EV tax credit?

JOhnH

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My CPA retired at the end of 2022. I haven't met his replacement yet but I will ask him this question when I do.

In the mean time, if I buy an EV in 2023 in time to claim the EV tax credit, will that credit be based on the tax I paid in 2022, or the amount I expect to pay in 2023? I don't know how much that will be yet but I know it will be MUCH less than 2021. I sold a ton of stock and mutual funds in 2021 in order to purchase a piece of property, and I paid a ton of taxes on those proceeds. In 2022 I basically had only SS income but lived off of savings that were already taxed, so my 2022 taxes should be very minor (less that the max $7,500 credit).

I'm asking because from what I understand the current credit runs through March, and I won't know my 2023 tax liability by then.
 
The credit applies to the year the vehicle is purchased. We have been buying our cars late in the year, so I'm not 100% sure, but I'm pretty sure it was both extended and expanded for 2023. I don't pay estimates as a farmer, but I presume your accountant can reduce your estimates by the amount you expect to get from the credit. Remember that you have to have at least 7500 tax liability to take the credit as it's not refundable, and it comes after some of the other deductions, so you have to have a fair amount of income to use it.
 
It will be based on your adjusted gross income for 2023. Your 2022 taxes already stopped at the end of December so you will not be able to claim the tax credit on this years return. You can claim it on the return you file next year and that return will have your 2023 adjusted gross income as its basis. Keep in mind that the credit is non refundable. You can use it to reduce the taxes you owe but you do not get anything back if you owe less than the credit. If you normally get a refund when filing or come close to breaking even then the tax credit for EV's won't do anything for you.
 
If you normally get a refund when filing or come close to breaking even then the tax credit for EV's won't do anything for you.

That is not how it works. It has nothing to do with whether you get a refund, it has to do with the total amount of income tax due for the year. If you paid $7,501 in income taxes through payroll withholding or estimated tax payments during the year, and your tax liability is exactly $7,500 for the year, your refund would be $1. With the EV tax credit, your refund will be $7,501.
 
For 2022 and earlier, the credit you filed for with your tax returns and was non-refundable (i.e., it reduced your federal tax burden by up to $7500, but if your total tax due (not what you would have been refunded) was less than that, you only got the lesser amount.

In 2023, the credit is refundable, which means you get $7500 regardless of what your tax liability is.

In order to qualify, you have to buy the car and put it in service and not resell it and take the credit only once in each three year period. The vehicle must be assembled in the US or in a country we have a free trade agreement, to qualify. Unlike previous credits, this one has no cap on the number of vehicles of each model that qualify. The kicker is that the car must not have a MSRP of more than $55,000 for cars or $80,000 for SUVs, trucks, or vans. This means your Tesla model S won't qualify. Your Rivian squeaks in just under the limit. Also, your AGI can't be higher than $150,000 for singles or $300,000 for married (filing jointly). There are different rules for used vehicles.

If you bought the car in 2022 and it was delivered to you after the act was adopted, you may still qualify under the new rules.
 
That is not how it works. It has nothing to do with whether you get a refund, it has to do with the total amount of income tax due for the year. If you paid $7,501 in income taxes through payroll withholding or estimated tax payments during the year, and your tax liability is exactly $7,500 for the year, your refund would be $1. With the EV tax credit, your refund will be $7,501.

This.
ETA: For 2023, @flyingron beat me to it.
 
take the credit only once in each three year period.
Well that's a bummer. I was kind of getting used to having a new car every year.
 
For 2022 and earlier, the credit you filed for with your tax returns and was non-refundable (i.e., it reduced your federal tax burden by up to $7500, but if your total tax due (not what you would have been refunded) was less than that, you only got the lesser amount.

In 2023, the credit is refundable, which means you get $7500 regardless of what your tax liability is.

In order to qualify, you have to buy the car and put it in service and not resell it and take the credit only once in each three year period. The vehicle must be assembled in the US or in a country we have a free trade agreement, to qualify. Unlike previous credits, this one has no cap on the number of vehicles of each model that qualify. The kicker is that the car must not have a MSRP of more than $55,000 for cars or $80,000 for SUVs, trucks, or vans. This means your Tesla model S won't qualify. Your Rivian squeaks in just under the limit. Also, your AGI can't be higher than $150,000 for singles or $300,000 for married (filing jointly). There are different rules for used vehicles.

If you bought the car in 2022 and it was delivered to you after the act was adopted, you may still qualify under the new rules.
Thanks. That is better for me (if not for every other tax payer) than what I was hoping, but not what I expected.
 
