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To qualify for the US Federal Tax Credit

"To qualify for the US Federal Tax Credit, the new vehicle must be purchased by the taxpayer, and not purchased for resale. The credit is applied when the taxpayer completes their annual tax forms. Qualification is contingent on Adjusted Gross Income."

Can we start some research on this?

I have a very gloomy feeling that the kind of people who can afford a Tesla will not be getting this Tax credit due to the last sentence. meaning, if you can afford one, you don't deserve a tax credit.

Let's start researching this people. This could make or break a lot of people's ability to get this car.

Help please.

I've looked at the IRS return forms and instructions, and there doesn't seem to be an upper AGI limit on the rebate. I am guessing that the "contingent on Adjusted Gross Income" refers to a low AGI (i.e. if you don't have an AGI high enough to pay at least $7,500 in taxes, then you don't get the full $7,500 in rebate). Again, just a guess, but so far, I really don't see an reason a high AGI wouldn't get the full rebate.

Reposting link to the law as it currently stands: http://www.fueleconomy.gov/feg/taxevb.shtml

There are several links to read....

Basically, if you do your taxes and you don't owe more than $7500 then you won't get the full credit.

There are several changes in the law that are being discussed but they mostly favor either increasing the refund or applying at purchase.

I'm not worried about the refund as the only other thing that is a remote possibility is that the 200K EV limit is reached.

Requirements
less...

To be certified for the credit by the manufacturer, the vehicle must meet the following requirements:

* The vehicle must be made by a manufacturer (i.e., it doesn't include conventional vehicles converted to electric drive).
* It must be treated as a motor vehicle for purposes of title II of the Clean Air Act.
* It must have a gross vehicle weight rating (GVWR) of not more than 14,000 lbs.
* It must be propelled to a significant extent by an electric motor which draws electricity from a battery which
o has a capacity of not less than 4 kilowatt hours and
o is capable of being recharged from an external source of electricity.

The following requirements must also be met for a certified vehicle to qualify:

* The original use of the vehicle commences with the taxpayer—it must be a new vehicle.
* The vehicle is acquired for use or lease by the taxpayer, and not for resale. (The credit is only available to the original purchaser of a new, qualifying vehicle. If a qualifying vehicle is leased to a consumer, the leasing company may claim the credit.)
* The vehicle is used mostly in the United States.
* The vehicle must be placed in service by the taxpayer during or after the 2010 calendar year.

For vehicles acquired for personal use, report the credit from Form 8936Adobe Acrobat Icon on the appropriate line of your Form 1040, U.S. Individual Income Tax ReturnAdobe Acrobat Icon.

For vehicles purchased in 2010 or later, this credit can be used toward the alternative minimum tax (AMT).
(This IS INTERESTING because it means (I think) that it can go down as a non-preference item which is significant)

If the qualifying vehicle is purchased for business use, the credit for the business use of an electric vehicle is reported on Form 3800Adobe Acrobat Icon, General Business Credit.

=============
Plug-in Electric Vehicles (IRC 30)

Internal Revenue Code Section 30 provides a credit for qualified plug-in electric vehicles. The credit is equal to 10 percent of the cost of a qualified plug-in electric vehicle and is limited to $2,500. Qualified vehicles may include low-speed vehicles or vehicles that have two or three wheels.

Vehicles must be acquired after February 17, 2009, and before January 1, 2012. The vehicle must be acquired for use or lease and not for resale. Additionally, the original use of the vehicle must commence with the taxpayer and the vehicle must be used predominantly in the United States.

Hmmm None of the Teslas will be delivered before Jan 1st, 2012. Wondering if there is updated info on this.

Tesla has set up a dedicated area on this website that deals with this tax credit and other EV incentives:
http://www.teslamotors.com/goelectric/incentives

From there, there's the same link that Discoducky posted above, but depending on where you live there may be additional incentives or rebates available.

The purchase and/or lease of a Tesla still qualifies for the $7,500 federal tax credit. Put the information on Federal Form 8936. TurboTax should be able to do this as well. If anyone has any questions on this, feel free to email me at jerry@mohlernixon.com. I don't charge for advice, if that's a question.

