Tax implications of selling a Model X immediately?

StephRob · Mar 27, 2015

I have two Model X reservations (one Sig and one Prod). I'm only going to buy one of these cars, but have both reservations because I don't know which one I will want. I have a friend who would love to have the reservation I don't use. However, Tesla is apparently unwilling to allow me to transfer my unused reservation to his name. I am just trying to help a friend out and no money will change hands. I know Tesla has a policy against transferring ownership, but it's irritating that they won't let me do this. (This X (the one I keep for myself) will be my third Tesla I have purchased and I've personally sold about 10 Model S's. I wish they'd cut me a little slack here.)

Anyway, assuming Tesla won't let me change names on the second X reservation, I may order the second X according to my friend's specifications and then "sell" it to him as soon as I take delivery (as in I would have him come on the factory tour with me and transfer ownership to him there if possible). The inefficiency in this is the $7500 tax credit. As the original owner, would I be able to take the credit even though I would only own it for about five minutes hopefully? That way, I could just sell it to my friend immediately for sticker minus $7500 and there would be no tax inefficiency. He would pay the same price he would otherwise and not be penalized for being the second owner. Do you think that would work? Thanks for your thoughts.

WSE51 · Mar 27, 2015

You need to check if you can do two $7500 tax credits in a single tax year -- I vaguely recall someone saying that you cannot. Maybe your Sig will come in late 2015 and the Production car in early 2016 so this won't be a problem.

Chris TX · Mar 27, 2015

You can do as many as you want. You can only claim them if you have the tax liability, though.

tga · Mar 28, 2015

IRS form 8936, "Qualified Plug-in Electric Drive Motor Vehicle Credit" (http://www.irs.gov/pub/irs-pdf/f8936.pdf) has space to claim 2 vehicles.

However, one of the requirements state that "You acquired the vehicle for use or to lease to others, and not for resale." (page 4, left column). If audited, I think you'd have a hard time claiming the purchase wasn't for resale.

Someone either here or over on the factory forums mentioned that they effectively transferred a reservation on an early S by giving their Tesla login info to the recipient. The new buyer logged in and changed the name and address on the account, and voila, paperwork now in their name.

You friend could also just wait an extra 6 months for the bugs to get shaken out of early production. New reservations are for early 2016. He'd also have to wait another year for the tax credit (unless adjusting withholding or estimated payments).

Chris TX · Mar 28, 2015

tga said:
IRS form 8936, "Qualified Plug-in Electric Drive Motor Vehicle Credit" (http://www.irs.gov/pub/irs-pdf/f8936.pdf) has space to claim 2 vehicles.

However, one of the requirements state that "You acquired the vehicle for use or to lease to others, and not for resale." (page 4, left column). If audited, I think you'd have a hard time claiming the purchase wasn't for resale.

How would the IRS be able to prove your intent was for resale? Just because you buy something and then sell it soon after, doesn't count as proof. What if you didn't like the color? Just pick something you didn't like about it and claim that if they ask. If you need more than one form, why wouldn't you just submit more than one?

tga · Mar 28, 2015

Chris TX said:
How would the IRS be able to prove your intent was for resale? Just because you buy something and then sell it soon after, doesn't count as proof. What if you didn't like the color? Just pick something you didn't like about it and claim that if they ask.

I take it you've never been on the wrong side of a disagreement with the IRS. Logic generally doesn't apply. Personally, I try not to give them an excuse to come knocking.

Chris TX said:
If you need more than one form, why wouldn't you just submit more than one?

My point was simply that if the form is set up to take multiple credits, than it's probably a fair assumption that they will allow you to take multiple credits.

cpa · Mar 28, 2015

tga said:
I take it you've never been on the wrong side of a disagreement with the IRS. Logic generally doesn't apply. Personally, I try not to give them an excuse to come knocking.

Take if from a guy who has done battle with the Service many times over the years. The burden of proof is ALWAYS on the taxpayer to support any position taken on a tax return. Once the taxpayer can provide reasonable proof in taking a position, then the burden shifts to the IRS. Above all, facts and circumstances dictate what is reasonable proof and what is frivolous or specious or even worse.

Sudden unforeseen life changes like a job loss, divorce, death are strong indicators that a taxpayer intended to buy two Teslas but was forced to sell one shortly after purchase. But to order two, claim two credits, and then sell one to a friend soon after (you don't think they could find out if the buyer was an acquaintance--think again!) is probably not the wisest move, in my opinion.

Unless the second $7,500 tax credit is immaterial to your total income tax liability, the risk ain't worth the reward.

swaltner · Mar 29, 2015

Since you've posted on this forum asking if you could immediately resell the vehicle, it would be pretty easy for the IRS to show you had the intent to resell the vehicle.

One potential solution would be to get the vehicle titled to "John Doe and/or <John Doe's Best Friend>". After you get the initial title, work with the state DMV to remove your name from the title.

