$7500 EV tax credit - how does it work??

[McLovin]

This seems unnecessary ambiguous.

Do you actually have to *owe* at least $7500 in income tax when you file your tax return, so you can apply the credit against it?

Or do you just have to incurred $7500 in income tax?

So in the first example, you’d have to had underpaid your taxes that year, at least $7500.

The second example, say you had $125k in taxable income, so you incurred well over $7500 in Fed taxes, but say you paid estimated taxes quarterly so at the time you file your return, there’s $0 owing.

I’d imagine you’d get the full $7500 credit either way (it makes no logical sense otherwise), but there seems to be differing opinions on it. Or lack of clarity (for example, what does the circled part below mean? What does “not available as a refund” mean?)

[McLovin]

[PorscheGAL]

That article overcomplicates things for most buyers:

For the most part, if you are buying, the $7500 comes off the purchase price at the time of purchase.

For instance: A new Tesla Model 3 base model is $41,000-$7500 tax credit= 33,500 loan amount.

If you live in a state with rebates, most of those will come off the purchase price also, so the loan amount goes down.

I recently read an article about a guy in California who, after rebates, financed $16,000. He qualified for federal, state, a low income rebate, and a rebate from his electric company.

There are people who may not easily qualify for the immediate rebate like self employed with income variations. In that case, they may need to file it with their taxes. There is a line on the 1040 for EV purchase to claim the $7500

[Tobra]

Tax credit is money off what you owe, not what you earned. You only get $7500 if you owed that much in federal income tax

[Steve Carlton]

McLovin's question is if he gets the $7,500 if he's got enough paid in already to cover his tax liability. He does- to the extent of his total tax liability.

[Steve Carlton]

Originally Posted by PorscheGAL

For the most part, if you are buying, the $7500 comes off the purchase price at the time of purchase.

For instance: A new Tesla Model 3 base model is $41,000-$7500 tax credit= 33,500 loan amount.

I know the rules have changed a lot recently, but I don't think this is the case now (it never was before). It's a tax credit- it's applied against your tax liability whether you've already paid against it with withholdings or estimated tax or not. For example, your tax liability is $10,000 and you've had $12,000 withheld, you get a refund of $2,000 + $7,500 = $9,500. If you owe $5,000 and you've had $2,000 withheld, you get a $2,000 refund. It is not a refundable tax credit, where you get the full amount regardless of what you owe.

Originally Posted by PorscheGAL

If you live in a state with rebates, most of those will come off the purchase price also, so the loan amount goes down.

Some states will pay a rebate directly to a dealer at the time of sale, and the dealer gives you a credit/rebate at the time of purchase. Sometimes you have to apply for the rebate from the state after the sale, like when you get a $70 rebate for a set of tires from the manufacturer directly after you've paid the tire dealer in full.

On Tesla's website, there's a good guide:

https://www.tesla.com/support/incentives

When you lease a car, it's a different story. It's up to the manufacturer, but you typically get a rebate or discount for whatever amount they want to pass through to you in lieu of the Federal tax credit you'd get on a purchase. Some manufacturers pass it all through, some only part of it, some none of it. That's because the leasing entity (usually if not always a captive of the manufacturer) gets the tax credit because technically they are the buyer, not the lessee. In fact, some leasing entities get the Federal tax credit where an individual buyer would not. So, sometimes you'll see an (up to) $7,500 rebate on a leased car, which is applied at the time of the lease. Sometimes you'll see this rebate on a car that does not qualify for it if purchased instead.

The state credits/rebates are another story.

[GH85Carrera]

How it works?

They take money from me and the rest of the taxpayers to make the purchase of an electric car cheaper for people buying expensive electric cars. The electric car can use the roads for free and the people paying gasoline taxes pay for thee road for them. It is a great deal if you are buying an electric car, and a blatant ripoff of the rest of the taxpayers.

Much like the ethanol producers get paid tax money because it costs more to produce than they sell it for.

[Arizona_928]

Originally Posted by GH85Carrera

How it works?

