Tax Credit Question

[Dr Doom]

Hi guys:

I am financing my model x purchase instead of leasing. Likely to possession of car within a few weeks or months. How is the 7500 dollars federal tax credit applied?

Is it deducted from my overall taxable income? I.e. like 401K- I make about 100,000, so 100,000-7500= 92,500 instead is taxable income?

Or is it if I owe like 30,000 dollars on my taxes from federal government, the 30,000- 7500= 22500 is owed instead?

Thanks.

 

[Lloyd]

Or is it if I owe like 30,000 dollars on my taxes from federal government, the 30,000- 7500= 22500 is owed instead?

This is the correct answer.

 

[Dr Doom]

Thanks. I am getting the car a little later in March because I switched to 100D so hopefully i can apply it to my 2017 tax return.

 

[traxila]

Thanks. I am getting the car a little later in March because I switched to 100D so hopefully i can apply it to my 2017 tax return.

Hope should not be involved unless you plan on owing less than 7500 in federal tax for 2017. Or maybe u feel the new tax plan might be an issue...we will see.

 

[Dr Doom]

I think I will definitely have more than 7500 in federal taxes to pay.

even if current administration gets rid of the tax credit, hopefully that change won't happen until 2018 the earliest.

 

[traxila]

I think I will definitely have more than 7500 in federal taxes to pay.

even if current administration gets rid of the tax credit, hopefully that change won't happen until 2018 the earliest.

I wish I only had 7500 in fed taxes... or maybe not. I'll take it as it is.

EV Tax credit was passed by Bush administration with Republican Congress. Already has sunset provisions. I really doubt they will bother with it, especially since if you consider, it would probably help Tesla at this point.

 

[Saxman]

Hope should not be involved unless you plan on owing less than 7500 in federal tax for 2017. Or maybe u feel the new tax plan might be an issue...we will see.

My understanding is that even if you owe less than $7500 in fed taxes, say $5000; then you would get a tax refund of $2500 ($5000-$7500).

 

[siucity]

My understanding is that even if you owe less than $7500 in fed taxes, say $5000; then you would get a tax refund of $2500 ($5000-$7500).

No, you must have a tax liability of $7,500 or more to get the full $7,500 credit.

 

[Speight]

No, you must have a tax liability of $7,500 or more to get the full $7,500 credit.

It is, however, the case that you don't have to have an outstanding tax bill of $7,500 at the end of the year to get the full credit. The $7,500 is the total federal tax for the year, and very likely will include amounts already paid from withholding or estimated tax payments. So while the EV credit is not "refundable" in IRS terminology, it can still result in a refund when you file your taxes. To get the full credit, what matters is the tax due on your income for the year; you typically need an income in the neighborhood of $55-80K or more depending on your filing status and deductions.

 

[PedanticOne]

It is, however, the case that you don't have to have an outstanding tax bill of $7,500 at the end of the year to get the full credit. The $7,500 is the total federal tax for the year, and very likely will include amounts already paid from withholding or estimated tax payments. So while the EV credit is not "refundable" in IRS terminology, it can still result in a refund when you file your taxes. To get the full credit, what matters is the tax due on your income for the year; you typically need an income in the neighborhood of $55-80K or more depending on your filing status and deductions.

I am not sure what you mean by "The $7,500 is the total federal tax for the year, and very likely will include amounts already paid from withholding or estimated tax payments."

The way I understand this, especially after recent threads on this is that the credit can only be applied against your computed tax liability for the year. If your computed liability is < 7500, you cannot realize the full potential of the credit. i.e. you cannot go negative.

But you can certainly get a refund if you have more withholdings/estimated payments more than your liability (as usual). So if you were to drop your liability to zero, say, after the credit, any overage in your withholdings, etc. would be refunded to you.

 

[ItsNotAboutTheMoney]

My understanding is that even if you owe less than $7500 in fed taxes, say $5000; then you would get a tax refund of $2500 ($5000-$7500).

What you wrote is not always correct.

I think it's better to say that this type of tax credit
(1) reduces the taxes you should have paid for the year
(2) cannot reduce that amount below $0.

Your refund is always {taxes you paid} - {taxes you should have paid}.

 

[ItsNotAboutTheMoney]

I am not sure what you mean by "The $7,500 is the total federal tax for the year, and very likely will include amounts already paid from withholding or estimated tax payments."

He meant "the $7,500 _you need_".

<stuff>

Yes.

