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bigbear
Member
What you are describing is called a "refundable tax credit," which can reduce your tax to less than 0, resulting in that amount being refunded to you. Most tax credits are "non-refundable tax credits," which cannot reduce your tax to less than 0.
The EV tax credit is a non-refundable credit. In your example, you only get to take $5000 off your taxes, reducing the amount due to 0. You don't get the extra $2500 back as a refund.
https://www.irs.com/articles/refundable-vs-non-refundable-tax-credits
Yes, that's true. I read the OP's case as having $5000 in total taxes for the year, not $5000 due in April. The amount due in April is irrelevant. It's the total amount due for the year (1040 line 56 or 63, not sure if "other taxes" count; ask a CPA), not any amount due (1040 line 78).
deonb
Active Member
Out of curiosity - if you're in a situation where you owe less than $7500 of taxes for the whole year, can you take money out of your 401K and offset the $7500 tax credit against the early-withdrawal penalty?
I assume so... The early-withdrawal penalty is just an ordinary tax right, not a fine?
I assume so... The early-withdrawal penalty is just an ordinary tax right, not a fine?
vjason
Member
Anything you do to increase the federal taxes you owe in a given year should, in theory, be able to be reclaimed via a tax credit when it comes tax time.
Don't forget to factor in the state taxes on that withdrawal; it may not be worth it. Give this a whirl if you are curious: Early Withdrawal Penalties - Traditional and Roth IRAs
Disclaimer: I am not a tax accountant or investment advisory, consult yours if you are thinking about this. I can tell you early withdrawals are taxed obscene amounts.
Don't forget to factor in the state taxes on that withdrawal; it may not be worth it. Give this a whirl if you are curious: Early Withdrawal Penalties - Traditional and Roth IRAs
Disclaimer: I am not a tax accountant or investment advisory, consult yours if you are thinking about this. I can tell you early withdrawals are taxed obscene amounts.
deonb
Active Member
vjason
Member
Doh, yeah. Used to my FL and TX friends teasing me about that too.
Granted, in NC cost of living is sufficiently low that the taxes aren't too bad. I still hate them just because, but I realize they could be much much worse.
Granted, in NC cost of living is sufficiently low that the taxes aren't too bad. I still hate them just because, but I realize they could be much much worse.
Nope, it wouldn't work (despite what other people are guessing). The electric drive motor vehicle credit is calculated as part of the taxes and credits section of form 1040. It cannot offset entries in the "other taxes" section that follows it. That section includes things like the 401K withdrawal or the health insurance penalty.
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I'm not sure why people feel they need to consult a CPA about any tax question. The IRS instructions for this are pretty straightforward if you just take the time to read them. The credit for electric vehicles is entered on line 54 and calculated on line 56, which can't be less than 0. "Other taxes" are then added to this amount in the following section.
cpa
Active Member
It is not quite as easy as the above explanations, although for most taxpayers the above conclusion is usually correct.
Keen observers of page two, form 1040 see that the credits section from lines 48 through 54 have a sequence. It is entirely possible for a taxpayer to have some foreign tax credit, child tax credit or another credit that appears above line 54, where the credit from form 8936 plops onto your return. Those credits are applied sequentially. So, it is possible for a taxpayer to have an income tax liability of $8,000 but a few credits for child care, foreign taxes, education expenses that would drop the tentative liability to, say $6,300. The EV credit would then eliminate that $6,300 tax liability, but the $1,200 residual amount of credit is lost forever. The only good news is that if that taxpayer's return is examined and additional tax is assessed, the taxpayer does have a $1,200 cushion for additional taxes owed.
You are also correct in that the "other taxes" section that includes SE tax, Nanny tax, penalty for premature distribution from a qualified plan, NIIT, are ineligible to be reduced by means of the EV tax credit claimed on form 8936.
Keen observers of page two, form 1040 see that the credits section from lines 48 through 54 have a sequence. It is entirely possible for a taxpayer to have some foreign tax credit, child tax credit or another credit that appears above line 54, where the credit from form 8936 plops onto your return. Those credits are applied sequentially. So, it is possible for a taxpayer to have an income tax liability of $8,000 but a few credits for child care, foreign taxes, education expenses that would drop the tentative liability to, say $6,300. The EV credit would then eliminate that $6,300 tax liability, but the $1,200 residual amount of credit is lost forever. The only good news is that if that taxpayer's return is examined and additional tax is assessed, the taxpayer does have a $1,200 cushion for additional taxes owed.
You are also correct in that the "other taxes" section that includes SE tax, Nanny tax, penalty for premature distribution from a qualified plan, NIIT, are ineligible to be reduced by means of the EV tax credit claimed on form 8936.
I feel as though many of the purchasers of the Model 3 will be under the $7,500 owed in Federal Income Tax. Do you guys think the government will make a change on how the tax credit works? Otherwise, Tesla and other sites stating the cost -$7,500, is fairly incorrect for most of the purchasers.
bigbear
Member
I would have only gotten a little over 1k of the rebate based on this years taxes, the Model 3 is quickly becoming too expensive.
It was the same when Leaf and Volt arrived - reminding everyone what a tax credit is.
The credit only applies when you purchase the car, its all different if you lease
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Don't purchase it - get a lease initially with a plan to buy it once the lease expires.
As dgpcolorado mentioned in the other tax credit discussion, they roll the credit into the lease as a reduction of the downpayment.
The lease funds the depreciation and you get to buy the car at the end - assuming you still want it.
bigbear
Member
What?!!!! How did I miss this info? What are the extra costs associated with the lease? The whole 7.5 k are rolled into the price of the car at the lease.
Reserving at the store will allow you into the Configuration screen before online orders once that becomes available. The choices you make once you are actually configuring your Model 3 will determine if you get the car early or late. "Highly Optioned" cars will ship first, no matter when you reserved.
