Tax credit 2013

[RobbW]

Okay, I just want to make sure I understand this correctly. I can only take the $7,500 EV tax credit if I end up with a tax LIABILITY after doing my 2013 income tax return? So, when I do my return, if I'm showing that I owe the IRS $10,000, I can claim the full EV credit and lower my liability to $2,500? If I owe $5,000, I can only claim $5K of the credit and lower my liability to zero? If I am sitting at a $2.75 refund, I CANNOT claim ANY of the EV credit? So, I can't take the EV credit, add it to my $2.75 refund, and come away with a $7,502.50 income tax refund?!

So, where the heck is the incentive to purchase an EV for anyone who normally gets a federal tax refund or anyone who is able to balance their income tax withholding to come away with a $0 federal return each year? The IRS is incentivizing people to "cheat" in order to claim the EV credit? That's cr@p! We specifically bought our i BECAUSE of the $7,500 tax credit figuring it would effectively lower the total amount paid for the car down into our price range! If this is true, it means I'm not getting any financial benefit or reward for choosing "green" other than that feel-good green feeling, which DOES "feel" really good, BTW. But I'd also like to have my $7,500! Now this means we spent more for this vehicle than we felt comfortable spending. Boo hiss!

 

[danpatgal]

RobbW, liability is NOT equivalent to an UNDERPAYMENT. Liability is merely the total calculated tax in the year based on your income after all your deductions. If your tax liability (what you owe the IRS for the year) is $7500, you can apply the EV tax credit to make that liability $0.

You've mixed in another factor, which is how much you've already paid to the IRS through paycheck deductions (or quarterly payments). If you've paid $7500 already to the IRS during the year and your liability is also $7500 (a miracle of good planning) then without buying the EV, you pay nothing and also get nothing back. However, if you've paid $7500 over the year, your liability is $7500 AND you buy an EV, then you can apply that credit against your liability so that your liability goes to $0 and you would get a $7500 refund.

Tax credits like this - in comparison to deductions which only reduce your effective income - are better and simpler since there is no adjustment to the tax liability calculation. Of course, I totally agree with Don and others who would rather see a point of sale rebate so that more people could take advantage of credit. You have to earn (just guessing here) in the range of $70k/year (single w/o many deductions) or $90k (family with) to take the full credit. But, I do believe you can roll any unused credit to subsequent years. For example, if you could only get $5k credit this year because your liability was only $5k, you can use the other $2.5k as a credit on your 2014 taxes (assuming you have at least a $2.5k liability in 2014 also).

 

[jlhiowa]

@ RobbW: Here's how I checked to see if I would qualify for the federal tax rebate.

I pulled up my 2012 federal tax return. I use Turbo Tax and the cover sheet lists my total tax as $2,517. My income hasn't changed, so I know there's no way I will hit $7,500 in 2013.

:arrow: Also, on Form 1040, line 46 shows how much tax you had to pay in 2012.

 

[BillThompsonMIEV]

Look at line 46 of your 1040 2012 tax return. If the amount on that line is greater than zero, and lines 47 through 52 are zero or blank, your ev credit will be the amount on line 46.

 

[RobbW]

I thought I read somewhere that the EV credit was kind of like "use it or lose it". If you weren't able to use the full credit in the year you purchased the EV, you couldn't roll the remaining credit to the next year.

Alright, let's see if I have this correct. For simplicity's sake (and not indicative of anyone's current financial position), let's assume a family's gross household income was $100K for the year. Dad's an underpaid bean counter, but mom's an exotic dancer with great big tips! After taking their deductions for dependents, mortgage interest, property taxes, and charitable contributions, their net taxable income is $65K. If they are in the 29% tax bracket, their total tax liability is $65K x 29% = $18,850. Now, is THIS the tax liability you're referring to? So, regardless of how much federal income tax was withheld from their paychecks for the year, as long as this amount is over $7,500, they can claim the full EV tax credit. If, through the miracle of good planning, this couple's federal income tax withholding for the year was exactly $18,850 (meaning $0 remaining liability), they will still receive a $7,500 tax refund?

 

[RobbW]

Look at line 46 of your 1040 2012 tax return. If the amount on that line is greater than zero, and lines 47 through 52 are zero or blank, your ev credit will be the amount on line 46.

