Texas TERP Grant for PHEV purchase - taxable?

[MikePawson]

Hi - I purchased a PHEV Dec 2023 and the State of Texas was offering a $2500 incentive under the TERP LDPLIP program. I applied and got a check in April 2024. At year-end, I was surprised to get a 1099 for this payment. Is this supposed to be taxable? I've seen conflicting answers both elsewhere on the internet and here some of which suggest that it may vary by state.

It seems to me that since I got the 1099, I need to enter the income somewhere or the IRS will flag it as unreported. At the same time, this wasn't really "free money" or money for performing a service - in order to get this I had to buy a car and in so doing incurred an expense of over $50,000. It would seem that expense ought to be allowable as an offset against the income (at least up to the amount of that income) which would render the incentive tax free. That seems reasonable to me because it could be viewed as a rebate of a portion of the purchase price. I just have no idea if it is actually correct, or how to best report it if it is? (Put the 1099 income onto a Sch C and then offset it with a portion of the vehicle purchase expense?) 

Hoping that someone has a definitive answer because I'd rather not give up a chunk of the incentive if I don't have to, but it's also a pretty stupid thing to get into IRS trouble over.

Thanks in advance!

[DianeW777]

No. Here is the information and an example from the IRS.

Cash rebates. IRS Publication 525

A cash rebate you receive from a dealer or manufacturer of an item you buy isn't income, but you must reduce your basis by the amount of the rebate.

• Example 36. You buy a new car for $24,000 cash and receive a $2,000 rebate check from the manufacturer. The $2,000 isn't income to you. Your basis in the car is $22,000. This is the basis on which you figure gain or loss if you sell the car, and figure depreciation if you use it for business.

Check to see  if your PHEV does qualify for the EV credit. You would need to have information from the dealer to qualify.

• Filing Tax Form 8936: Qualified Plug-in Electric Drive Motor Vehicle Credit
• Credits for new clean vehicles purchased in 2023 or after

[MikePawson]

Thanks for your answer. Note that this is not a rebate or incentive from the manufacturer/seller. This is money that the state was giving out as an incentive to purchase a PHEV.

The State Agency has since given their unofficial answer that they believe it is taxable. If they had set it up to characterize it as a rebate/refund of a portion of the sales tax then it would likely not be taxable, but they didn't do that so they issued the 1099.

Unfortunately, this purchase didn't qualify for the federal incentive.