Thanks Bluestar. That makes more sense to me and is more in line with some of the educated guesses I've seen on other sites as well as Elons initial belief that most will get some form of tax credit. I know others have said the test drives are no pressure, but I felt quite a bit of anti-selling for the 3 during my ride.
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Tax Credit Clarification
- Thread starter SmarterMotors
- Start date
Thanks Bluestar. That makes more sense to me and is more in line with some of the educated guesses I've seen on other sites as well as Elons initial belief that most will get some form of tax credit. I know others have said the test drives are no pressure, but I felt quite a bit of anti-selling for the 3 during my ride.
It's nice to say it's to make customers happy but I would be more likely to believe that it is to maximize the sales of cars. At every reduction of tax funded subsidies the desirability of the cars diminish. A $40,000 car with a 20 percent discount will sell much easier than one with a 10 percent and far easier than one with 5 percent or zero. The more cars shifted into the maximum tax credit quarter the more cars that will sell with higher sticker prices.
BluestarE3
Active Member
Please refer to IRS Form 8936 and its instructions to learn how to calculate and determine the amount, if any, of the credit you may claim on your tax return. The forms are available for download. If, after reviewing the form and instructions, you are still unclear, please consult a tax professional for assistance.
There is something that doesn't make sense with that number. According to published numbers, Tesla's production up through the end of Q1-17 was around 223,000 cars. Current overseas sales are about 60% of production, and it was around 50% for a while. In the first couple of years of the Model S, almost all sales were US sales, but those numbers are tiny compared to more recent sales. Though the end of 2013 their total sales in the company's history were only a little more than one quarter's production now.
If that 180,000 number is for US sales it might count resold CPOs twice. But CPOs don't qualify against the credit.
How much you get in a refund every year has to do with what you did on your W-4. Basically you didn't calculate your W-4 correctly so you're giving the government a $1000 interest free loan.
You need to look at what your actual federal tax owed is. If it's less than $7500, you will owe $0 in federal taxes the year you buy the car, but you will not get anything above what you would have owed in taxes.
Tax burdens vary dramatically from one family to the next depending on your deductions. It's not all that uncommon for a family of 4 with a mortgage and a few other deductions with a family gross income of $100K to only barely owe $7500 in taxes.
A single person would have to have a taxable income over $47K to owe $7500 in taxes. For someone who is taking the standard deductions and exemptions, that's around $57K a year. A married couple in the same deduction situation with no kids would have a pre-tax income around $70K.
If you're federal tax owed is only $2000, you get a credit for $2000 and the rest of the $7500 is lost. As I've said before, a lot of Model 3 buyers are going to get their taxes zeroed out or dramatically reduced getting just 1/2 of the credit. The $7500 tax credit is an incentive for the wealthy to be early adopters of EVs. Like most of the tax code, it isn't for the "common" person.
I didn't use all of my $7500 tax credit and I didn't take most of the deductions I usually take. If I had taken most of my usual deductions, I would have used about half of the tax credit.
You say this as if it is a fact and yet you think this with zero supporting evidence. I'm sure they would not absorb a $7500 discount themselves. If they could charge more and it made marketing sense they would as that is the basis of profit. I'm sure Tesla would argue just the opposite of your opinion if the government wanted to stop the tax credit. The Tax credit is one of the biggest drivers of the success of EV's, that and some of the crazy state incentives.
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Tesla/Elon is already on record as saying the tax credit should be removed so it sounds as if they think differently. Right now they have at least 400,000 reservations, even when the credit starts phasing out they'll still be plenty of people in line, or willing to get in line, that they should be able to pump out cars as fast as they can for quite a while. Also, anyone that placed a reservation after the first month or so should have done so knowing full well that they likely wouldn't get the entire credit. Will some people drop out if they can't get it? Of course, will everyone? don't be silly.
