EV tax credit with cosigner

[smorgan103]

If I'm making over $150,000 per year then that means I do not qualify for the tax credit on an electric vehicle.  If I were to have my parents co-sign on the loan, who are retired and well below the income threshold, would they be able to redeem the tax credit?  

[NCperson · Accepted solution]

@smorgan103 - two things

first, the income limit is based on this years income OR last year's income.  Do you qualify using last year's income? 

second, the loan has nothing to do with it.  it is the owner of the vehicle that gets the credit. 

look at Q11.... only owners are eligible to take the credit and it can only be ONE owner. So even if your parents were on the title and they claimed it on their taxes, they are limited by their tax liability (if it happens to be less than $7500) 

https://www.irs.gov/newsroom/topic-a-frequently-asked-questions-about-the-eligibility-rules-for-the-...

[Mike9241]

outside of the income tax issues, legal issues could arise in certain situations that could be financially costly for both parties if you're the driver but your parents are the owners. 

[smorgan103]

My income is above 150 last year and will be this year too. 

if my parents owned the vehicle would they have to take out the loan? What would happen if I was the one to pay for it (by giving them the money) and drive it? 

[NCperson]

@smorgan103 - you are getting into banking questions and not tax questions

if your parents (and I do mean both parents) purchased the car, the bank would require then to be the borrower, but certainly you could be a co-sgner. or you could just pay the bank on their behalf.   As long as those payments do not exceed $34,000 in a year, you don't trip up any gift reporting requirements. 

As the owner, they would have to take out insurance on the car.   

Personally, i don't see any other 'legal issues...they own the car and they authorize you to drive it.

But do review their tax return.  You said they were retired.  If there income does not generate $7500 of tax liabiltiy (look at Line 22 of Form 1040), they won;t be able to take advantage of the entire tax credit.  the tax credit is $7500 or Line 22 whichever is less.  The rest is lost. 

[Opus 17]

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@smorgan103 wrote:

My income is above 150 last year and will be this year too. 

if my parents owned the vehicle would they have to take out the loan? What would happen if I was the one to pay for it (by giving them the money) and drive it? 

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The person who claims the credit must be an owner of the vehicle (listed on the title).  Being a borrower, co-borrower or co-signer is not relevant.  A vehicle can have more than one owner on the title, but if this will be your daily driver, having other people on the title can cause issues with registration and insurance.  There may be other implications that are far outside an income tax forum to discuss.

Also, the credit is non-refundable, and can only be paid up to the amount of income tax a person owes.  How much income tax do your parents actually pay (what is their tax liability)? Depending on their social security, pensions, and other income, their actual tax might be low enough that they only get no or partial credit. 

[smorgan103]

Yea I checked their income tax is far too low. Is there any feasible way for me to get the tax credit? 

[smorgan103]

yea I checked. Their income tax is far too low. Is there any feasible way for me to get the tax credit? 

[NCperson]

@smorgan103 - how far above the income limit are you? contribute to IRA / 401k to lower your income? capital losses ($3,000)...

[smorgan103]

too far over 

[NCperson]

@smorgan103 - then you are "sunk".  Congress believes you earn enough that you don't require support to buy this car from other taxpayers...... 

[Opus 17]

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@NCperson wrote:

@smorgan103 - then you are "sunk".  Congress believes you earn enough that you don't require support to buy this car from other taxpayers...... 

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As a reminder, the credit was originally only to incentivize manufacturers to start making electric cars, so it phased out over time as more EVs were sold.  For example, most Tesla models stopped qualifying for any credit years ago.  When Congress brought the credit back for all EVs (even those that outsold their original limit), they also added an income limit, so that ordinary taxpayers aren't helping the wealthiest Americans pay for their cars.  A single income over $150,000 puts you in the top 8% of US taxpayers. 

[AmeliesUncle]

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@Opus 17 wrote:
so that ordinary taxpayers

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Unfortunately, because the credit is not refundable and the personal credit does not carry over to future years, Congress seems to want to not fully support low-to-moderate income people with that credit.

For example, a Single person with $65,000 or less of income and using the Standard Deduction won't be able to fully utilize the $7,500 tax credit.

[NCperson]

@AmeliesUncle - well, in a way they do support low- mod income..... there is the EV credit for used vehicles.... I don't like the way that sounds, but indeed it is available.  

Someone making under $130,000, for used vehicles under $25,000, there is a credit of 30% of the vehicle sales price not to exceed $4,000.  Credit is non-refundable so at the lower end of low-mod, it's the same issue - if you don't have tax liability, the credit doesn't have value.   I can see where those with limited financial resources would gravitate towards a used vehicle. 

https://www.irs.gov/credits-deductions/used-clean-vehicle-credit

Those refundable credits are reserved for situations with children, education  or work (EITC, additional CTC, AOTC and LLC)  and not for purchases (EV credit, Energy Credit).

[Critter-3]

Sorry ... no unless you get married and your spouse doesn't work.