Tax Credit Clarification

[SmarterMotors]

I am super excited about my Model 3 and it seems like most articles I read about the Tax Credits has been wrong and people keep spreading rumors that most Model 3 buyers won't get it. I totally think that most buyers WILL get some Tax Credit. Below is my breakdown.

Once Tesla delivers its 200,000th vehicle in the US, then the Phaseout process starts. It does not just end but there is a 15 month phaseout process.

Pre-Phaseout: The CALENDAR QUARTER that the 200,000th vehicle is sold in is entitled to the FULL $7500 tax credit.

Phaseout Part 1: After the end of the Pre-Phaseout Quarter, then the IRS give you ANOTHER CALENDAR QUARTER (3 months) with the FULL $7500 tax credit.

Phaseout Part 2: After the end of Phaseout Part 1, there are TWO QUARTERS (6 months) with a redued 50% tax credit (that is $3,750).

Phaseout Part 3: After the end of Phaseout Part 2, there are TWO MORE QUARTERS (6 months) with a reduce 25% tax credit (that is $1,875)

Then bye bye tax credits. So there is literally 15 months plus the original quarter the 200,000th car is delivered on. I am pretty darn sure Tesla will attempt to deliver their 200,000th vehicle very very close to the Model 3 release. There is literally 15 months of tax credits for Model 3 owners.

Here are my sources (very reliable as it is from the government themselves with clear examples):

1. Federal Tax Credits for All-Electric and Plug-in Hybrid Vehicles
^^Scroll to the bottom and READ the PHASEOUT SECTION

2. Elon Musk tweeted on Monday, April 4, 2016 "Our production ramp should enable a large number of non X/S customers to receive the credit".

Another twitter user suggested to Elon that he slow down production so that the delivery of the Model 3 falls right on the 200,000th vehicle

Elon Musk replied " We always try to maximize customer happiness even if that means a revenue shortfall in a quarter. Loyalty begets loyalty."

^^ I think it is pretty clear that Elon Musk will make sure that most Model 3 buyers get some tax credit.

Attached are some screenshots that validate my analysis. Anyways...just thought I would help spread TRUTH instead of rumors. If you know someone who thinks they won't get the tax credit, please have them review this article.

 

[AU1985]

I have seen so many articles stating incorrect facts on this very subject. CNN money posted an article today saying a lot of the people who preordered would not be getting the tax. It doesn't matter to me whether I get the tax or not because I wouldn't put it towards the cost of the car anyways. It does make you wonder though if there are "certain"companies lining the media's pockets to get them to scare people off.

 

[MP3Mike]

This has been beaten to death, multiple times here on the forum. The big unknown is how fast Tesla will ramp up US deliveries of the Model S and Model X. It is possible, but unlikely, that they could hit the 200,000 early in the process when the Model 3 is very slowly coming out of the factory. It would be preferable to hit the 200,000 mark once the Model 3 production gets ramped up significantly.

While the potential for a lot of early Model 3 buyers to be eligible for the credit is there, but given the income some of the people make that will be buying the "stripper" version, they may still not qualify for much of it. But if all of the current reservations turn into orders the tax credit will probably not be available for anyone reserving starting about now. (Since it will likely take way more than a year to work through the current backlog of reservations, again assuming that 100% of them turn into orders.)

 

[SmarterMotors]

I have seen so many articles stating incorrect facts on this very subject. CNN money posted an article today saying a lot of the people who preordered would not be getting the tax. It doesn't matter to me whether I get the tax or not because I wouldn't put it towards the cost of the car anyways. It does make you wonder though if there are "certain"companies lining the media's pockets to get them to scare people off.

I totally agree!!! I am a legal document specialist and I read laws and tax codes everyday. These people who write the articles fail to do any research. They just start a chain of wrong info by quoting someone who didn't know what they were talking about. I am surprised to see all the articles on some reputable sites.

Anyways...I am hoping to start a trend where people are getting CORRECT information from reputable sources with facts to back it up rather than opinion.

