$7500 EV Tax Credit and Income limitation for Married Filling Jointly

[Choontan]

Hi, let's say my wife and I bought a new Tesla Model Y sometime in the future and took delivery before the end of this year (2023).

Question 1) Is the income limitation for a couple filing jointly under $300,000 (AGI) based on this year's income (tax year 2023) or can we also use last year's income (tax year 2022) to qualify for the $7500 tax credit?

The IRS rule below stated one of the two years, so does tax year 2022 count? Is it based on AGI or modified AGI (MAGI)?

"You can use your modified AGI from the year you take delivery of the vehicle or the year before, whichever is less. If your modified AGI is below the threshold in 1 of the two years, you can claim the credit."

Question 2) What if we buy two EVs in the same year, or one this year and another EV next year? Can we claim the credit?

Question 3) If we buy one EV for personal use and buy one EV for our LLC/business use (either same year or different year). Can we claim the tax credit on both EVs?

Thank you very much!

[Holly W1]

Hello Choontan, 

Thank you so much for joining us today!  What excellent questions!

Question 1) Is the income limitation for a couple filing jointly under $300,000 (AGI) based on this year's income (tax year 2023) or can we also use last year's income (tax year 2022) to qualify for the $7500 tax credit?  

ANSWER:  You are able to choose the lesser modified AGI of either 2022 or 2023

The IRS rule below stated one of the two years, so does tax year 2022 count? Is it based on AGI or modified AGI (MAGI)?  
ANSWER:  Yes, it would between the tax years 2022 or 2023, and it is based on Modified AGI

Question 2) What if we buy two EVs in the same year, or one this year and another EV next year? Can we claim the credit?

ANSWER:  Yes, since each new car comes with it's own credit and there is no max per year or per lifetime limitation however the credit is NOT refundable, so if you do not have a tax liability, it may not work in your favor.  You can only claim the credit up to your tax liability.

Question 3) If we buy one EV for personal use and buy one EV for our LLC/business use (either same year or different year). Can we claim the tax credit on both EVs?
ANSWER:  Yes, as long they are different vehicles, then you are able to claim more then one in the same tax year.

[Andrew_W]

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Hi @Choontan!  

The income limits for this credit are based on your Modified Adjusted Gross Income (MAGI). 

To calculate your modified adjusted gross income, take your AGI and "add-back" certain deductions. Many of these deductions can be rare, so it's possible your AGI and MAGI can be identical. Different credit and deductions can have differing add-backs for your MAGI calculation. According to the IRS, your MAGI is your AGI with the addition of the appropriate deductions, potentially including:

• Student loan interest
• One-half of self-employment tax
• Qualified tuition expenses
• Tuition and fees deduction
• Passive loss or passive income
• IRA contributions
• Non-taxable social security payments
• The exclusion for income from U.S. savings bonds
• Foreign earned income exclusion
• Foreign housing exclusion or deduction
• The exclusion under 137 for adoption expenses
• Rental losses
• Any overall loss from a publicly traded partnership

To meet the income limit test for the credit, you can either use the year the vehicle is purchased, or the prior year, whichever has income below the limit. So, for example, if your modified adjusted gross income (MAGI) is $320,000 in 2023 as married filing jointly, but is $275,000 in 2022, you would still qualify for vehicles purchased and delivered in 2023.

Further, the credits are per vehicle. So each vehicle potentially can generate up to a $7,500 credit, even multiple vehicles in the same year. The major limitation for this in any given year is your actual tax liability. These credits are not refundable and cannot be carried forward to future years, so if your tax liability is reduced to $0 and further credits remain, they can not be claimed. 

Businesses are also eligible to claim the credit, but there are different calculations and the credit may be reported in different ways, depending on the structure of the business. 

[Choontan]

Thank you, Holly!

Many websites, including Tesla, just say based on AGI and never mention "Modified", so thanks for the clarification.

Question 1: Just to clarify, let's say if we buy 3 EVs (in the same year or in different years), then we can claim all 3 tax credits (assuming we meet the income limitation and have enough tax liability), right?

Question 2: The income limitation for businesses or LLCs is based on the business MAGI and not personal, right?

Question 3: What is the business MAGI limitation for a single-member LLC or S Corp?

Thank you!

[Holly W1 · Accepted solution]

Hi Pete,

Thank you for responding!

Question 1: Just to clarify, let's say if we buy 3 EVs (in the same year or in different years), then we can claim all 3 tax credits (assuming we meet the income limitation and have enough tax liability), right?
ANSWER:  Yes, that is correct.  Assuming you meet the criteria

Question 2: The income limitation for businesses or LLCs is based on the business MAGI and not personal, right?  

ANSWER:  If you are filing an Separate business return (such as 1120, 1120-s, 1065 etc.) , then more information is to come, as each of those entities have different tax implications and rules.  According to the IRS Website, they are still updating information and to check back, but as with the personal credit, you can claim as many vehicles that is purchased:  https://www.irs.gov/credits-deductions/commercial-clean-vehicle-credit 

If you are Sole proprietor and file Schedule C on personal tax return, then you would follow the criteria as for your personal tax return.

Question 3: What is the business MAGI limitation for a single-member LLC or S Corp?
As of today, 6.28.23 they are still determining how a company's income or tax liability will effect the credit.  Please see the IRS Link above.