Don't believe public rhetoric as it is often nothing more than Kool-Aid for you to drink and you are right that it only "sounds" different. I'm not being silly, you should think realistically and look at actions and not carefully crafted public statements shaped to create an image. If you told me you were out to dinner with him and he confided this with you I could understand your beliefs, I might not believe you but I'd understand. The two big drivers of the cheap Tesla cars is the Tax credit and buying into the culture of what currently (not for long) is an exclusive expensive EV car community. Without the huge incentives on the Model 3 (roughly 20 percent) orders would more than likely collapse because of that large percentage of purchase price that the credit represents. The bulk of those 400k deposits were in the first few days. I placed two deposits in the first few minutes myself as my kids will enjoy a relatively cheap new car too, partially funded by my Tax bill. The lack of the credit would have less of an effect on the more expensive Teslas but would still impact the sales as it would be almost a 10 percent increase in price on the volume leader S75D's
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care to share portions of your (redacted) resv numbers? i don't doubt you, really, just trying to place you on an SD curve of reservation holders that goes from Anton Wahlman's ""20 reservations of model 3's to the literally hundreds (300- 400 in Betrhesda, Maryland USA) of folks I personally met on 3/31/2016, and chatted with many while using my walker, from not old enough to own a car, to old enough to only drive safely if they had full autonomy
I find it intriguing 2 cheap new cars costing ~$70,000+ pre tax to be "cheap"
note: i have my (redacted res number in my sig file
I mean the 3 is relatively cheap in so far as cars go. Each 3 cost is only 25 percent of my X window sticker and each gets the same tax credit. Each 3 is still a Tesla in the eyes of the general population that stare at our X and ask "who makes that car". I'm not sure if getting two of the first model 3's is a benefit or if quality will be shoddy as our X has very sub par build and fit and finish quality compared to normal cars and it was bought a year into production.
I made our two model3 reservations online in the first minutes
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JBare
Member
I'm a huge fan of Elon and his ideas across the board. I waited in line in Virginia to place my deposit even though I didn't have a garage. I assumed the Model 3 would get delayed and was more than fine with letting employees/west coasters get their cars first. I can't wait to own an EV and can't even consider trying to afford a Model S, which I love. If that tax credit goes away for me I would certainly "pass" on my first option to order the car to allow for more improvements / bugs to be worked out. I can't imagine I'm alone on that.
I also think Tesla does understand the Model 3 market of buyers like me where a $40K car could be stretching people's budget a bit. That tax credit from Uncle Sam is a big deal, how can I pass up basically a years worth of car payments? I think they'll deliver that 200,000th car at the beginning of a quarter to allow the most people to take advantage of that credit. Didn't Elon say as much at some point a year or so ago?
I also think Tesla does understand the Model 3 market of buyers like me where a $40K car could be stretching people's budget a bit. That tax credit from Uncle Sam is a big deal, how can I pass up basically a years worth of car payments? I think they'll deliver that 200,000th car at the beginning of a quarter to allow the most people to take advantage of that credit. Didn't Elon say as much at some point a year or so ago?
ccutrer
Active Member
I agree with @dsvick here. Sure there will be some savvy consumers like @JBare that understand the credit, and are counting on it to make the 3 affordable. But the length of this thread is ample evidence that the tax credit is not well understood. That's not necessarily evidence that some large portion of Model 3 reservation owners don't know/understand/are counting on the tax credit, but I think it points that way. Even if it's split right down the middle of people that will cancel right away if there is no tax credit, and half that will go through with their order no matter what, that's still 200k reservations. In my personal case, which is not statistically significant, I'll be converting my reservation to an order no matter what, but outside factors (like timing of completion and mortgage close of a new house) are more significant to my personal timeline. If that puts me outside of tax credit eligibility, then so be it. Having the tax credit may affect which options I choose.
One piece of evidence that Tesla isn't counting on the credit is that they always state the $35k base price before incentives, whereas other manufacturers like to quote their base price after incentives.
cpa
Active Member
I wonder what the average income tax liability is for the reservation holders who are not current Tesla owners. Clearly those of us who are current S and X owners by and large have a tax liability > $7,500. It made sense for Musk to deliver vehicles to us (after the employees) in order to maximize the number of taxpayers/customers receiving the full $7,500 before phase-out.
It is certainly possible that there will be many owners in less expensive areas of the US who earn far less money and whose federal tax liability is in the $4,000-$5,000 range. Sixty thousand per year goes a lot further in Peoria than in Hillsborough. So, those customers won't be leaving much on the table due to the 50% credit reduction.
However, once the credit slips to $1,875 and then to zero, I could see some people canceling their orders if there is another vehicle on the market that suits their needs and is cheaper than the Model 3.
It is certainly possible that there will be many owners in less expensive areas of the US who earn far less money and whose federal tax liability is in the $4,000-$5,000 range. Sixty thousand per year goes a lot further in Peoria than in Hillsborough. So, those customers won't be leaving much on the table due to the 50% credit reduction.
However, once the credit slips to $1,875 and then to zero, I could see some people canceling their orders if there is another vehicle on the market that suits their needs and is cheaper than the Model 3.
