EV AGI question

[Pbenitez12]

I have a I have an AGI that is very close to the threshold for a married couple do not qualify for the federal tax credit. Besides maxing out 401(k) contributions if we currently exceed the 300 K are there any other avenues we can utilize to lower our AGI to take advantage of the tax credit? Thank you for answering the questions.

[GuodaL]

Hi Pbenitez12,

Good job in planning ahead to get the tax credit. 

For the new clean vehicle tax credit (purchases after December 31, 2022), 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 (including single 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.

Modified AGI, or MAGI, is calculated by adding certain deductions taken back to your AGI, potentially including the following:

• 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

Hope this answers your question!

[marctu]

So one small point of clarification.  The AGI for the EV credit is Modified Adjusted Gross Income ("MAGI") and not Adjusted Gross Income.  So, if you're single, and your modified adjusted gross income is over $150,000, you won't qualify for the EV tax credit. The EV tax credit income limit for married couples who are filing jointly is $300,000.

So what is MAGI?  Modified adjusted gross income can be defined as your household’s AGI after any tax exempt income and after factoring in certain tax deductions.  So starting with AGI you add back:

• Any deductions you took for IRA contributions and taxable Social Security payments
• Deductions you took for student loan interest
• Tuition and fees deduction
• Half of self-employment tax
• Excluded foreign income
• Interest from EE savings bonds used to pay for higher education expenses
• Losses from a partnership
• Passive income or loss
• Rental losses
• The exclusion for adoption expense

So maxing out a 401(k) contribution for both you and your wife, if applicable is prudent.  For 2023 the contribution limit is $22,500 per individual and $30,000 if age 50 and over.   

If you have an Health Savings account account and the contribution is currently below $3,850 for self-only coverage and $7,750 you may consider contributing up to the max, if your are able to make employee contributions.

If you have a flexible spending account or cafeteria plan, which is a separate written plan maintained by an employer for employees that meets the specific requirements and regulations of Section 125 of the Internal Revenue Code. It provides participants an opportunity to receive certain benefits on a pretax basis.  The  dependent care FSA allows for up to $5,000 for tax year 2023, and the medical FSA allows for up to $3,050 for tax year 2023.  Paying health insurance premiums, disability insurance, transportation expenses (parking expenses) can also be FSA eligible.  

To the extent you are itemizing or know you will be itemizing, increasing your itemized deductions would also lower your MAGI.   Keep in mind that the State and Local Tax deduction is limited to $10,000 for a married couple, so if you are itemizing deductions already you are more then likely maxing this out already.   

[Faith C]

Thank you for asking. According to IRS, Here are things taxpayers can do to lower AGI, such as: 

• Contribute to a Health Savings Account
• Claim educator expenses if they’re a qualifying educator
• Pay student loan interest
• Save for retirement like 401(k), traditional IRA, SEP, SIMPLE and qaulified plans. 

Please keep in mind, to qualify for EV credit, the MAGI  cannot exceed $300K for married couples filing jointly. Here is the article, "Difference Between AGI and MAGI" for your reference.

I hope the above information helps. Please feel free to contact us if you have any questions. 

[Terri Lynn]

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@Pbenitez12 wrote:

" Besides maxing out 401(k) contributions if we currently exceed the 300 K are there any other avenues we can utilize to lower our AGI to take advantage of the tax credit? "

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Great question, Pbenitez12!

 In addition to maximizing your 401K contributions, there are a few other ways to reduce your adjusted gross income, including the educator expense, the student loan interest deduction and HSA contributions. 

• You can claim the Educator expense deduction, regardless of whether you take the Standard Deduction or itemize your tax deductions. The maximum deduction is $300 for one teacher (tax year 2023). Two married teachers filing a joint return can take a deduction of up to $300 a piece, for a maximum of $600.
• The Student loan interest  deduction is a deduction of the interest you paid during the year on a qualified student loan. The maximum deduction you can claim is $2,500 this year – but it’s limited by your income, ($90,000, if single, and  $180,000 for married filing jointly, for 2023.)
• Health Savings Accounts can lower your  madjusted gross income as the money you contribute is non-taxable, just like when you contribute to a traditional 401k or similare retirement accounts.  You can contribute up to $3,850 for  a self only plan or up to $7,750 for a family plan. Those ages 55 and up, can contribute up to an additional $1,000 as well to their HSA. This contribution can be made up until the due date of your return, so you can decide to make a contribution for the current year up until the tax deadline, for the due date of the return (4/15/2024.)  Not all taxpayers are eligible to have an HSA. To qualify, you must be enrolled in a high deductible health insurance plan that meets the  IRS requirements.

*For further information on these topics you can reference the following articles:

Teacher Educator Expense 

Student Loan Interest Deduction 

HSA Contributions 

Thanks, and please reach out with any additional questions you may have.