$7,500 Federal Tax Credit for Purchase of Electric Vehicle

[LeoChelsea]

To take advantage of the $7,500 federal tax credit for the purchase of an electrical vehicle I must owe at least $7,500 in federal taxes.  If during the year I deduct enough taxes from my pay check and don't owe any money to the government at year's end, will I forfeit the tax credit?  Do I need to increase the number of allowances (exemptions) such that I owe at least $7,500 by year's end?

[NancyG · Accepted solution]

No, the amount of tax withholding from your pay will have not impact on if you get the full credit of not.  It is based on tax you owe before taxes paid in (your withholding).

[moisesn]

Nancy, thanks for your answer. Does this mean that if I had paid more taxes via withholding I will get money back? Are there any strategies that could help take full advantage of the credit?

[SweetieJean]

If you have a Traditional IRA, you could convert some of it to a Roth, thus generating taxable income against which to use the credit.

[moisesn]

Sorry but I am still unclear. Nancy says that it is based on taxes before are paid and has nothing to do with my withholding. If I have been paying an amount per month and at the end of the year I end up with a refund of $2500, since the credit is $7500, would I get $10,000 back?

[SteamTrain]

No.....again...it depends on the assessed tax on your tax return.  (Tax owed BEFORE taking any withholding, or other prepayments, into consideration)

The way tax returns work is that, at tax time, you put in  all your income, and all your deductions and exemptions, and then a total tax is assessed against what remains.  Your monthly paycheck withholding is ignored until that calculation is done.  Normally, your Monthly withholding is then used as a credit against that assessed tax....but when the  vehicle credit is available, that credit will be used first to attempt to reduce the final tax result to zero...but no lower than zero.

Examples:
1)  Maybe at tax time, your assessed tax is already zero  (withholding hasn't been considered yet)  because you have so many deductions, and so little income.  The Vehicle credit can't be used...but since you also had withholding, you will get all your withholding back...but no more.
or
2)  The assessed tax is (perhaps ) $5000 for your situation.  Then $5,000 of the vehicle credit is used up to take that assessed tax to zero, and you lose the remaining 2,500.  Again, your get all your withholding back, because the credit was used and took care of all your assessed tax.
or
3) The assessed tax is (perhaps) 8500 for your situation.  All of the  $7500 vehicle credit is used first to pay off that, with $1000 remaining to be taken out of your withholding....and you get a refund of whatever withholding that wasn't used up.

Now, what SJ was saying was that if you can project your approximate tax assessment for 2017....and if you find that you are in situations #1 or #2...then it is an opportunity to convert some of a Traditional IRA to a ROTH IRA, such that the credit is used against what you would normally have to pay taxes for the conversion....and still get all your withholding back......but to do that, you need to have a really good idea of your total situation for 2017  (if buying in 2017) or 2018 if you are waiting until next year

[moisesn]

Thank you SteamTrain for the elaborate answer, I got it!

[DChandler82]

Just to be clear, Nancy, when you say you will get your withholding back, you are referring to line 64 on my Form 1040, federal tax income withheld? I am sorry if this is obvious but it's super critical that i know exactly how much money i'm getting back in order to make the correct decision on my electric vehicle. Thank you!

[SteamTrain]

We cannot know your situation.  

 IF... *IF* your "tax" liability on the tax line for 2018 form 1040 (equivalent to line 44 on the 2017 1040....but the line numbers are going to change drastically)....if the tax liability on that line is less or equal to the $7500, then you will get all your withholding back (yes, line 64, but also line 65)......(also assumes you do not have any self-employment income...or any of the items on the current 1040 lines 57-thru-62 because the credit won't offset those)

IF... *IF* your "tax" liability on the tax line for 2018 form 1040 is greater than $7500 (equivalent to line 44 on the 2017 1040), then you won't get all your line 64 + 65 withholding back.
________________________
1) Not all electric vehicles qualify for the full $7500...make sure you find out what $$$ your purchase qualifies for.
2) Watch out...some vehicle types are reaching their quota limits:
   <a rel="nofollow" target="_blank" href="http://evadoption.com/ev-sales/federal-ev-tax-credit-phase-out-tracker-by-automaker/">http://evadopt...>

[DChandler82]

Thank you so much SteamTrain for your quick reply, i appreciate it. I am a science teacher and tax "stuff" is like greek to me, haha, Thanks!

[TXUser]

Adding to some of the queries, is $7500 credit available to all irrespective of the income at time if return (like during joint filing with spouse) OR there is a CAP on total taxable income for 2019 for the $7500 credit to be applicable.

[tagteam]

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@TXUser wrote:

Adding to some of the queries, is $7500 credit available to all irrespective of the income at time if return (like during joint filing with spouse) OR there is a CAP on total taxable income for 2019 for the $7500 credit to be applicable.

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There is no cap; the credit is available to all irrespective of the income.

[fphinney]

SteamTrain -

I got a different problem...maybe you can help?

On my 2019 tax return, I am trying to apply for my Federal Tax Credit -

Main problem - I bought a 2020 Toyota Prius Prime on Dec 7, 2019.  My 2020 edition of TurboTax Deluxe doesn't allow my to choose a "2020 Toyota Prius Prime."  The list of vehicles only goes up to 2019.  If I try to use 2019, instead of 2020 - the program tells me -

"Your qualified plug-in electric drive must be placed in service in 2018, and the date purchased can be no later than the date placed in service"

What do I do?

FRANK

[phone number removed]

[email address removed]

[VictoriaD75]

Taxpayers are allowed a credit for the purchase of plug-in electric drive vehicles used for either business or personal purposes. The credit, which ranges between $2,500 and $7,500 for light-duty vehicles, varies depending on the weight of the vehicle and kilowatt hour of battery capacity. 

The credit phases out for each car manufacturer when they reach a total of 200,000 electric cars sold for use in the United States.

To determine if you are eligible, click on Deductions & Credits under the Federal menu. Under Cars and Other Things You Own, choose Start/Revisit next to Energy-Efficient Vehicles. Currently, this form is not available, as TurboTax is waiting for updates on the approved vehicles. This credit is reported on Form 8936, which is estimated to become available on February 12, 2020.

Plug-In Electric Drive Vehicle Credit

[billshepard1935]

I am trying to ask when will I be able to apply for the Federal tax credit for the purchase of an electric vehicle???

William

[email address removed]