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The Federal electric car tax credit is only available in the year that you put the car in service, and you can’t carry the credit from year-to-year. It will only pay for any Federal tax you owe, so (for example) ,you are only required to pay $3,000 of tax for the year in which you purchased the car, you can only take a $3,000 credit. Any remaining amounts cannot be carried over into future years.
What can you do if you don’t have a federal tax liability, but you still want to be able to take a tax credit? If you have an IRA, it’s possible to create a tax liability by converting a traditional IRA to a Roth IRA, and then take care of that tax liability with the electric car tax credit. The benefit of converting a traditional IRA to a Roth IRA is that your earnings on the Roth will grow tax free, while you’ll be taxed on any gains you make on a traditional IRA.
State credits (if any) may be different.
The Federal electric car tax credit is only available in the year that you put the car in service, and you can’t carry the credit from year-to-year. It will only pay for any Federal tax you owe, so (for example) ,you are only required to pay $3,000 of tax for the year in which you purchased the car, you can only take a $3,000 credit. Any remaining amounts cannot be carried over into future years.
What can you do if you don’t have a federal tax liability, but you still want to be able to take a tax credit? If you have an IRA, it’s possible to create a tax liability by converting a traditional IRA to a Roth IRA, and then take care of that tax liability with the electric car tax credit. The benefit of converting a traditional IRA to a Roth IRA is that your earnings on the Roth will grow tax free, while you’ll be taxed on any gains you make on a traditional IRA.
State credits (if any) may be different.
Be careful if you have AMT tax carry forward credits Form 8801. Using TurboTax I entered my Plug In Hybrid which qualifies for $4632 tax credit. IRS deducts the Electric car credit from my AMT credit and my tax bill remains the same. The carry forward of AMT credit amount does go higher by the amount of the disallowed Electric car credit. So I might get it some day in the distant future .. if the tax law does not change again! If you have NEVER paid an AMT, you don't need to worry. But if you have, run a TurboTax return and test see if your electric car credit flows through to your final tax liability.
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