EV Tax Credit and Capital Gains

[learningtaxtexas]

I am planning to buy an EV that qualifies for the EV Tax Credit of 7,500. This year, I sold a rental property and have capital gains. Capital gains tax amount will be around 15K. I am checking if there is a benefit  if I make the EV purchase before the end of 2023. 

Can I use the EV credit to lower my tax payment overall?

TY 

[Bsch4477]

The credit is applied to your tax liability (excluding self employment tax) but is not refundable and any credit not used up is not carried forward. 

[learningtaxtexas]

Generally speaking, lets say I owe 10,000 in tax. The EV tax credit would potentially help me to lower my payment to 3,500?

If I owe 5,000, I could only use that amount from the EV tax credit?

Thank you for your help.

[VolvoGirl · Accepted solution]

It's not whether you get a refund or tax due.   And the withholding doesn't matter.  It's if you have a tax liability on your income.  Look at your 1040 line 22 for total tax. So as long as Line 22 is more than $7500 (before applying the credit), you can use the whole credit.  It will reduce your income tax (but only to zero).  If your non-refundable credits reduce your tax to 0 you will get back all the withholding and payments and any Refundable Credits. Unless you owe for something else like self employment tax or the 10% Early Withdrawal Penalty on IRA withdrawals.