You are misquoting me, it will not happen right then as it is a phase out and there will be some who will still purchase even after that but at a lower price point where the Tesla margins are the smallest. It will take a little longer for the sales slide because there's still another full quarter after the 200,000 point with the full tax credit. The next quarter is where the phase out starts and then the credit is cut in half. And then reduced again in the next. So many forget or don't admit that Tesla is a business and the same rules apply to them, it's just simple marketing and it doesn't take rocket science to know that more units are sold during a sale. The tax credit is just a sale that doesn't cost Tesla any money it's funded by taxpayers. Tesla will try to time deliveries to extend the available time with maximum tax incentives so as to move more units. Once the 200,000 point is reached they will crank out as many as they can to take advantage of the artificially enhanced higher demand before those incentives are reduced. It's no secret that sales typically side when prices increase. This is the part that people on this website will no doubt overreact to but like it or not it is a sad fact for Tesla. By the time the Tesla tax incentives are exhausted there will be significant competition coming online from the traditional auto builders with high quality fit and finish plus those manufacturers will still have available tax credits. That will not be a good position for Tesla to be in. Hopefully the excellent strategy of having the Supercharger network will be enough to maintain sales without them having to slash prices on the S and X cars as there isn't room on the 3 to cut.
ccutrer
Active Member
This could be a very good reason for Tesla to advocate killing the tax credit. They realize they're getting close to not being eligible any more, so they're trying to remove the advantage from their competitors. Keep in mind though that GM is is just as close to hitting the 200k mark as Tesla, because the Volt qualifies for (a smaller amount of) the credit too. I have no idea how close Nissan is - the Leaf has been a pretty hot car too. Definitely lots more Leafs than Teslas in my neck of the woods.
BluestarE3
Active Member
Also, the SparkEV and Cadillac ELR. GM is probably around 140K according to InsideEVs.
Again, according to InsideEVs, around 110K. Leaf sales have taken a nosedive in the past year or so. Hopefully, they'll pick up once the 2nd generation Leaf becomes available, but by then, they'll also have to compete with the Model 3 and, to a lesser degree, the BoltEV which will be expanding to nationwide sales.
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timk225
Active Member
Okay, here are my numbers for 2016 (somewhat modified for anonymity purposes). Married, filing jointly:
gross income $50,000
total deductions 21,000 (I guess that's the standard, we didn't itemize)
total taxable income 29,000
total tax 4000
total payments 5000
refund 1000
Assuming the 2017 numbers are the same (they aren't, they will be higher), but if they were, am I correct in assuming the 7500 tax credit would just wipe out the 4000 in total tax line, and I would get 4000 back in extra refund?
Incorrect, in my case. I intentionally set my with holdings at the higher single rate, then I have $10 to $20 extra held out of each paycheck for federal taxes. Yeah, I know, I'm giving the government an interest free loan, etc, but $20 extra per week won't mean much to me, whereas it is nice to get that extra surge of $1000 or so at tax time!
Besides, I do contract 1099 IT work on the side, aside from the regular IT job, so holding out tax now helps cover the tax owed on that 1099 income.
BUT THEN AGAIN -- if I am anticipating a 7500 tax credit this year from my 3, should I not hold extra out of the paycheck, and file at normal married rate, thus reducing my refund and increasing tax owed NOW, so that the 7500 tax credit will cover it LATER this year?
But if I don't get my 3 until 2018, I think that plan would be ruined.
gross income $50,000
total deductions 21,000 (I guess that's the standard, we didn't itemize)
total taxable income 29,000
total tax 4000
total payments 5000
refund 1000
Assuming the 2017 numbers are the same (they aren't, they will be higher), but if they were, am I correct in assuming the 7500 tax credit would just wipe out the 4000 in total tax line, and I would get 4000 back in extra refund?
Incorrect, in my case. I intentionally set my with holdings at the higher single rate, then I have $10 to $20 extra held out of each paycheck for federal taxes. Yeah, I know, I'm giving the government an interest free loan, etc, but $20 extra per week won't mean much to me, whereas it is nice to get that extra surge of $1000 or so at tax time!
Besides, I do contract 1099 IT work on the side, aside from the regular IT job, so holding out tax now helps cover the tax owed on that 1099 income.
BUT THEN AGAIN -- if I am anticipating a 7500 tax credit this year from my 3, should I not hold extra out of the paycheck, and file at normal married rate, thus reducing my refund and increasing tax owed NOW, so that the 7500 tax credit will cover it LATER this year?
But if I don't get my 3 until 2018, I think that plan would be ruined.
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If those were your numbers you would likely get a $5,000 refund instead of a $1,000 refund. (So you only get to take advantage of $4,000 of the $7,500 tax credit.)
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