 

[Thomas Edison]

This thread should be a sticky

 

[SmarterMotors]

This has been beaten to death, multiple times here on the forum. The big unknown is how fast Tesla will ramp up US deliveries of the Model S and Model X. It is possible, but unlikely, that they could hit the 200,000 early in the process when the Model 3 is very slowly coming out of the factory. It would be preferable to hit the 200,000 mark once the Model 3 production gets ramped up significantly.

While the potential for a lot of early Model 3 buyers to be eligible for the credit is there, but given the income some of the people make that will be buying the "stripper" version, they may still not qualify for much of it. But if all of the current reservations turn into orders the tax credit will probably not be available for anyone reserving starting about now. (Since it will likely take way more than a year to work through the current backlog of reservations, again assuming that 100% of them turn into orders.)

Well we need to consider that there is demand for this vehicle all around the world. Not all of these pre-orders are in the USA. Lets assume that 25% of all orders are USA, then at the 276,000 preorders we are still at 69,000 and of those not all of them will convert into sales so anyone pre-ordering now still has a good chance...

Also for the taxes...yeah, you need to have at least $7500 in tax liability. So the guy making $15/hr is not going to have that. However, a strategy could be converting your traditional IRA to a ROTH IRA and using the tax credit to pay off the tax for conversion. A ROTH IRA is pretty sweet because all the draws that you take at retirement is tax free instead.

 

[spiderguy]

Thanks for breaking it down to make it easily understandable for the uninformed. The 15 month period you refer to is the absolute minimum that the tax credit will be valid. More likely, it will stretch out to 18 months, since Tesla will have the capability of manipulating production and delivery. For example, if the 200,000th car is delivered on 1/1/18, the full credit will be valid for the remainder of that quarter, 3/31/18, as well as the following quarter ending 6/30/18. Then, there will 6 months of 50% credit, followed by 6 months of 25% credit.

Assuming that 1/1/18 is the date for the magical 200,000th car, the credit slate will look like this:

1/1/18 - 6/30/18 = 100% tax credit ($7,500)
7/1/18 - 12/31/18 = 50% tax credit ($3,750)
1/1/19 - 6/30/19 = 25% tax credit ($1,875)
Total of 18 months

If the unthinkable happens and the 200,000th car is delivered on 12/31/17 (just one day earlier), we would lose essentially 3 months of full credits. It would then look like this:

12/31/17 - 3/31/18 = 100% tax credit ($7,500)
4/1/18 - 9/30/18 = 50% tax credit ($3,750)
10/1/18 - 3/31/19 = 25% tax credit ($1,875)
Total of 15 months

I'm sure that Tesla will "manage" production so that the 200,000th car will end up closer to the first scenario, rather than the second.

 

[SmarterMotors]

This thread should be a sticky

I am totally new to this site and I have no clue how to do that but you are welcome to make it a "sticky."

I was just irritated today at all the people and co-workers even (we are in the legal/tax industry) that I talk to who keep getting misinformed by these articles. Haha, don't believe everything that you ready until you get some actual facts.

 

[Thomas Edison]

I'm new to this place too. But all the forums of ever been on, that is something that mods have to do. I was mentioning it for them to see. We peons have no say.

I am totally new to this site and I have no clue how to do that but you are welcome to make it a "sticky."

I was just irritated today at all the people and co-workers even (we are in the legal/tax industry) that I talk to who keep getting misinformed by these articles. Haha, don't believe everything that you ready until you get some actual facts.

I

 

[SmarterMotors]

Thanks for breaking it down to make it easily understandable for the uninformed. The 15 month period you refer to is the absolute minimum that the tax credit will be valid. More likely, it will stretch out to 18 months, since Tesla will have the capability of manipulating production and delivery. For example, if the 200,000th car is delivered on 1/1/18, the full credit will be valid for the remainder of that quarter, 3/31/18, as well as the following quarter ending 6/30/18. Then, there will 6 months of 50% credit, followed by 6 months of 25% credit.

