand avoiding something so boring and painful, but I view it as work with a pretty good hourly return.

 

[dukester]

@SmarterMotors; just to clarify, are the phase out periods limited in the amount of vehicles that can apply? Or just by time, starting off at the delivery of the 200,000th vehicle? I'm assuming Roadster, Model S and Model X are included in the 200,000, is that correct?

@ Alex T - Did SmarterMotors get back to you with your question. I didn't see his response. I have the same question you are asking.
Does the tax credits apply to all other model beside the Model 3. Is there a chance that Model S/X produces over the 200K mark before Model 3 comes out and therefore we are only getting the phase out craps?

 

[AlexT]

@ Alex T - Did SmarterMotors get back to you with your question. I didn't see his response. I have the same question you are asking.
Does the tax credits apply to all other model beside the Model 3. Is there a chance that Model S/X produces over the 200K mark before Model 3 comes out and therefore we are only getting the phase out craps?

EDIT:

Yes, he did. If you look at the GoogleDoc spreadsheet I linked in the post, you can have a look for yourself. I'm AFK for a bit watching SpaceX launch.

Tesla Sales - Mental Excercise