They take money from me and the rest of the taxpayers to make the purchase of an electric car cheaper for people buying expensive electric cars. The electric car can use the roads for free and the people paying gasoline taxes pay for thee road for them. It is a great deal if you are buying an electric car, and a blatant ripoff of the rest of the taxpayers.

Much like the ethanol producers get paid tax money because it costs more to produce than they sell it for.

You're Salty

[Steve Carlton]

Lithium salty.

[wdfifteen]

Originally Posted by PorscheGAL

That article overcomplicates things for most buyers:

For the most part, if you are buying, the $7500 comes off the purchase price at the time of purchase.

I'm not disputing you, I don't know all that much about these rebates. When I bought my Volt in 2017 I got a credit when I filed my taxes in April 2018.
If you bought a car in, say January 2024, how would the dealership know that when you filed your taxes in April 2025 your 2024 tax liability was going to equal or exceed $7500?

Originally Posted by PorscheGAL

There are people who may not easily qualify for the immediate rebate like self employed with income variations. In that case, they may need to file it with their taxes.

That may be why I had to take the credit when I filed. Financial institutions (and the IRS) have always found me to be unreliable.

[Zeke]

When I was in the window replacement business a federal tax credit could be a percentage of your contract cost. There could be a rebate applied to a utility bill too. The City of Long Beach has its own public utilities save for SoCal Edison so we didn't get anything from the gas company serving much of L.A. County. Edison was alway stingy.

The flat rate tax credit seems to have been an invention that came with electric car, hybrid or otherwise. I took it to mean the same thing, a direct federal credit reducing income taxes incurred during the tax year in which the car was purchased. I haven't followed the state incentives.

Not reading extensively, it seems the rules have changed for 2023 to 2032 in that the amount stated as up to $7500 is now applied to your taxable income as adjusted gross income.

Further reading suggests that in 2024 the dealer will take the $7500 off the selling price of the car and deal with your taxes for you. Apparent is you owe less tax for the year in which you bought the car. According to what I'm reading this is not the case at present.

There are conflicts in information about min and max income and how that affects the credit, so the OP's question is a good one. Like anything else IRS, it's not easy to understand.

So by the time this gets hashed out here we will know how it works for this year, but >2024 seems pretty straight forward.

[Steve Carlton]

Originally Posted by Zeke

Further reading suggests that in 2024 the dealer will take the $7500 off the selling price of the car and deal with your taxes for you. Apparent is you owe less tax for the year in which you bought the car. According to what I'm reading this is not the case at present.

That's interesting and would be a game-changer. Doing a quick search, I don't see anything that's not vague at this point. Do you have any good links?

This site and some good general information and links to each state with incentives:

https://www.usatoday.com/story/graphics/2023/08/15/ev-tax-credit-2023-guide/70529681007/

[wilnj]

Originally Posted by GH85Carrera

How it works?

They take money from me and the rest of the taxpayers to make the purchase of an electric car cheaper for people buying expensive electric cars. The electric car can use the roads for free and the people paying gasoline taxes pay for thee road for them. It is a great deal if you are buying an electric car, and a blatant ripoff of the rest of the taxpayers.

Much like the ethanol producers get paid tax money because it costs more to produce than they sell it for.

This isn’t the first, only or last instance of the Legislatures using the tax code to pick winners and losers

[Steve Carlton]

McLovin- what are you considering doing, and what state are you in?

[Zeke]

Originally Posted by Steve Carlton

That's interesting and would be a game-changer. Doing a quick search, I don't see anything that's not vague at this point. Do you have any good links?

This site and some good general information and links to each state with incentives:

https://www.usatoday.com/story/graphics/2023/08/15/ev-tax-credit-2023-guide/70529681007/

I was reading this as a general search.

[wdfifteen]

Originally Posted by Steve Carlton

This site and some good general information and links to each state with incentives:

https://www.usatoday.com/story/graphics/2023/08/15/ev-tax-credit-2023-guide/70529681007/

In that link it says that beginning in 2024 the dealer can take the tax credit off the sales price at the point of sale. I suppose they trust you to accurately estimate your 2024 taxes as early as January. If you estimate too high and only owe $4000 I guess you will pay the IRS the $3500 difference. How that situation is handled isn't clear.