Frankly, too much hassle, just cancel one of your reservations and have your friend get their own. SOOOOO much easier to do!

swaltner · Mar 29, 2015

The major problem with immediately selling the vehicle is that you would be paying sales tax twice! (If your state charges sales tax...) in Kansas at least, you would pay sales tax when you purchase the car and then your friend would pay sales tax again when the purchase it from you.

Jack_L · Mar 31, 2015

If I read the IRS form correctly (and I am NOT a CPA so don't go by this) it states you need to "place the vehicle in service" in the year you take the credit. Unless you actually register the vehicle and drive it for some period of time I'm not sure you legally qualify for the credit and that could be another potential audit issue.....

FlasherZ · Mar 31, 2015

Chris TX said:
How would the IRS be able to prove your intent was for resale? Just because you buy something and then sell it soon after, doesn't count as proof. What if you didn't like the color? Just pick something you didn't like about it and claim that if they ask. If you need more than one form, why wouldn't you just submit more than one?

I will simply add my own experiences: the IRS would disallow the credit, you would lose the appeal. Should you take it to tax court, you'll lose there, too, because the letter of the law is clear. It's not about intent, it's about the actions you took. If you buy a car, then immediately turn around and sell it, you resold it - and the purpose was resale. As noted, there are some hardship cases that the IRS would consider; however, not liking the product's color wouldn't be one of them.

Even with hardship exemptions, there are times they won't fly, either. Imagine for a second that you put $40k down on a Signature reservation, and that it was non-refundable (it is refundable, but for the sake of argument let's say it's not). You see you're going to be in trouble, so you decide to make the purchase anyway to resell it immediately, and you decide to claim the tax credit. You then turn around and sell the Model X. You could try to make the argument that you purchased the vehicle and re-sold it so you would get some value from the $40k instead of losing it, because your hardship requires you get the money. While purchasing the vehicle to reclaim value from your deposit was probably the right decision so you could recover some of it for your hardship, the IRS would still disallow the rebate - because you resold it.

hill · Jun 16, 2015

FlasherZ said:
I will simply add my own experiences: the IRS would disallow the credit, you would lose the appeal. Should you take it to tax court, you'll lose there, too...........snip............

First - no one's going to go to court over such a piddly amount. The tax/interest/penalty savings would be tremendously outweighed by the cost of tax court (I used to do this back in the day).
2nd - You're not going to profit selling a once new / now used car. You loose thousands once you drive it off. If you want to pretend we're in an alternate universe - and only there - you actually DO profit. It's simple. You would NOT be taxed on the amount of 'income' you make (whether $10k a year or $500k) as a sale - as profit of selling 'things' is taxed in this instance as a short term capitol gain.
Take this as a 'guess' ... with a grain of salt, as this is NOT tax advice as my license is presently in 'inactive' status. You get what you pay for, applies to advice too

.

rxlawdude · Jan 14, 2016

Hey, Hill, good to see you here!

bonnie · Jan 14, 2016

swaltner said:
The major problem with immediately selling the vehicle is that you would be paying sales tax twice! (If your state charges sales tax...) in Kansas at least, you would pay sales tax when you purchase the car and then your friend would pay sales tax again when the purchase it from you.

This. Plus because you're in CA, Tesla will need to send in your registration fees (approx $1k) / info at delivery. Those fees aren't refundable (unless it was sold or totaled before the registration period, but that wouldn't be true in your case).

hill · Jan 14, 2016

rxlawdude said:
Hey, Hill, good to see you here!

Like-wise ... Go figure!
.

Uncle Paul · Jan 14, 2016

Also believe that the Fed tax credit requires you to still own the car after a year, or it must be repaid.

Bifff67 · Jan 16, 2016

Uncle Paul said:
Also believe that the Fed tax credit requires you to still own the car after a year, or it must be repaid.

I see no such rule. And in fact if you take the credit in the the year purchased, you have not owned the car for a year by definition. Any definitive refs for your assertion?

astrotoy · Jan 16, 2016

swaltner said:
The major problem with immediately selling the vehicle is that you would be paying sales tax twice! (If your state charges sales tax...) in Kansas at least, you would pay sales tax when you purchase the car and then your friend would pay sales tax again when the purchase it from you.

In California, unless you have a reseller's license, you will have to pay sales tax. Then your friend will also have to pay the CA sales tax. With the high sales tax in CA, you will end up paying more than the Federal Tax credit on state sales tax, more like the Federal and California Tax credit combined ($10K).

Darryl · Feb 26, 2016

Uncle Paul said:
Also believe that the Fed tax credit requires you to still own the car after a year, or it must be repaid.

This is not how the law is worded at it doesn't say you have to keep it for any designated period but what the law does say is you cannot apply for the rebate if you intend to sell, lease, etc. It comes down to intent, the original poster has made it know he intends to sell one of the car by posting on this forum. Therefore he would be prohibited for applying for the rebate, if he does it could be considered fraud. Do remember the burden is on the tax payer to prove he didn't intend to sell which would be pretty hard to do after making this post. The other issue is depending on where he and the buyer lives he may end up paying double sales tax.

Tax implications of selling a Model X immediately?

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