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Model 3 pre order and tax credit ?

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G

Gleason

New Member
Feb 10, 2016
2
0
United States
#1
I was curious how the tax rebates work for model 3 pre orders ? I read the federal credit is phased out within roughly a year when tesla reaches 200,000 units. with 2015 production of the model S hitting 50k cars, and being close to 100k deliveries since inception, they are pretty much garunteed to be over 200k cars before model 3 is rolling off the production line.

I'm going to pre order a model 3 once they go live online, would I be able to claim the tax credit on delivery year since I preordered before they hit 200k production cars ?

Or is the tax credit for 200k units per EV model ?

Thanks
-Brian
 
#2
You can claim the credit for the tax year the car was put into service, when you ordered does not matter. However, there is a one year taper for the credit that kicks in two calendar quarters after the manufacturer crosses the 200K mark. For the first two quarters of the taper, its 50% of the credit then drops to 25% of the crew for the final two quarters.
 
#4
Yep, it's 200k US cars, and starts the 2nd quarter AFTER the quarter that 200k hits. As others have said, most likely they'll hit 200k in the US in Q1 2018, after the cars have started production, which means taper at 50% will begin Q3 ($3750 rebate) and then Q1 2019 to 25% ($1875) and then finally gone at Q3 2019. If you preorder, I'd think you will definitely still fall within the first two quarters of 2018.
 
#7
Can we just make a sticky for this?

dhanson865 said:
The current rate has them selling more than 20,000 in the US for 2015. Ramping up Model X and production in general might trigger the 200,000 mark in 2018? I figure it'll be a Model 3 that is the 200,000th sold in the US (or at least Model 3 sales will be under the 200,000 mark and contribute to the total).

The phase-out period stretches over one year, beginning in the second calendar quarter after the quarter in which the manufacturer hits the 200,000 vehicle US sales mark. From there, all qualifying vehicles sold by the manufacturer are eligible for 50% of their specified credit for the first two quarters and 25% of the credit for the next two quarters.

For example if a manufacturer sells its 200,000th vehicle in the first quarter (Q1) of 2018, the credit amounts for all of that manufacturer's eligible vehicles would phase out as shown in the table below.

Tax Credit Phase-Out Schedule Quarter Credit
Q1 2018 Full amount
Q2 2018 Full amount
Q3 2018 50% of full amount
Q4 2018 50% of full amount
Q1 2019 25% of full amount
Q2 2019 25% of full amount
Q3 2019 No credit

It's entirely possible that it will trigger sooner and run out sooner but the important concept is that it doesn't go away immediately and when it starts going away it diminishes slowly not all at once.

If Tesla is pumping out 10,000 plus a month in 2018 they could easily sell 50,000 or more with the full tax credit. They could then be selling double that amount in the next 6 months with half tax credit. And then double rate again with 1/4 tax credit. All in all hundreds of thousands of Model 3s could be sold with federal tax credit.

Keep in mind Tesla can game this slightly by focusing on overseas deliveries of Model S and Model X the month they are going to roll over 200,000 US deliveries. If that rolls them into the next quarter it extends the tax credit by 3 months no matter how many they sell after that.


Now to update the current totals at end of 2015 would be

US running total Tesla Sales vs 200,000 for federal credit phase out trigger
2011 end 1,900
2012 end 4,550 (2,650 for 2012 + prior year)
2013 end 22,200 (14,650 for 2013 + prior years)
2014 end 39,500 (17,300 for 2014 + prior years)
2015 end 65,414 (25,914 for 2015 + prior years, Model S and Model X)
2016 current 66,634 (1,220 for Jan 2016 + prior years)

Do the math if Tesla is doing less than 26,000 a year US in 2015 how many years will it take to hit 200,000 US sales? They'll ramp up S and X production but there will still be plenty of discounts on Model 3.