 

[flar]

Perhaps another way to explain this is that filing taxes at the end of the year requires you to calculate:

A - the amount of taxes you should pay for your income/gains/etc. for that tax year
B - the amount of taxes you already paid via payroll withholdings and any direct payments prior to filing

Most people don't balance those two perfectly and so at the end of the year you file taxes and compute both A and B and subtract (A-B) and the difference is the additional amount owed or refunded when you file your tax return. In any year it can be positive or negative depending on how well you planned your payments throughout the year for B.

The credit for the EV will reduce A when you file, but it cannot reduce A below 0. Everything else is the same.

You still compute A-B with the new reduced A amount and the result can still be positive or negative meaning you can still end up either owing more money or getting a refund when you file your taxes at the end of the year. The filing refund is (and can only be) from having paid too much for expected taxes throughout the year (i.e. B was larger than A), not from having the "A" amount reduced to a negative amount.

 

[Yinn]

Here's how my simple brain looks at it.

I consider it a $7500 gift card to the IRS. At the end of the year when I go to the IRS register, I see what the bill comes out to. If there's nothing to "buy" (aka pay for) then I can't use the gift card. If I have something to pay for, then I can pay for it using the $7500 gift card instead of my credit card, check, etc.

If that doesn't help, let me continue.

Unfortunately, I'm a bad saver and wouldn't be able to pay the entire bill at once. Luckily for me, the IRS allows me to put my stuff on layaway - or finance my purchase. Since I made regular monthly payments, at the end of the year; there's nothing remaining on my bill and I complete my purchase. The balance is $0.

I still have a gift card. What do I do? Well..I purchase the same item with the gift card. Then I return it using the other receipt - the one I paid cash (or financed) for. The store would end up refunding me in cash, and I would be free of the gift card.

It still only works if I actually had a purchase (aka bill, something to pay for)

If the purchase (aka bill) was for less than the gift card is worth, the store does not give you the remaining gift card balance in cash.

Not sure if that helps anyone...

 

[Dr Doom]

thanks everyone for explanations. I think I will definitely be using that tax credit. last year, my wife and I had to pay definitely past 7500 for federal taxes.

 

[siucity]

In case anyone's still confused, your tax liability can be found on line 63 on form 1040 (or line 39 on 1040A). As long as that line is at least $7,500, you can take full advantage of the $7,500 credit. What you owe or are refunded at tax time doesn't matter.

 

[bonaire]

Keep in mind that if you take delivery in calendar year 2017 (say now through March) - that is a 2017 delivery and should be filed on Federal income tax 12 months from now for calendar (tax) year 2017. Taking delivery Dec 31,2016 and prior through Jan 1, 2016 could be put on "this year's taxes" for calendar/tax year 2016.

If you buy an EV "today" in 2017, you can adjust job withholdings by say 700 per month and take the credit "this year".

If you send in quarterly estimates you can possibly reduce those by $1800/quarter and be ok. That would be the right way to do it. If you have HUGE quarterly tax bills in 2017, maybe take the whole 7500 in Q1's estimate and send in 7500 less in April.

But if you guys really want the right answer, talk to a CPA. And CPAs have been known to get this credit wrong in the past, so good luck.

 

[traxila]

Keep in mind that if you take delivery in calendar year 2017 (say now through March) - that is a 2017 delivery and should be filed on Federal income tax 12 months from now for calendar (tax) year 2017. Taking delivery Dec 31,2016 and prior through Jan 1, 2016 could be put on "this year's taxes" for calendar/tax year 2016.

If you buy an EV "today" in 2017, you can adjust job withholdings by say 700 per month and take the credit "this year".

If you send in quarterly estimates you can possibly reduce those by $1800/quarter and be ok. That would be the right way to do it. If you have HUGE quarterly tax bills in 2017, maybe take the whole 7500 in Q1's estimate and send in 7500 less in April.

But if you guys really want the right answer, talk to a CPA. And CPAs have been known to get this credit wrong in the past, so good luck.

My CPA was clueless about this. Granted I was a bit of an early adopter with a May 2013 delivery. But still... I had to find the damn form on the IRS.gov print it out and fill it out for her. Then she started talking about AMT which absolutely does not apply to tax credits.

Long story short as you said: Did you pay 7500 or more in federal taxes over the course of the year? Then you can get the full 7500 credit. If you paid zero in federal taxes there is NO credit for you.

 

[ahtlys]

Simplified:

Total taxes owed for the year: -$7500
EV tax credit: $7500
----------------------------------------------------
Total taxes due: $0.00

Using a theory that ones tax bill is $7500. Is this reasoning correct?

 

[PedanticOne]

Simplified:

Total taxes owed for the year: -$7500
EV tax credit: $7500
----------------------------------------------------
Total taxes due: $0.00

Using a theory that ones tax bill is $7500. Is this reasoning correct?

AFAIK, yes.