$7,500 Federal Tax Credit Bummer

[BrokerDon]

I was not able to use the charging equipment installation credit, apparently because it was either phased out by income restrictions (you don't get it if you make more than X dollars) or because of the Alternative Minimum Tax.

Same problem with the charging equipment credit here. Seems like you get the $7,500 EV tax credit OR charging equipment installation credit... but not both.

YMMV

Amateur Driver, Open Road

 

[AZGirl]

Hate to be repetitive, but just want to understand the timing.....a 60 year old who takes delivery of a Model 3 in 2018 and is eligible for a tax credit could roll over funds (and generate income tax liability) from a traditional IRA to a ROTH IRA by 12-31-18?
I believe IRA contributions for 2016 could be made up through mid-April 2017 and am not sure if ROTH conversions also work this way or must be done within the calendar year.

 

[cpa]

While I was able to use all of my $7,500 purchase credit on taxable income consisting of earned income as well as capital gain, I was not able to use the charging equipment installation credit, apparently because it was either phased out by income restrictions (you don't get it if you make more than X dollars) or because of the Alternative Minimum Tax.

AMT. The EVSE tax credit is not allowed against AMT.

 

[cpa]

Same problem with the charging equipment credit here. Seems like you get the $7,500 EV tax credit OR charging equipment installation credit... but not both.

YMMV

Amateur Driver, Open Road

Not quite. The EVSE credit is not allowed against AMT. The personal portion of the $7,500 vehicle credit is. So, a person could utilize the EVSE credit and not take the 30D credit when, for example, his regular tax is $5,000 and his "Tentative Minimum Tax" is $2,750. In theory, he could take up to $2,250 of the EVSE credit. This might be foolish, but it is permissible.

Probably a more apt example is a taxpayer who has $1,200,000 of AGI and $125,000 of deductions, including $90,000 of taxes. His regular tax might easily top $322,500 while his "tentative minimum tax" comes in at $310,000. He can use the $7,500 credit for the vehicle, taking his regular tax down to $315,000. Now his regular tax is $5,000 > his tentative minimum tax. So, he will be able to take a 30% credit on his customized $3,000 HPWC installation. ($900.)

Also, I have not done the calculations, but it is certainly possible that a Tesla used primarily for business purposes would not have the business portion of the credit available in the current year for whatever reason. However, the EVSE credit could be utilized personally if, again, the taxpayer's tentative minimum tax were less than his regular tax, less the personal portion of the BEV credit and the EVSE credit.

 

[swaltner]

Hate to be repetitive, but just want to understand the timing.....a 60 year old who takes delivery of a Model 3 in 2018 and is eligible for a tax credit could roll over funds (and generate income tax liability) from a traditional IRA to a ROTH IRA by 12-31-18?
I believe IRA contributions for 2016 could be made up through mid-April 2017 and am not sure if ROTH conversions also work this way or must be done within the calendar year.

Conversions must be done during the calendar year for the tax return (Dec 31 deadline). Contributions and Recharacterizations for a specific tax year can be made at any point up to the normal filing deadline (mid-April).

And yes, a conversion from a Traditional IRA to a Roth IRA is a convenient way to artificially inflate your income for a specific tax year to make sure you can take full advantage of a non-refundable tax credit like the one for purchasing a new EV.

 

[AZGirl]

Thanks (love the kangaroo!)

 

[John G]

It depends. How do YOU define tax liability?

If you are over 59 1/2, then all you pay is income tax on your pension withdrawal, and yes, the $7,500 Section 30D credit can be used to reduce your income taxes on that withdrawal. But common sense tells me to roll that distribution into a Roth IRA. Same tax hit, but the funds appreciate tax-free and withdrawals are tax free.

However, if you are younger than 59 1/2, then you not only have income taxes to pay on the distribution (which, yes, the 30D credit can be used to reduce the income taxes), but you will also have a 10% excise tax penalty figured on form 5329 and reported on line 59. Line 59 is part of the "other taxes" segment of form 1040, and these are not Chapter 1 (income) taxes. The $7,500 30D tax credit cannot be used to offset this additional tax. So, a hypothetical $40,000 early distribution from a qualified plan will result in federal and state income taxes on $40,000 plus a $4,000 additional federal tax. Here in California, the state has its 2 1/2% additional tax.

If you did roll the money into the Roth IRA which is a great idea, is there a restriction on the time before the money can be withdrawn? Just out of curiosity.ty

 

[cpa]

Yes, there is a restriction, and I do not recall exactly what this is. (Might be two years if >59 1/2). Filing season has come and gone, and I only have about 15 returns on extension, none of which have this issue. (Sorry!)

The IRS publication that covers IRAs and Roth IRAs will be able to answer your question.

 

[smartypnz]

Is the tax credit only available to the first buyer? I mean, if not claimed, can a subsequent buyer take advantage of it? (Such as an LLC)

 

[Reciprocity]

I have not read this thread, it's too long. If you don't have income that's high enough to fully take advantage of tax credits, just lease. The full tax credit applies to the lease.

 

[cpa]

Is the tax credit only available to the first buyer? I mean, if not claimed, can a subsequent buyer take advantage of it? (Such as an LLC)

No.

 

[dgpcolorado]

I have not read this thread, it's too long. If you don't have income that's high enough to fully take advantage of tax credits, just lease. The full tax credit applies to the lease.

While true, it doesn't work for a "lease to own" strategy because the leasing company applies the tax credit value to the residual price, making the value of the credit disappear if one purchases the car at the end of the lease. That was how it worked a year ago anyway; haven't checked it lately.

 

[dgpcolorado]

If you did roll the money into the Roth IRA which is a great idea, is there a restriction on the time before the money can be withdrawn? Just out of curiosity.ty

It is a bit complicated. In general you can take Roth IRA distributions if the account has been open for five years and you are at least 59½. There are some exceptions that allow distributions in other cases. I believe that it is also possible to take out the contributions, but not the earnings, without penalty or taxes — because the money is after-tax — without meeting the five year/age 59½ requirement.

For more info on contributing to IRAs:
https://www.irs.gov/pub/irs-pdf/p590a.pdf

For more info on withdrawing from IRAs:
https://www.irs.gov/pub/irs-pdf/p590b.pdf