Lets say 75,000 US for 2016 and 75,000 US for 2017, and maybe some of the tail of 2017 are founders Model 3. Then in 1Q 2018 they open the floodgates and a ton of Signature Model 3s come out, in 2Q 2018 a ton of regular model 3s come out all with full tax credit. Hoorah, look at this again

Tax Credit Phase-Out Schedule Quarter Credit
Q3 2017 possible deferred shipping to EU/ROW to avoid crossing 200,00 in US
Q4 2017 founders Model 3 with full credit (200,000 mark crossed)
Q1 2018 signature Model 3 with Full credit
Q2 2018 production Model 3 with Full credit (will they be making 4,000+ a week by then? Maybe 12 weeks worth is 50,000 Model 3s with full credit?)
Q3 2018 50% of full amount (maybe 75,000 Model 3s with half credit)
Q4 2018 50% of full amount (maybe 100,000 Model 3s with half credit, with extra production going outside the US)
Q1 2019 25% of full amount (maybe 100,000 Model 3s with quarter credit, with extra production going outside the US)
Q2 2019 25% of full amount (maybe 100,000 Model 3s with quarter credit, with extra production going outside the US)
Q3 2019 No credit

all in all they might get out 100,000 with full credit, 200,000 with half credit, and another 200,000 with quarter credit. I'd hardly call 500,000 Model 3s in 2018/2019 the same as your version of none of them getting the credit.

Shift that back a quarter and 100,000 less cars get a full credit, shift that forward a quarter and 100,000 more get a full credit. Just depends when they can start cranking out Model 3 en masse.
Click to expand...
 
#8
dhanson865 said:
all in all they might get out 100,000 with full credit, 200,000 with half credit, and another 200,000 with quarter credit. I'd hardly call 500,000 Model 3s in 2018/2019 the same as your version of none of them getting the credit.
Click to expand...

I think your estimates of future production numbers are massively overstated. I bet way fewer Model 3's will actually get the credit once the trigger is met. Maybe I will be happily wrong, but telling people that up to 500k Model 3's will get some portion of the tax credit seems fanciful based on Tesla's track record.
 
#9
Az_Rael said:
I think your estimates of future production numbers are massively overstated. I bet way fewer Model 3's will actually get the credit once the trigger is met. Maybe I will be happily wrong, but telling people that up to 500k Model 3's will get some portion of the tax credit seems fanciful based on Tesla's track record.
Click to expand...

My post was originally in response to the common cry that NONE of the model 3 will get the credit. Obviously the number that get the full credit, the half credit, and the quarter credit will be somewhere between 0 and the optimistic numbers I tossed out.

I'll be happy to modify the numbers as we get better visibility from quarterly earnings calls but I felt it necessary to show the math so you can reasonably modify the estimate to your own expectations and not just think it cuts off on day X with no phase out.

In short that is just math to make you think.

But while you are thinking about it the Fremont facility has produced over 500,000 cars a year in the past and can easily be tooled up to do 500,000 a year again. Tesla will ramp it up as much as possible between now and the end of 2017 so it isn't impossible for them to hit my numbers. It's just uncertain.

And lets talk about Tesla's track record for a second.

2012 2,600 cars
2013 25,000 cars total (22,400 cars in 2013 + prior year)
2014 57,000 cars total (32,000 cars in 2014 + prior years)
2015 107,000 cars total (50,000 cars in 2015 + prior years)

2016 forecast in the last earning call is 80,000 to 90,000 cars.

2017 could take it up to 125,000
2018 could take it up to 190,000

It might be less but their "track record" is that they increased production by 56% comparing 2015 to 2014. So I have no reason to believe they won't increase it like they plan to.
 
Last edited:
#10
Can some also explain how the tax rebate works as applying it to your total after receiving it? Do you just pay that amount towards your total car payment, which then lowers your monthly payments? Never done this before........
 
#11
Usually tax credits come off your tax return, so make sure you will owe at least that amount that year. I'm assuming that won't be difficult for most on this board.

Granted, I've only gotten one for an adoption (not a car) so it may work differently in this case.
 