[wdfifteen]

Originally Posted by GH85Carrera

HThe electric car can use the roads for free and the people paying gasoline taxes pay for thee road for them.

Not in Ohio, and a lot of other states. In Ohio plug in hybrids pay a $200 extra registration fee because you can plug your car in. Never mind that you also pay gas tax when you do buy fuel for it. And you pay the fee no matter how much or how little you drive the car. The fee is based on, "You own it. You owe us."

[Zeke]

Originally Posted by wdfifteen

In that link it says that beginning in 2024 the dealer can take the tax credit off the sales price at the point of sale. I suppose they trust you to accurately estimate your 2024 taxes as early as January. If you estimate too high and only owe $4000 I guess you will pay the IRS the $3500 difference. How that situation is handled isn't clear.

There are some minimum income requirements. So if a buyer goes in to buy the car, has credit but isn't making the kind of money that would have him owing less than $7500 in taxes after his AGI is calculated and estimated, he may not see the full $7500 taken off the price at the point of sale. What does seem to be clear is that anyone in this situation can file an amended tax return and either claim more is owed in credit, or maybe, as you suggest, go backwards a bit.

I think it's on the dealer to know the buyer's income (which they do to some extent) and work the deal accordingly I agree with you that a lot of it is vague and it is suggested that as a buyer you should consult with a tax advisor before getting in too deep.

What it does, or can do as a discount at the point of purchase is lower the monthly payment by using the money to buy down the interest rate, or the amount of the loan. Apparently it works with leases too, but of course in a complicated way. If you don't know what a money factor is, you need some help at the sales table.

[Steve Carlton]

Nobody buys down the interest rate of an auto loan, unless it triggers a lower LTV (loan-to-value), which can qualify a buyer for a lower rate. That doesn't happen often. But a lower loan balance would always be a benefit.

Sometimes you can lower the money factor on a lease with MSDs (multiple security deposits). You can get a substantial rate reduction for posting up a refundable security deposit. On my EQE, I put up a refundable $7,000 for 10 deposits to lower the money factor by 0.0007 (x 2400 = 1.68% APR equivalent = around $93/month). A good return on a $7,000 investment, around 15% tax free.

On leases, it's up to the lender (almost always a captive of the manufacturer) to pass through the credit they get from the Feds. On leases, you get the benefit at the time of purchase. In my case, it was treated as a $7,500 capitalized cost reduction (down payment) on the lease. There are not tax credits on Mercedes' these days because they don't qualify, but to the lender it's a commercial lease, which does qualify.

[Zeke]

Been a o long time since I carried a CA Auto Sales license. All I know is in the booth if the buyer is dead set on interest, you work the interest. I he is mistakenly only interested in the price of the car, you work the price. If he is only interested in the monthly payment amount, you work the payment.

Steve, you know the old 4 square. Selling cars is like the good, fast and cheap expression: pick 2 out of 3. Auto sales it's selling price, monthly payment and interest. Pick 2 and the sales manager will alter the 3rd to fit the parameters of the sale.

So, we bought interest down more than once. But that was 1998.

I've leased 2 cars in my entire life and I'm pretty damn old. The 2nd time I set the drive off and the payment while keeping my eye on the residual. I walked out 2wice until the 3rd call to come down and the lease would look like I wanted it to. They made some money but told me that they really didn't want to see me again.

I really didn't get into it with the F and I guy on how he worked it. I didn't care because I knew he had to work the money factor to meet my set-in-stone offer.

I've never bought a new car for myself but I've sat in on some deals. Never trade in and the only number I'm interested is at the bottom of the contract. I don't care how they work it. I might look for a prepayment penalty but that's about it. I set the number and they can work on their end to close or let me walk. The last thing I want to dictate is the selling price.

And the F&I guy can eat me. One word about warranties or add ons and I will leave. With the hold back and the so called destination charge they have room even at invoice.

I'm sure a lot has changed.