Form 8936 does not calculate income limit correctly

[alishkab]

I purchased an EV in 2023. 

I filed my taxes in 2022 as Head of Household; my income was under the electric vehicle credit threshold.

My 2023 income is above the threshold.

TT will not allow me to take the electric vehicle credit as my 2023 income is too high. However, the IRS site states that one can use the AGI for the year in which the car was purchased OR the prior year; whichever is lower.

[AnnetteB6 · Accepted solution]

Be sure that you have entered all of your income for your 2023 tax return.  Then, as you go through the credit section to enter the details for the Clean Vehicle Tax Credit, TurboTax will determine if your 2023 modified AGI meets the qualifications. 

If it does not, then there will be an additional screen asking you to enter your 2022 tax return information to qualify based on your prior year information.  If you do not get that additional request for information, your current year return is under the maximum limit.  

Be aware that after researching this further using the IRS Instructions for Form 8936, there does not seem to be any guidance or provision in the instruction that allows for you to apply the limitation based on the previous year's filing status modified AGI limit.  It only allows you to use the previous year's modified AGI, but it must be under your current year's filing status limit.  

Take a look at the 2023 version of the IRS Form 8936 using the link below.  The top section labeled Part I is where it compares your current year modified AGI to your previous year modified AGI.  The lowest of these is reported on line 5.  

Then, there is a note in the beginning of Part II, Part III, and Part IV giving the filing status limitation on the amount shown on line 5.  Applying the limitation to the previous year's filing status is not an option, the form is looking at your current filing status.  

2023 Form 8936

[alishkab]

Thank you for the detailed response. It seems to contradict the guidance provided on the IRS site that I quote below:

In addition, your modified adjusted gross income (AGI) may not exceed:

• $300,000 for married couples filing jointly 
• $225,000 for heads of households
• $150,000 for all other filers

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.

The credit is nonrefundable, so you can't get back more on the credit than you owe in taxes. You can't apply any excess credit to future tax years.

[alishkab]

Looks like TurboTax online is correctly processing the above so this is now resolved.

[liulewie]

Hi, I'm in similar situation where my 2022 and 2023 have different filing status. By resolved, do you mean you were able to get TurboTax to acknowledge your 2022's MAGI against the 2022 filing status (head of household)?

[liulewie]

I've found some clarifications from IRS which states that the income level should be compared against the filing status of the corresponding year (preceding or current). i.e. we should be able to specify the filing status of for the previous year, if different from the current filing status. 

Is there something TurboTax can help address? It seems like a number of people is blocked or incorrectly disqualified for this credit. 

Q1. Could my income level prevent me from taking the New Clean Vehicle Credit? (updated Oct. 6, 2023) A1.

Yes. You may not claim the credit if your modified adjusted gross income (AGI) exceeds certain thresholds. This limitation is based on the lesser of your modified AGI for the yearthat the new clean vehicle was placed in service orforthe preceding year. The relevant modified AGI thresholds are as follows: • Married filing jointly or filing as a qualifying surviving spouse or a qualifying widow(er) - $300,000 • Head of household - $225,000 • All other taxpayers - $150,000 Your modified AGI is the amount from line 11 of your Form 1040 plus: • Any amount on line 45 or line 50 of Form 2555, Foreign Earned Income. • Any amount excluded from gross income because it was received from sources in Puerto Rico or American Samoa. If your filing status changes between the preceding year and the current year, you may claim the New Clean Vehicle Credit if your modified AGI is less than or equal to the threshold applicable to your filing status for in the preceding year or current year.

https://www.irs.gov/pub/taxpros/fs-2023-29.pdf#page=5

[DLAN]

Having the same problem.  At the top of the first page after selecting I purchased a clean vehicle  TT has my current year AGI (over the limit) and at the bottom of the page it has prepopulated last year's AGI (under the limit) from saved data from last year's TT filing.  It tells me since current year is over the limit I am not eligible for the credit.  This is incorrect and broken.  My filing status has not changed since last year so no complication from that.  Wish we could share screen captures here.

[AmyC]

I would like to take a deeper look at this. However, I need a diagnostic file which is a copy of your tax return that has all of your personal information removed. You can send one to us by following the directions below and @AmyC to notify me:

TurboTax Online:
Sign into your online account.
Locate the Tax Tools on the left-hand side of the screen. 
A drop-down will appear. Select Tools 
On the pop-up screen, click on “Share my file with agent.”
This will generate a message that a diagnostic file gets sanitized and transmitted to us.
Please provide the Token Number that was generated in the response.

TurboTax Desktop/Download Versions:
Open your return.
Click the Online tab in the black bar across the top of TurboTax and select “Send Tax File to Agent”
This will generate a message that a diagnostic copy will be created. Click on OK and the tax file will be sanitized and transmitted to us.
Please provide the Token Number that was generated in the response.

@DLAN @liulewie 

[liulewie]

Thanks  @AmyC  for looking into this for us! here is the token: 1200177

[DLAN]

Hi Amy C.,

I spent over 2 hours on the phone with a support specialist.  They shared my screen, collected debug data, and argued that the rule in the TT interface was correct.   In the end after looking at Form 8936 and filling it manually they agreed the interview was not treating AGI verification correctly but "they didn't know how to file a bug report and would need to talk to a supervisor".  Nothing came of that.   Here's a screen capture of TT today showing the false statement "Individuals can't claim the credit for a new clean vehicle if their Modified Adjusted Gross income in either 2023 or 2022 is more than $150,000 ($300,000 if married filing jointly"  I am married filing jointly in 2022 and  2023.     The text goes on "Based on what we have right now  your 2023 Modified Adjusted Gross Income is 3xx,xxx and is too high to qualify for the credit.   At the bottom it shows my 2022 AGI populated from previous year's return is below the limit.   But I am denied the credit anyway.   The real logic is if EITHER 2022 or 2023 is below the limit the credit should be allowed.

I am willing to start over with the interview one more time it you think that might be helpful. Then it's off to HR BLOCK and goodbye Turbotax.  A shame since I have been using this product for more than a decade but it's not worth the struggle or losing a 7500 USD credit to continue.   I have redacted my exact income numbers but they are as I describe above..  The false statement is highlighted.

[AnnetteB6]

The issue where you can enter your 2022 income, but not your 2022 filing status in order to qualify for the energy-efficient vehicle credit on Form 8936 was submitted to the development team for modification.  

The result of their investigation into the issue was to point out that this is an unsupported calculation in the 2023 version of TurboTax.  It is not known whether this may change in future versions, but for 2023 it is unsupported.

See the following document for confirmation.  The Form 8936 situation is shown on page 16, Credits Not Covered Elsewhere item 6.  

Unsupported Calculations and Situations in the 2023 TurboTax Individual Federal Tax Software Program...

@liulewie 

@DLAN 

[DLAN]

From the link you provided:

Form 8936 Clean Vehicle Credits: TurboTax does not support if your filing status changes between the preceding year and the current year and your preceding year income qualifies for Clean Vehicle Credits under your filing status for in the preceding year. TurboTax only supports your current year filing status income thresholds.

Thanks for providing a clear answer.  Since Turbotax doesn't fully support this credit filing, I would suggest anyone facing this to try HR Block online.  At least in my case it did support the calculation correctly and allowed the Clean Vehicle Credit based on the previous year AGI.

Thanks for following up with the developers.

[liulewie]

Thanks for the update! what do you suggest people with such situation do?

[liulewie]

I've tried HR Block, and it also doesn't allow you to enter last year's filing status.