#13
ggies07 said:
Can some also explain how the tax rebate works as applying it to your total after receiving it? Do you just pay that amount towards your total car payment, which then lowers your monthly payments? Never done this before........
Click to expand...
You pay for the car, either cash, financing, or a mix. On your tax return, your total tax due is reduced by the lesser of the credit and the total due (ie, it's not a "refundable credit"). This is the total tax due for the year, before any withholding/estimated payments, not the amount of your refund/amount due in April. Some examples:

  • Your total income tax liability is $100,000. You paid $90,000 in withholding/estimated payments. The $7,500 credit reduces your tax liability to $92,500, so you have $2,500 due in April, instead of $10k
  • Your total income tax liability is $5,000. You paid $6,000 in withholding/estimated payments. The $7,500 credit is reduced to $5,000 (it can't be more than your tax due), reducing your tax liability to $0. You get a full refund of $6,000 in April, instead of $1,000.
If you know you are getting the credit (ie, your tax liability is >$7,500), you can reduce your withholding or quarterly payments to get money back during the year, rather than a lump sum the following April (I did this for the solar installation credit). So then you could think of this as going towards the car payment/paying down the loan.

If you lease the car, then the tax credit goes to the leasing company, as they are the actual owner. It may reduce your down payment by some amount up to the credit, depending on how generous/honest they are.

None of this applies to a used car purchase. Only a new one which has never been titled before.

All of the above is for federal taxes. Some states have their own incentives.
 
#14
tga said:
You pay for the car, either cash, financing, or a mix. On your tax return, your total tax due is reduced by the lesser of the credit and the total due (ie, it's not a "refundable credit"). This is the total tax due for the year, before any withholding/estimated payments, not the amount of your refund/amount due in April. Some examples:

  • Your total income tax liability is $100,000. You paid $90,000 in withholding/estimated payments. The $7,500 credit reduces your tax liability to $92,500, so you have $2,500 due in April, instead of $10k
  • Your total income tax liability is $5,000. You paid $6,000 in withholding/estimated payments. The $7,500 credit is reduced to $5,000 (it can't be more than your tax due), reducing your tax liability to $0. You get a full refund of $6,000 in April, instead of $1,000.
If you know you are getting the credit (ie, your tax liability is >$7,500), you can reduce your withholding or quarterly payments to get money back during the year, rather than a lump sum the following April (I did this for the solar installation credit). So then you could think of this as going towards the car payment/paying down the loan.

If you lease the car, then the tax credit goes to the leasing company, as they are the actual owner. It may reduce your down payment by some amount up to the credit, depending on how generous/honest they are.

None of this applies to a used car purchase. Only a new one which has never been titled before.

All of the above is for federal taxes. Some states have their own incentives.
Click to expand...

I see. Yeah, I suck at stuff like this, still confused. So then $7,500 off of 35,000 or whatever price does not truly bring that monthly payment down to that level of $27,500, correct? You apply whatever amount you get back to the total, but the monthly total is still from the purchase amount.

We have great credit, just trying to understand what amount I should ask the bank for, the full amount, or what would be after the tax credit? Trying to get the monthly payment down as much as possible.
 
#15
ggies07 said:
I see. Yeah, I suck at stuff like this, still confused. So then $7,500 off of 35,000 or whatever price does not truly bring that monthly payment down to that level of $27,500, correct? You apply whatever amount you get back to the total, but the monthly total is still from the purchase amount.

We have great credit, just trying to understand what amount I should ask the bank for, the full amount, or what would be after the tax credit? Trying to get the monthly payment down as much as possible.
Click to expand...


I got the 7500 credit when I bought my Volt. I financed the car for the price BEFORE the $7500 (and before the $1500 additional my state offers). When I filed my taxes the next year, I got 7500 back in the form of a refund. My car payment is the same as it was the day I bought the car though, that didn't change.

If you KNOW you have at least 7500 in taxes (not withholdings), I would consider taking out a small loan for the $7500 before buying the car and applying that money to the car before you finance. THAT will bring your payments down and make the 7500 act like it's coming off the car price. Then you just pay the small loan off once you file your taxes.
 