Does anyone know if taking the federal tax credit prevents you from depreciating your Tesla for business over the years of ownership if you buy the car and use it for legitimate business related miles. My accountant was unsure if you could take the federal tax credit and deduct business related miles and expenses on your purchase of a Tesla (versus only one of these options)? Please advise.

"There are several changes in the law that are being discussed but they mostly favor either increasing the refund or applying at purchase."
This would make life a whole lot easier! Discoducky, do you know any more info on this...predictions of time frame?

@gary.greene: what if your car Appreciates in value? :)

Another question: can you depreciate assuming the full purchase price, or must you start after the 7500 rebate?

Just finished my 9/15 busy tax season (for extended LLCs, S-corps, C-corps, trusts, and partnerships).

To gary.greene: the credit does not prevent you from deducting vehicle expenses on the car. It would be just like deducting expenses on any other vehicle - either claim expenses using the mileage method ($0.51 per biz mile) or the actual expense method. Your accountant will know which to claim and the ramifications for claiming one or the other method (i.e., if you choose one method, you can't choose the other in future years, or how to protect yourself in an audit when claiming auto expenses).

To EdG: you would use the full purchase price minus the $7500 credit, and then use this difference to calculate depreciation.

Does anyone know what circumstance one would not qualify for the tax credit?

As far as I know, the only way not to qualify is to not need to pay tax. Usually that is because of low income. :-)

Just to clarify: it is based on your overall tax liability, not the bottom line after crediting withholding and prepayments.

Qualifying for the credit is really not the issue; it's owing enough tax for the credit to offset.

I spoke to my tax lawyer and he helped me file a new W4 in order to make sure I would qualify for the tax credit when we file by April 2013.

Sorry, he's not a lawyer, he's a preparer. I don't have a tax lawyer... :)

As I understand it, your W4 has nothing to do with the tax credit. Am I missing something?

I think what he meant was that since he knows he'll be getting a $7.5k tax credit, he won't need to have as much taken out of his paycheck throughout the year, so he filed the W4 to have his withholding adjusted.

it is straight forward. Don't over analyze it. If your total Federal Income tax is $7500 or more, then you qualify for a $7500 tax credit. That means the total federal income taxes you owe are reduced by $7500. If your tax liability was paid through withholding, you get a refund. If not, your taxes owed are reduced by that amount.

The only qualification is that you have taxes to be reduced!

Also, the credit can't be carried forward, so if you don't owe $7,500 in the year you purchase the car, you lose what you can't use.

The tax credit for my 2010 Roadster was a grand $47.00 > the more your income, the less you qualify for - unless your name is Romney.

Whatever the case, I have enough things to worry about! Since I seem to get audited every year (thanks Dad for claiming me as a dependent to trigger that IRS flag by the way in 2007), I tell my tax preparer everything and have him adjust it all for me. Piece of mind is a wonderful thing.

@astraussmd@gmail.com - Ignored your political snipe, but are you saying there are Adjusted Gross Income limits to the Plug-In Electric Vehicle Credit? Could you elaborate... Thanks.

@astraussmd: Yes, please elaborate. Because what you're suggesting contradicts all the information I've seen on this from everyone else - including some people who apparently are CPAs.

There is no income limit (currently) on the EV credit.

I see no mention of income affecting the credit here: http://www.fueleconomy.gov/feg/taxevb.shtml

And while I didn't read it word-for-ford, I don't see it here either:
http://www.irs.gov/irb/2009-48_IRB/ar09.html

The buying a Model S will give you a tax credit of $7,500. According to About.com, there are many more nonnrefundable tax credits than refundable tax credits, but I have never actaully heard of a nonrefundable tax credit before looking this up. The only examples they list are refundable tax credits.
http://taxes.about.com/od/taxglossary/g/refundable-tax-credits.htm
http://www.investopedia.com/terms/n/nonrefundabletaxcredit.asp

I'm assuming that that this EV credit is a refundable credit, like the home buying credit. Even if it was nonrefundable, it probably wouldn't make a difference for anyone who can afford to buy a Model S anyways.