Ah, so any other tax credits such as child tax credit will reduce the amount of the EV credit you qualify for. In essence, all your tax credits can only reduce your tax liability to zero. It cannot make it go negative. So, if your child tax credit and EV credit bring your liability to zero, you will get a refund equal to the amount of federal income tax that was withheld from your payroll, right?

 

[Don]

No - The amount they withheld has nothing to do with it at all

You bought a qualifying EV and line 46 is the only key to the amount of the credit you're going to get. When your tax forms are all filled out, if the line 46 number was $7500 or more last year and nothing changed for this year, you're in pretty good shape for getting the full credit. If your line 46 was something less than $7500, then whatever that number was, is about the credit you should be able to take next year, again, assuming nothing's changed. Unless you made a bunch, then your total tax liability is probably going to be zero once you apply the credit

It's a one time deal - If you can't take it all this year, you can't take any more of it next year either

Don

 

[danpatgal]

I thought I read somewhere that the EV credit was kind of like "use it or lose it". If you weren't able to use the full credit in the year you purchased the EV, you couldn't roll the remaining credit to the next year.

Alright, let's see if I have this correct. For simplicity's sake (and not indicative of anyone's current financial position), let's assume a family's gross household income was $100K for the year. Dad's an underpaid bean counter, but mom's an exotic dancer with great big tips! After taking their deductions for dependents, mortgage interest, property taxes, and charitable contributions, their net taxable income is $65K. If they are in the 29% tax bracket, their total tax liability is $65K x 29% = $18,850. Now, is THIS the tax liability you're referring to? So, regardless of how much federal income tax was withheld from their paychecks for the year, as long as this amount is over $7,500, they can claim the full EV tax credit. If, through the miracle of good planning, this couple's federal income tax withholding for the year was exactly $18,850 (meaning $0 remaining liability), they will still receive a $7,500 tax refund?

LOL ... and your analysis is correct up until you mixed in your withholding. If you imagine the law abiding (because she's married to a bean counter) exotic dancer who doesn't have any withholdings because she's paid totally in cash tips (the bean counter is unemployed for the year, for example), but she still makes $100k (she's a top model ). Their tax liability is still $18,850. Since they didn't have any ongoing withholdings, the total amount of $18,850 must be paid to the IRS. However, if you buy an EV, you can subtract $7500 from the $18,850 and pay only $11,350. ($11,350 is your liability for the year, whether you had withholdings during the year or not. Some savvy bean counters wait until April 15th of the next year to pay their taxes because it saves them a few dollars by earning interest on that money instead of letting the IRS have it interest free for some number of months.)

Regarding the "use it or lose it" aspect of the credit, I tried to find some documentation of this, but couldn't. Ideally what happens is that if your 2013 tax liability is only $5k (which is erased by the $7.5k EV credit), the remaining $2.5k of the credit could be applied to your tax liability in 2014. I heard that you can, but I'm not sure. Anybody else know for sure or have a reference? (Incidentally, the IRS will not "pay" you for a credit in excess of liability, that would be like a rebate. Rather, credits only reduce the tax liability owed to the IRS, at best down to a liability of 0.)

 

[RobbW]

Alright, I think I finally understand it all now. Thanks for the extensive explanations, everyone!

 

[RobbW]

Of course, I'm sure Turbo Tax would have walked me through all this, too, when I went to do my 2013 taxes. However, I wanted to make sure I understood how the EV tax credit was going to work in case I needed to make any tax planning decisions to ensure I get the full credit.

 

[alohart]

Of course, I'm sure Turbo Tax would have walked me through all this, too, when I went to do my 2013 taxes.

Yeah, TurboTax 2012 figured it out for me, but the filing of Form 8936 necessary to claim the EV purchase tax credit prevented me from filing electronically thus delaying my refund significantly. But according to this thread, the processing of this tax credit is improving over the years, so maybe it will be seamless in 2013.

 

[danpatgal]

Of course, I'm sure Turbo Tax would have walked me through all this, too, when I went to do my 2013 taxes. However, I wanted to make sure I understood how the EV tax credit was going to work in case I needed to make any tax planning decisions to ensure I get the full credit.

Yes, but it's always good to understand what should happen, in case the software doesn't do it. And, I made an assumption (didn't do all the numbers) and took an early payout on a retirement fund to buy my EV - But I would have been much better off using the 0% financing instead. Hindsight is always 20/20.