Assuming that 1/1/18 is the date for the magical 200,000th car, the credit slate will look like this:

1/1/18 - 6/30/18 = 100% tax credit ($7,500)
7/1/18 - 12/31/18 = 50% tax credit ($3,750)
1/1/19 - 6/30/19 = 25% tax credit ($1,875)
Total of 18 months

If the unthinkable happens and the 200,000th car is delivered on 12/31/17 (just one day earlier), we would lose essentially 3 months of full credits. It would then look like this:

12/31/17 - 3/31/18 = 100% tax credit ($7,500)
4/1/18 - 9/30/18 = 50% tax credit ($3,750)
10/1/18 - 3/31/19 = 25% tax credit ($1,875)
Total of 15 months

I'm sure that Tesla will "manage" production so that the 200,000th car will end up closer to the first scenario, rather than the second.

I totally agree. Elon Musk has even HINTED that on his twitter page. Haha, he suggests there may be a revenue shortfall to make our customers happy. See image of Elon's Tweet.

 

[SmarterMotors]

I'm new to this place too. But all the forums of ever been on, that is something that mods have to do. I was mentioning it for them to see. We peons have no say.


I

Haha oh. So it sounds like a sticky is where they put it to the front of the page or something. Anyways, everyone please spread this article around...because it is CORRECT with FACTS and LEGIT CITATIONS unlike all the media crap out intended to get more subscribers or something.

 

[Thomas Edison]

The sticky threads are above the normal threads that you have to scroll down to get to. They are always at the top. There are I think 6 now in the model 3 forum.

 

[AlexT]

@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?

 

[Wolfsburg]

Thanks for posting this! I had wondered about how the tax credit phaseout would happen...

 

[Thomas Edison]

All cars made by the manufacture that are electric and sold in the United States count.

 

[igotzzoom]

To be perfectly honest, tax credits were not a purchase/reservation consideration for me. Sure, they're nice to have, but they're strictly "icing on the cake" of going oil-free and advancing EVs. If they're still around by the time mine arrives, great. If not, no big deal in my book.

 

[brucet999]

Well we need to consider that there is demand for this vehicle all around the world. Not all of these pre-orders are in the USA. Lets assume that 25% of all orders are USA, then at the 276,000 preorders we are still at 69,000 and of those not all of them will convert into sales so anyone pre-ordering now still has a good chance...

I think the ratio is probably the other way around. Most Tesla production is for the US market - I think I read somewhere that about 25% was in California - with Europe and Canada taking the lion's share of the rest. I don't think Tesla has published delivery destination figures, but there must be someone who has worked it out pretty closely.

 

[Thomas Edison]

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.

To be perfectly honest, tax credits were not a purchase/reservation consideration for me. Sure, they're nice to have, but they're strictly "icing on the cake" of going oil-free and advancing EVs. If they're still around by the time mine arrives, great. If not, no big deal in my book.

 

[souslik]

In 2015 about half of Model S deliveries went to the US. With tesla expanding its international sales network and them getting more and more attention outside the US I strongly believe many more Model 3 will be sold overseas. Europe alone is an important market for cars and its population far exceeds US population.

As soon as tax incentive phaseout begins, it'll make sense to produce a large proportion of Model 3 for US customers during the following 15 to 18 months. I hope they'll deliver a lot of pre-phaseout cars to europe when they are still speeding up production thus postponing the begin of the phaseout so they can produce more cars during the phaseout period. However I think those pre-phaseout production adjustment deliveries will mostly go to canada because it's closer and early deliveries being closer to the factory seems to be Elon's plan.

I think the ratio is probably the other way around. Most Tesla production is for the US market - I think I read somewhere that about 25% was in California - with Europe and Canada taking the lion's share of the rest. I don't think Tesla has published delivery destination figures, but there must be someone who has worked it out pretty closely.

 

[MP3Mike]

Also for the taxes...yeah, you need to have at least $7500 in tax liability. So the guy making $15/hr is not going to have that. However, a strategy could be converting your traditional IRA to a ROTH IRA and using the tax credit to pay off the tax for conversion. A ROTH IRA is pretty sweet because all the draws that you take at retirement is tax free instead.

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