Let's assume you buy a Model S in 2012.

So if it's a 'refundable' tax credit:

Example A
-Say in 2012, you owe $25,000 in taxes.
-But you have already paid $30,000 in taxes via witholding
-ordinarily, you would get a $5,000 refund, netting a total of $25,000 paid to the IRS
-however, with the EV credit, your tax liability will be reduced from $25,000 to just $17,500. So now you actually overpaid by $12,500
-so you would get a refund of $12,500, and the IRS only got $17,500 instead of the nominal $25,000

Examble B
-Say in 2012, you owe $2,000 in taxes
-But you already paid $3,000 in taxes via withholding
-ordinarily, you would get a $1,000 refund, netting a total of $2,000 paid to the IRS
-however, with the refundable EV credit, the extra $7500 is treated like a payment that you already made to the IRS. So now, it's like you owed them $2,000 (that's the same), but you paid them $10,500
-so you would get a refund of $8,500

So if it's a 'NONrefundable' tax credit:

Example C
-Say in 2012, you owe $25,000 in taxes.
-But you have already paid $30,000 in taxes via witholding
-ordinarily, you would get a $5,000 refund, netting a total of $25,000 paid to the IRS
-however, with the EV credit, your tax liability will be reduced from $25,000 to just $17,500. So now you actually overpaid by $12,500
-so you would get a refund of $12,500, and the IRS only got $17,500 instead of the nominal $25,000
-Note that this is the same result as Example A, above

Examble D
-Say in 2012, you owe $2,000 in taxes
-But you already paid $3,000 in taxes via withholding
-ordinarily, you would get a $1,000 refund, netting a total of $2,000 paid to the IRS
-however, with the nonrefundable EV credit, your tax liability is reduced by $7,500, but it can't go negative.
- $2,000 - $7500 ~=~ $0 || So now, it's like you owed them $0, but you already $3,000
-so you would get a refund of $3,000.
-In this case, you get a different result than Example B, above

============================

In other words, assuming there is no special language in the EV credit law itself that modifies the credit based on total income or some other criteria, than the EV tax credit is either a standard refundable credit or standard nonrefundable credit. The distinction won't make any difference to anyone who has a nominal tax of $7500 or more (that is, before deductions, adjustments, credits, etc, your tax bill from the IRS is $7500 or more).

It is a non refundable credit.

C & D are correct. Plus any "balance" as in case D, the $5500 you couldn't use for the tax year cannot be rolled over and just goes away.

I never really thought there were people with such a low tax burden that could afford the Model S. I think the 2012 tax table indicate that if you make over $35,350 your tax bracket is 25% or minimum $8837.50.
I am impressed with those below that income range who save that well.

http://taxes.about.com/od/Federal-Income-Taxes/qt/Tax-Rates-For-The-2012...

@Sudre_ and some others - consider that some have large carry forward losses from 2008/2009 investments sold at a loss. Or commercial property that has depreciated and produced losses (on paper).

There are lots of "cash flow" issues that can result in some years have negative taxable income hence zero or negative tax liability.

I think its fair and correct that this is a non-refundable credit because it allows tax benefit to be realized (even if only partial as in example D) up to the limit of $7500 or the amount you have paid in.

btw the 2012 tax code with 73,608 pages is bound to create distortions and unintended consequences. Don't get me started on why I would prefer a (mostly) flat tax with minimal deductions...

A refundable tax credit is one that will pay you a refund even if you owe no taxes for that refund to offset. An example is the Earned Income Credit for low wage earners with children. Once the exemptions, deductions and other qualified credits are factored in, it's not uncommon for them to owe nothing in taxes. They get all their withholding back as a refund plus the Earned Income Credit added in.

A non-refundable tax credit is one that will offset your tax liability up to the point where you would owe nothing in taxes but no further. For example, if you owe $6000 in taxes and qualify for the $7500 Plug-In Electric Vehicle Credit, it would offset all of the $6000 in owed taxes, but no more. The unused $1500 credit is non-refundable to you, and in this case, cannot be carried forward or backwards to offset your tax liability in future or previous years.


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