What do you do with your tax credit?

[smak]

So example, you get the email to order your Model 3 November 15, guaranteed to get it this year.

How do you deal with the $7,500 (assuming you qualify)

1. Do you try to put $7,500 more on your down payment to lower your car payments?
2. Do you wait until you get your $7,500 and then apply it to your loan balance (if possible)
3. Do you use it to pay off bills, and/or invest

Am I missing any options?

Would this change if that email came January 15th? Where the tax credit wouldn't be applied for at least 13-14 months?

 

[sdorn]

I would use it to offset the federal taxes I otherwise owe and reduce the check to Uncle Sam on April 15th by $7,500.

 

[BluestarE3]

Am I missing any options?

How about using it toward options/upgrades for your Model 3 that you wouldn't otherwise get?

 

[BrettS]

Am I missing any options?

Get 7500 $1 bills from the bank and lay naked on your bed in them.

Get approximately 750 guinea pigs (although you may be able to get more as you could probably negotiate a quantity discount)

Use it as a down payment for a second model 3

Hire a driver in case FSD is not working by the time the model 3 ships

 

[Thomas Edison]

Get 7500 $1 bills from the bank and lay naked on your bed in them.

That gets old fast, trust me. What you need to do is capture a raccoon first, then cover your body in peanut butter, then get on the bed with 7500 singles, then open the cage.

 

[kort677]

Pizza party!
in all seriousness, you do not get $7500 returned to you, you get a credit of $7500 to offset taxes you might be liable for

 

[Craig-Tx]

As for the options, I'm going to get what I want. The $7500 won't change anything here.

Unfortunately I will not be able to purchase with CASH, so I will have to finance a moderate portion. I HATE car payments and plan to pay it off ASAP.
My Tax withholding is typically such that I only pay a small amount by April 15 (perhaps around $500).

Assuming I get my Model 3 this year the $7500 will (or the portion that I get as a refund will) go directly to paying down the loan.

If unfortunately my model 3 is delayed until next year, I'll change my tax withholding amount with my employer to reduce the amount of federal tax withheld to account for the credit in 2018. This would result in larger take home pay each paycheck and I'll use the extra to pay down the load faster. I just have to remember to change the withholding amount back at the end of 2018.

Either way ends up with me paying off the car as fast as possible.

 

[flamingoezz]

in all seriousness, you do not get $7500 returned to you, you get a credit of $7500 to offset taxes you might be liable for

^^ THIS
I wouldn't go spending it if you're not sure you'll get the full $7500 back.

 

[Trips]

Get approximately 750 guinea pigs (although you may be able to get more as you could probably negotiate a quantity discount)

I think you would be better off with a Hamster but you better act quick. If Elon gets 50 billion of them you might see a shortage and prices increase. Your $7,500 worth of hamsters could be worth billions.

 

[zer0cool]

It ll offset the amount of taxes I owe...

 

[BrettS]

My Tax withholding is typically such that I only pay a small amount by April 15 (perhaps around $500).

Keep in mind that the $7500 goes to the amount of tax you owe and has nothing to do with your withholding amount and the amount you pay.

For example, if you owe $12500 in taxes, but have $1000 withheld every month then you will need to pay $500 on April 15th. However, you will still qualify for the full $7500 credit and instead of paying $500 on April 15th you will get a check for $7000. (You owe $12500, but the $7500 credit reduces this to $5000. You have had $12000 withheld, so you get a check for the $7000 difference)

On the other hand, if you owe $3500 in taxes and have $250 withheld every month then you will still need to pay $500 on April 15. However, in this case you will only qualify for $3500 of the $7500 credit because that is all the tax you owe. This time you will get a check for $3000 from the IRS. (After the credit you owe $0 in tax, but you have had $3000 withheld, so you get that full $3000 back)

 

[swaltner]

You can't use the credit for your down payment. You receive the credit months after you purchase the vehicle. Purchase the vehicle in 2017 and you receive the credit in early 2018 when you file taxes. Theoretically, you could reduce your withholding by $275 every two weeks during 2017, but many people would just blow that money on "nothing".

Apply any refund received when you file taxes as a principal-only payment to your highest interest rate loan (credit card, student, auto, mortgage). Be sure to adjust the mortgage rate down as appropriate to get the effective rate if you itemize on your taxes and deduct your mortgage interest. For someone in the 25% tax bracket, a 3% mortgage rate effectively becomes 2.25% (75% of 3%).

 

[gabeincal]

Get 7500 $1 bills from the bank and lay naked on your bed in them.

Get approximately 750 guinea pigs (although you may be able to get more as you could probably negotiate a quantity discount)

Use it as a down payment for a second model 3

Hire a driver in case FSD is not working by the time the model 3 ships

Start hiring!!

 

[kort677]

You can't use the credit for your down payment.

while that is a true statement, if you lease the vehicle the $7500. should be baked into the cost basis of the car since the lessor will get the $7500. so for people who cannot claim the tax credit, using that credit via leasing makes for a good option.

 

[kort677]

Apply any refund received when you file taxes as a principal-only payment to your highest interest rate loan (credit card, student, auto, mortgage). Be sure to adjust the mortgage rate down as appropriate to get the effective rate if you itemize on your taxes and deduct your mortgage interest. For someone in the 25% tax bracket, a 3% mortgage rate effectively becomes 2.25% (75% of 3%).

all that goes out the window if you get whacked by the AMT. tax planning is a very personal thing. I would suggest leaving the tax planning to professionals

 

[Craig-Tx]

Keep in mind that the $7500 goes to the amount of tax you owe and has nothing to do with your withholding amount and the amount you pay.

For example, if you owe $12500 in taxes, but have $1000 withheld every month then you will need to pay $500 on April 15th. However, you will still qualify for the full $7500 credit and instead of paying $500 on April 15th you will get a check for $7000. (You owe $12500, but the $7500 credit reduces this to $5000. You have had $12000 withheld, so you get a check for the $7000 difference)

On the other hand, if you owe $3500 in taxes and have $250 withheld every month then you will still need to pay $500 on April 15. However, in this case you will only qualify for $3500 of the $7500 credit because that is all the tax you owe. This time you will get a check for $3000 from the IRS. (After the credit you owe $0 in tax, but you have had $3000 withheld, so you get that full $3000 back)

Yeah, I fully understand this. My tax liability (after all deductions, etc.) is greater than $7500 every year, so I know I can count on the full $7500.
In my situation, Tax Liability - (Witholding + $7500) = how much I owe. If negative how much of a refund.
If the tax liability after all deductions, etc. is less than $7500, then this very simplistic formula isn't correct. This could also fail if you are subject to AMT. (which I am not)

 

[Big-T]

It gives me some extra flexibility for upgrades once they're announced with prices - but the main thing will be to pay off the loan as fast as I can. I try to keep no long term debt outside of my mortgage. Learned what over extending your credit lines for retail products can do during and right after college.

 

[JSkrehot]

Pizza party!
in all seriousness, you do not get $7500 returned to you, you get a credit of $7500 to offset taxes you might be liable for

oh...i'll be getting the full $7,500 back, just like I got the full 30% back for my solar system I installed, as well as the $2,500 from California.

 

[JeffK]

I'm going to swim in it like Scrooge McDuck

 

[eisbock]

^^ THIS
I wouldn't go spending it if you're not sure you'll get the full $7500 back.

Honestly if you don't qualify for the full $7500 back, you cannot responsibly afford this car.