If I purchase an electric vehicle with the 7500 tax credit, how do I ensure that I will owe enough at the end of the year to see that full credit when I do my taxes?

[Texas Roger]

Your total tax liability with that amount of adjusted gross income would be $11,500 and it would be offset by the $4000 of child tax credit and $7500 of electric vehicle credit. How much you get back as a refund or owe would depend on how much tax was withheld during the year. If your itemized deductions were more than the standard deduction, it would increase the amount of adjusted gross income you would need to qualify for the full amount of credits. You are correct that the total of property tax and state income tax or sales tax deduction is limited to $10,000. There is no specific limit on mortgage interest deduction but there are limits on how much mortgage debt you can deduct the interest on.

[carrbarre]

Hi @Texas Roger

Thanks for all your advice on this thread! I have been researching and reading lots of threads but still feel no closer to understanding if I should take any action to maximize my usage of the federal tax credit.

In 2018 I will earn about $85,000 and after checking the table you linked see that my federal tax liability as a single filer is therefore $17,045. In order to use all the federal tax credit, would you advise that I change my current filing? My W-4 is currently set to single with 2 personal allowances.

Thank you,
C

[Texas Roger]

Your federal withholding has nothing to do with your tax liability. Your tax liability is determined by subtracting your standard deduction ($12,000 for single) from your adjusted gross income ($85,000 if you have no adjustments to lower you earnings) and calculating how much tax you are liable for on the remaining $73,000 of taxable income. According to my calculations using the 2018 marginal tax rates, your tax liability will be $11,046. Since the tax liability is more than the $7500 of electric vehicle credit, you would qualify for the entire credit. Your withholding as determined by your W-4 will affect how much refund you get but it will not affect your qualification for the credit.

[Texas Roger]

Some can gain a better understanding of this by looking at form 1040 to see how this flows. Here is a link to the 2017 form. The 2018 form will be different but the flow is the same. <a rel="nofollow" target="_blank" href="https://www.irs.gov/pub/irs-pdf/f1040.pdf">https://www.irs.gov/pub/irs-pdf/f1040.pdf</a>

Adjusted gross income is on line 38 of the 2017 form 1040. The standard or itemized deductions on line 40 are subtracted from adjusted gross income. The result is taxable income on line 43. (There are no personal exemptions on line 42 in 2018.) The tax tables or other calculations determine the amount of tax on line 44.

Non-refundable credits (meaning you must have tax to offset them in order to get them) are entered on lines 48-54. The electric vehicle credit would be entered on line 54. If there are no other credits and if the electric vehicle credit on line 54 is less than the tax on line 44, you are eligible for the entire electric vehicle credit to reduce the taxes. If the total of credits on lines 48-54 is more than the tax on line 44, the amount of credit you can get is limited by the tax on line 44.

Additions and subtractions on the remaining form determine how much refund you will get or taxes you will owe. One of those subtractions is the tax withholding (which your employer determines by the number of W-4 allowances you claim) entered on line 64 as a payment that is subtracted from the remaining tax owed. So tax withholding has no affect on how much credit you qualify for but it will affect the amount of refund or tax you owe when you file your tax return.

[Muthu-Subramanian]

@Texas Roger Hi, is there a way you could tell me the maximum i could get as a refund considering i have a credit of 11.5k, (ev credit + 2 kids), looks like i would loose some of my child tax credit if i have $113,186 of adjusted gross income. has this changed?

[Muthu-Subramanian]

@Texas Roger Hi, is there a way you could tell me the maximum i could get as a refund considering i have a credit of 11.5k, (ev credit + 2 kids), looks like i would loose some of my child tax credit if i have $113,186 of adjusted gross income. has this changed?

[Texas Roger]

Assuming your AGI is all ordinary income (no self employment, no long term capital gains or qualified dividends), your kids are both under age 17 at year end, and you are filing MFJ, your tax liability will be $11,498 which is virtually identical to the total of your non refundable credits. Your credits will pay your tax liability and you will get all your federal tax withholding as a refund.

[Muthu-Subramanian]

@Texas Roger i am at 90K from work and planning 20K of RothIRA conversion but my tax calc is bringing to 9.5K refund and not 11.5,it says i am missing out on child tax credit, thats why was wondering. I am at net tax for 7.8K

[Muthu-Subramanian]

@Texas Roger  thanks a lot for being patient and so knowledgeable on this.

[Texas Roger]

Your child tax credit would be applied before your EV credit so you might be losing EV credit but you should not be losing child tax credit if your tax liability is less than $11,500 before credits. Please ignore your refund. What is your tax liability before credits are applied?

Also please understand that TurboTax 2018 is not yet fully functional. Neither the electric vehicle credit section or the child tax credit section is ready.yet and so any attempt to enter those credits may not work. If you are trying to do it on 2017 software, the child tax credit amounts, standard deductions, personal and dependent exemptions, and tax tables are all different in 2018

[Muthu-Subramanian]

its 68.3K, i am doing calculating manually myself..

[Texas Roger]

What is 68.3K? Remember your taxable income is your AGI minus the standard or itemized deductions. You can get your tax liability from the IRS tax tables if you only have ordinary income. What is your tax liability?

[Muthu-Subramanian]

@Texas Roger  12.7k is the liability..based on the new chart 68.3K is taxable income

[Texas Roger]

We don't seem to be able to communicate with each other. I am using tax and tax liability interchangeably. Taxable income and Tax are the words on the tax tables. If your taxable income is $68,300, your tax if filing Married Filing Jointly is $10,971. That is on p. 11 of the 2018 tax tables: <a rel="nofollow" target="_blank" href="https://www.irs.gov/pub/irs-dft/i1040tt--dft.pdf">https://www.irs.gov/pub/irs-dft/i1040tt--dft.pdf</...>
How did you calculate $68,300 of taxable income?

[Muthu-Subramanian]

@Texas Roger sorry for getting back late, i am worried. i have wages of 90K interest income and capital loss equating to 0, with 24k standard deduction, comes to 68K of taxable income. trying to figure out how much from my 10K traditional ira to be converted to roth, to get the full 11.5K refund