Tax credit question

If he is not on the title, he will not be able to claim the credit. It is about ownership not responsibility.

Pondering this a bit myself as so much of our income is tax-advantaged and/or otherwise handled such that many years we're well under that level of tax liability.

Here's a possible solution-- and what I'm planning to do, unless there is some tax complication I'm unaware of (DO YOUR OWN RESEARCH):

Convert taxable retirement accounts to a Roth IRA. You must pay taxes on the amount converted in the tax year of the conversion and it is reported as income-- just like your paycheck. Advantage: you have complete control over how much you convert and the date of the conversion (I'd do it at the very end of the calendar year so that the taxes are due when filed and the refund is realized sooner, you'll also be able to more accurately determine the amount needed to clear the EV credit without unnecessarily raising your tax burden). This only works to your investment advantage if you pay the taxes out of OTHER monies, NOT the converted funds. DO NOT pay the taxes out of the rollover itself-- it decimates the tax advantages long-term. If you convert enough to ensure your liability is above the $7500 threshold (plus a little pad, to be safe) you'll essentially realize that conversion FOR FREE.

This is a sweet deal. You get the full credit AND you get more money in a tax advantaged account.
Again, I'm no accountant, but based on my poking around and number crunching, this appears to be an IDEAL way to maximize the credit for anyone with a 401K or traditional IRA account(s).

The IRS is clear about this (emphasis mine):

The vehicles 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. For purposes of the 30D credit, a vehicle is not considered acquired prior to the time when title to the vehicle passes to the taxpayer under state law.

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The important phase here is "the original use of the vehicle must commence with the taxpayer", meaning that the IRS and/or tax court would have to determine that your grandfather "uses" the vehicle and is not merely just a titleholder for the deduction, probably not reasonable in your circumstance. For the lease discussion, this squares, because the action of leasing the vehicle to a lessee qualifies as an "original use".

Jhall118 said:

So I am one of those people that won't have to pay anywhere close to 7500 in taxes due to other credits. However, a family member (my Grandfather) pays quite a bit of taxes a year. If he cosigned a loan on the car with me, could he claim the tax credit for himself, without being on the registration? I don't have a problem putting him on the registration if needed, but he lives in VA and I am in WA state, meaning I don't pay sales tax.

Could someone who has claimed the credit explain to me what is required for ownership?

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Its not how much taxes you are DUE. Its your total tax liability after exemptions, before credits. For example if you owed 7500, then had 1000 in mortgage interest deductions you'd still get 7500. Credits has no impact on this.

Are you sure you even need to do a cosign?

Here is the form for the tax credit for the charging equipment. http://apps.irs.gov/app/picklist/li...ue=8911&criteria=formNumber&submitSearch=Find

It is form 8911. 30% tax credit for the cost of charging equipment with a cap of $1,000. As always, consult a tax professional.

tiblot said:

Its not how much taxes you are DUE. Its your total tax liability after exemptions, before credits. For example if you owed 7500, then had 1000 in mortgage interest deductions you'd still get 7500. Credits has no impact on this.

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I'm not sure this is right - mortgage interest is a deduction, NOT a tax credit.

kcveins said:

I'm not sure this is right - mortgage interest is a deduction, NOT a tax credit.

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Its definitely correct. I'm not sure why there's so much confusion on this. Its very simple.

Bottom line: Your total taxes DUE (by income and family size only, not any other mods) to the IRS will be reduced by 7500. It cannot go negative, so you'll get the amount back regardless of any other things on your 1040. If you owe anywhere between 0-7500, you'll only get that amount, not the full 7500 amount.

Jhall118 said:

Well really, wouldn't the court just have to determine he used it originally? It seems odd that he could buy the car and lease it to me, but not buy the car with me, and own it and not drive it. What exactly does "use" mean? Maybe he bought it with me not to drive it, but just to see pictures of me enjoying myself in it! Maybe his "use" is just to have a little bit less C02 emitted into the atmosphere.

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Knowing what preparers go through in an audit and the positions that IRS agents will take in said audits, I simply say "good luck with that".

Does this include installation of just a NEMA 14-50? And is there one for 2014?

hughconn said:

Here is the form for the tax credit for the charging equipment. http://apps.irs.gov/app/picklist/li...ue=8911&criteria=formNumber&submitSearch=Find

It is form 8911. 30% tax credit for the cost of charging equipment with a cap of $1,000. As always, consult a tax professional.

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russman said:

Does this include installation of just a NEMA 14-50? And is there one for 2014?

