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Thread: Tesla's unfair absorption of tax credits

  1. #1
    Member NoMoGas's Avatar
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    Tesla's unfair absorption of tax credits

    This has bugged me for a long time. The federal $7500 tax credit is a credit to your taxes. It goes against taxes you have paid. When calculating the value of a trade-in vehicle, tesla by default removes that $7500 from the value of the car effectively absorbing the tax credit for themselves. Not everyone who purchases the vehicle receive the credit and even if they did they paid upwards of $10,000 in taxes on the vehicle depending on where they live. The taxes paid don't add to the value to the car so why should a tax credit be removed from the value of the car?

    Even when they post the tax credit in the vehicle configuration creating a "effective cost" for the car, that conveniently leaves out the actual taxes you are paying for the vehicle but yet the assigns the credit as a discount on the car itself which is not the case.

    This has always been something I have thought was fundamentally unfair. I'm curious as to what your thoughts are on the subject
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    That seems the only fair way to do it.
    Let's say someone is looking at two Teslas, identical in every way except one.
    One has been previously titled so no tax rebate. The other has not, so it gets the tax credit.

    They are both priced at $80k. Would you buy the one with, or without the tax credit?
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    Quote Originally Posted by NoMoGas View Post
    This has bugged me for a long time. The federal $7500 tax credit is a credit to your taxes. It goes against taxes you have paid. When calculating the value of a trade-in vehicle, tesla by default removes that $7500 from the value of the car effectively absorbing the tax credit for themselves. Not everyone who purchases the vehicle receive the credit and even if they did they paid upwards of $10,000 in taxes on the vehicle depending on where they live. The taxes paid don't add to the value to the car so why should a tax credit be removed from the value of the car?

    Even when they post the tax credit in the vehicle configuration creating a "effective cost" for the car, that conveniently leaves out the actual taxes you are paying for the vehicle but yet the assigns the credit as a discount on the car itself which is not the case.

    This has always been something I have thought was fundamentally unfair. I'm curious as to what your thoughts are on the subject
    It's totally reasonable.
    The tax credit is available on new cars, not used cars.
    The used value takes that tax credit into account, essentially increasing depreciation by the amount of the tax credit. If it didn't people would just buy a new one instead.
    (Note that if you trade your car in quickly (e.g. to get a D), you're still entitled to the tax credit.)

    This impacts other plug-ins and leads to poorly educated headlines like "Electric Cars Depreciate Faster Than Their Gas-Powered Counterparts" (Electric Cars Depreciate Faster Than Their Gas-Powered Counterparts). If you take current new prices, current incentives and tax credits into account they're actually holding price well (unless it's a Leaf from AZ, I guess).

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    yea while I am 100% in agreement with you NoMoGas that it seems unfair (and it is), the PROBLEM is what Zythryn stated and it's a logical business decision (not for personal greed) on Tesla's end. If someone receives delivery and sells it right back to Tesla the next day with 0 miles added, the problem is that it is no longer eligible for the credit. So a new buyer comparing that car to an exact duplicate spec brand new car is going to chose the brand new car because they can get the $7500 credit. The mathematical induction is that the minimum break even price for Tesla is $7500 off what you paid for it. If they sell it for anything higher than $MSRP-$7500 nobody will buy the car as they would save money with a brand new one. So basically they need to subtract $7500 immediately and then subtract for usage or else it will just sit on Tesla's lot forever depreciating value and losing money for the company.
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    US Bank is absorbing the credits on the new leases. It seems to be a hedge against possible value loss after 3 years. Much like the Leafs and Volts and so on had seen on their leases originating back in 2011 and 2012. If you want an escape hatch from ownership, choose a lease. I prefer to keep cars 6+ years and leasing is not good for me.

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    The tax credit is irrelevant when calculating the trade in value. If a buyer did or did not take the credit, did or did not pay sales tax (EVs are sales tax exempt in some states) its all irrelevant. The trade in value is related to what the car is worth, and what Tesla will be able to resell it for. The person who buys the used Tesla cares not what the original owner received or paid in taxes and credits.

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    The way to think about it is what you would do if you were buying your car after 1 week. In determining the value of the car, would you factor in the tax credit? I suspect you would factor it in for any offer... you wouldn't ignore it. If you paid $105,000 new and there is tax credit, would you offer to someone to buy their 1 week old Model S for, say, $104,000 and ignore the tax credit? No. You would not. No one would.

    So if the value of the car takes into account the tax credit even after just 1 week, it would certainly be the case in 1 year, and in 3 years. Everyone's Model S in the U.S.A. is valued with the tax credit removed.

    Now, what really peeves me is that you get an additional CA tax credit, which means my VA Model S is undercut by your car when it comes up in the used car market.

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    Senior Member lolachampcar's Avatar
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    and it is a nit, but you get to pay state sales tax on that extra $7500 then get to wait a year to get the $7500. In Florida, you pay 6% sales tax on that $7500 and then loose 5% cost of money waiting for the tax credit to apply (unless you do quarterly estimated payments at which point you can decrease the next quarter's payment and realize the benefit sooner). Small but not insignificant.
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    Quote Originally Posted by lolachampcar View Post
    and it is a nit, but you get to pay state sales tax on that extra $7500 then get to wait a year to get the $7500. In Florida, you pay 6% sales tax on that $7500 and then loose 5% cost of money waiting for the tax credit to apply (unless you do quarterly estimated payments at which point you can decrease the next quarter's payment and realize the benefit sooner). Small but not insignificant.
    You shouldn't be losing 5%, given that new car loans can be had for less.

  10. #10
    Senior Member lolachampcar's Avatar
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    I use 5% as my cost of money. It will vary from person to person.
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