That is not how it works. It has nothing to do with whether you get a refund, it has to do with the total amount of income tax due for the year. If you paid $7,501 in income taxes through payroll withholding or estimated tax payments during the year, and your tax liability is exactly $7,500 for the year, your refund would be $1. With the EV tax credit, your refund will be $7,501.

Nope. Go read the specifics of the credit for EVs. It is not a refundable credit. Some tax credits are and some are not. The latest one to be offered is not refundable.

2024 is a different story. Beginning next year you can transfer the credit directly to the purchase price of the car at the dealership. Of course all the same income and vehicle type and cost restrictions still applies. There is also nothing saying that dealerships won’t just up the asking price of their cars by the expected credit amount so they keep the incentive instead of it benefitting you.
 
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My head hurts.

Simple, if you’re in the market for a new Model 3 ($55K) or a Model y ($80K), and you file jointly ($300K), you get a $7,500 tax credit subtracted from what you owe in federal taxes.

I’m over the single file limit so I get no love from the government. :(
 
Simple, if you’re in the market for a new Model 3 ($55K) or a Model y ($80K), and you file jointly ($300K), you get a $7,500 tax credit subtracted from what you owe in federal taxes.

I’m over the single file limit so I get no love from the government. :(
Being that I'm retired with most of my savings in an IRA, and living off of tax-paid savings and social security, I probably won't have nearly $7,500 tax liability. Unless the market has an unexpected rebound, but that would be a good thing.
HOWEVER: I could draw the money from my IRA. I have avoided this until I'm mandated to withdraw a minimum because withdrawals are taxed as regular income. But if I withdraw the money to buy an EV, then $7,500 would pay most of the taxes due on that withdrawal.
 
Being that I'm retired with most of my savings in an IRA, and living off of tax-paid savings and social security, I probably won't have nearly $7,500 tax liability. Unless the market has an unexpected rebound, but that would be a good thing.
HOWEVER: I could draw the money from my IRA. I have avoided this until I'm mandated to withdraw a minimum because withdrawals are taxed as regular income. But if I withdraw the money to buy an EV, then $7,500 would pay most of the taxes due on that withdrawal.

Thought you already had a Model 3?
 
Also note: the amount of the refund will change this year at some point. Under the law, when Treasury publishes the final regulations on the battery assembly then the cars will have to follow those rules. The battery rules make up half the credit, and from what I have seen posted no company currently qualifies for the battery credit. So, it is $7,500 for those who purchase and put in service before the Treasury department writes the regulations. And $3,750 after the Treasury department publishes the regulations; when asked previously a Treasury spokesperson stated based on previous guidance, late Q1 is the likely timeline. So, based on the answer from the press flacky, who knows when the rules will be published.

Tim
 
Nope. Go read the specifics of the credit for EVs. It is not a refundable credit. Some tax credits are and some are not. The latest one to be offered is not refundable.

Non-refundable means it can't be used to lower your tax liability below zero, not that it counts against refunds above a zero tax-liability level.

https://www.irs.gov/credits-deductions/credits-for-new-clean-vehicles-purchased-in-2023-or-after

Also note, it appears that you may be able to use your 2022 AGI even if the purchase is in 2023.
 
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Thought you already had a Model 3?
No. I may have said I'd like to have one, but I can't justify it yet when my current 8 yr old ICE truck is still looking and acting new.
Also note: the amount of the refund will change this year at some point. Under the law, when Treasury publishes the final regulations on the battery assembly then the cars will have to follow those rules. The battery rules make up half the credit, and from what I have seen posted no company currently qualifies for the battery credit. So, it is $7,500 for those who purchase and put in service before the Treasury department writes the regulations. And $3,750 after the Treasury department publishes the regulations; when asked previously a Treasury spokesperson stated based on previous guidance, late Q1 is the likely timeline. So, based on the answer from the press flacky, who knows when the rules will be published.

Tim
That explains why I heard that if you want to buy an EV and get the $7,500 credit, you need to buy it before the end of March.
 
Simple, if you’re in the market for a new Model 3 ($55K) or a Model y ($80K)
The Model Y is a "Sedan", when configured with 5 seats so that's also the $55,000 limit. When it is configured with 7 seats it's an "SUV" and falls under the $80,000 limit. I'm sure that makes sense to the government.

In any case, the recent price reductions dropped the Model Y LR to $52,990 so it can come in under the cap for the 5 seat version. The Model Y Performance is over with a $56,990 starting price so you'd need to upgrade to the 7-seat version, a $4,000 option, to get the credit.

My Model 3's configuration, M3LR Blue/Black 18", dropped $8,000 back to the price I paid in mid-2021.
 
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