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unfort, I think they did not extend that rebate into 2014.

tiblot said:

Its definitely correct. I'm not sure why there's so much confusion on this. Its very simple.

Bottom line: Your total taxes DUE (by income and family size only, not any other mods) to the IRS will be reduced by 7500. It cannot go negative, so you'll get the amount back regardless of any other things on your 1040. If you owe anywhere between 0-7500, you'll only get that amount, not the full 7500 amount.

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I was not disagreeing with the $7500 tax credit, just the way you worded the mortgage interest.

tiblot said:

Its not how much taxes you are DUE. Its your total tax liability after exemptions, before credits. For example if you owed 7500, then had 1000 in mortgage interest deductions you'd still get 7500. Credits has no impact on this.

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WRONG. The plug-in credit is a non-refundable credit. Unless their tax liability before credits is greater than or equal to the total of non-refundable credits, including the plug-in credit, they cannot claim the full amount.

And the dodge they are attempting would seem to be very obviously illegal.

FlasherZ said:

Knowing what preparers go through in an audit and the positions that IRS agents will take in said audits, I simply say "good luck with that".

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^^^This. For sure. LOL @"what exactly does "use" mean?"

If you can find a way to realize a lot of "deferred" taxable income -- in the same tax year in which you buy the car -- you can do that, so that you can use your 7500 tax credit.

Ways of doing this include, as someone else noted, converting a Traditional IRA to a Roth IRA.
Another way is to sell stock which has appreciated in value -- you will owe capital gains tax on the appreciation, and the 7500 can offset that.
(You can buy the stock right back afterwards, even the same day.)

Be aware, since for some reason people get very confused by this, that the magic number is "tax liability". If you work, your "withholding" counts as *payments*, not as credits or deductions. So if you've paid $7500 in withholding, and you aren't expecting a tax refund before the electric-car tax credit, you have enough "tax liability" to apply the full tax credit.

Would appreciate comments from the finance gurus on which is more beneficial to assure at least $7500 in tax liability - generating capital gains by selling appreciated stock or converting some IRA money into a Roth?
If it's a wash, I'd prefer to sell some stock rather than creating another account for a Roth.
Thanks.

Barry said:

Would appreciate comments from the finance gurus on which is more beneficial to assure at least $7500 in tax liability - generating capital gains by selling appreciated stock or converting some IRA money into a Roth?
If it's a wash, I'd prefer to sell some stock rather than creating another account for a Roth.
Thanks.

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In either case you're effectively "prepaying" taxes (taxes you would have paid in later years) using the credit, so it's a bit of a wash -- if you have both choices available to you.

Because of the Bush/Obama tax cuts for the unearned income of rich people, selling stocks which you've held over a year is taxed at very low rates.

This can mean that you would need to sell a LOT of stock in order to generate $7500 in federal taxes, unless you have big short-term (under a year) gains -- if it's all taxed at 15%, you need to sell for a $50000 gain, and if some of it is in the 0% bracket you need to sell even more. Many people simply aren't sitting on that much unrealized capital gains in a taxable account.

On the other hand, a standard IRA to Roth conversion is taxed at full rates, which usually means you need to convert rather less than $50000 to generate $7500 in taxes.

So for a lot of people doing a Roth conversion to generate $7500 in taxes is possible, and realizing capital gains on taxable stocks isn't. Some people (like me) are in the opposite position, with no standard IRA to convert. Some people can't do either.

If you really can choose between both options, the choice is determined by which income you expect to be taxed at higher rates in the "future". Do you expect that when you sell stocks 20 years from now, they will be taxed at confiscatory 50% rates to punish rentiers, or do you expect that they will be taxed at 0% to reward the rich? Do you expect that when you withdraw from your IRA 20 years from now, you will be paying very high tax rates because you will be very rich, or that you will be paying very low rates because you have no income outside the IRA? You have to guess your *future tax rates* in order to make an informed choice, and honestly, looking at past tax rates, it's a crapshoot. Anyway, whichever income you expect to be taxed at higher rates in the future is the income you want to realize now.

As an aside, if you're a retiree and already taking money out of a traditional IRA every year, it's almost certainly correct to just withdraw more money out of the traditional IRA to generate the $7500 in taxes. At that point you pretty much know the rate you'll be paying when you take money out of the IRA.

This is not investment or tax advice, I am not your investment or tax advisor, and this could be totally wrong. Do your own analysis.

Thanks, neroden. Excellent post, and I learned a new word (rentier) :smile:
Appreciate it.