#17
ggies07 said:
I see. Yeah, I suck at stuff like this, still confused. So then $7,500 off of 35,000 or whatever price does not truly bring that monthly payment down to that level of $27,500, correct? You apply whatever amount you get back to the total, but the monthly total is still from the purchase amount.

We have great credit, just trying to understand what amount I should ask the bank for, the full amount, or what would be after the tax credit? Trying to get the monthly payment down as much as possible.
Click to expand...
You have to pay for the car in full so you need to borrow difference between what you're paying down and the cost of the car. The tax credit has no effect on this.

As ggies07 said you could lower your withholding (fill out a new W-4 with your employer) by $7,500. This would make your paychecks slightly larger ($625/month) which you could use to offset some of your monthly but that could be a tricky calculation.
 
#18
One option you could consider would be to refinance the car after receiving your income tax refund (which would hopefully be larger thanks to the tax credit). In Colorado, we can also get a $6000 state tax credit. I plan on taking a large part of my refunds and applying them to the loan balance. If interest rates are still low, I'd then refinance, borrowing $13.5k to $20k less (federal and state refunds plus payments made over the previous year) than the original loan, greatly reducing the monthly payment.
 
#19
ggies07 said:
I see. Yeah, I suck at stuff like this, still confused. So then $7,500 off of 35,000 or whatever price does not truly bring that monthly payment down to that level of $27,500, correct? You apply whatever amount you get back to the total, but the monthly total is still from the purchase amount.
Click to expand...
Assuming you're not leasing and you can take the full $7500 credit, correct. Some people use this as a pro-lease argument (the credit often goes towards your down payment, and it allows people with limited tax liability to get the credit that they would otherwise be able to use in a roundabout way). This is why EV's often have low lease rates - there's $7500 baked into the downpayment.

ggies07 said:
We have great credit, just trying to understand what amount I should ask the bank for, the full amount, or what would be after the tax credit? Trying to get the monthly payment down as much as possible.
Click to expand...
You would have to give Tesla a total of $35,000 (down payment+cash from bank financing). Your loan payment is based on the amount financed, before the tax credit. There are two (mostly) independent transactions here. You are buying a car from Tesla, and financing some of the cost. At a later date, you get $7500 back from the feds. The bank isn't involved in your taxes - that's between you and Uncle Sam.

As an example, assume you put down 3000 on a 35000 car and borrow the rest for 5 years at 2%.

Purchase price:$35,000
Down payment:$3,000
Amount financed from bank:$32,000
Monthly payment (on $32k):$560.89
Your payment is based on borrowing $32k ($35k-$3k), not $24.5k ($35k-$3k-$7.5k)

Now, if you bought the car in January, you could reduce your withholding by $7500/12 = $625/month, and use that to pay down the principle on the loan (assuming no pre-payment penalty). Your note would be paid off quicker, but you'd still be making payments of $561/month, you just turn your 5 year loan into a ~4 year loan.

You could (in this example) go up to a 6 year loan, get a lower monthly payment, apply the $625/month extra net income to pay down the principle balance, winding up with a ~5 year loan, with the lower payment of the 6 year loan. But figuring that out would require plugging numbers into a spreadsheet to simulate the specific case.
 
#20
MorrisonHiker said:
One option you could consider would be to refinance the car after receiving your income tax refund (which would hopefully be larger thanks to the tax credit). In Colorado, we can also get a $6000 state tax credit. I plan on taking a large part of my refunds and applying them to the loan balance. If interest rates are still low, I'd then refinance, borrowing $13.5k to $20k less (federal and state refunds plus payments made over the previous year) than the original loan, greatly reducing the monthly payment.
Click to expand...

I have never refinanced a car loan, but I wonder how depreciation plays into the ability to refinance? When you drive any current EV off a lot, it's value immediately goes down by at least 7500 (the tax credit) plus "regular" car depreciation of several thousand. If you didn't put enough down on top of the $7500 to cover that, it might be hard to refinance. With your giant state credit, it's probably not a big deal, but in places that only get the Federal that might be tougher.
 
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