EV Credit

Hi,

I have a question regarding EV credit. I wanted to know if I'm eligible for EV tax credit if I buy Tesla in year 2023.

This is what I heard so far to get tax credit.

1. I need to owe to IRS to be eligible for tax credit (Line 25d-Line 24 <0) Which mean I should have paid less taxes each month for this year?
2. I will eligible if my tax liablity line 24 on 1040 is more than 7500 USD.

Below is my situation.

Our AGI is less than $300,000 for married couples filing jointly for 2021 and 2022.

My Total Tax for both the years is around 37000 (Line 24) and we usually pay more taxes upfront and we ended getting refund each year.

Based on the above situation, do you think if we buy Tesla Model Y in this year, can we claim 7500 USD for tax credit when we file next year taxes based on my 2021 and 2022 Tax Filings.

I'm hearing different versions on how to get tax credit. I'm confused, please advise me in lay man's language ( in terms of Line 25d-Line 24)

Thanks,
VVVG

Hi @praveena354,

The Clean Vehicle Credit reduces your overall tax liability, by a maximum of $7,500. A breakdown of the credit and how it is calculated is here: https://turbotax.intuit.com/tax-tips/going-green/understanding-the-new-clean-vehicle-credit/L6Y0JrGND.

Your tax withholdings throughout the year are not directly related to your tax liability. For example, if $250 is withheld from a weekly paycheck for federal taxes each year, this will equal $13,000 in tax withholdings (250 x 52). If this withholding is higher than your tax liability, you will receive a refund, and if lower than your tax liability, will result in further tax due.

Your tax liability is calculated based on your taxable income, separate from your withholdings throughout the year. The Clean Vehicle Credit reduces your tax liability, which will generally result in a larger refund if tax withholdings are not modified. Your initial tax liability is shown on line 16 of the 2022 Form 1040, the Clean Vehicle Credit would reduce this amount by up to $7,500. You are eligible for the credit if line 16 (Tax) is above 0. You will only get the full amount of the credit, however, if your tax liability is at least $7,500.

You can verify if a particular vehicle qualifies here: https://afdc.energy.gov/laws/electric-vehicles-for-tax-credit