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Jeeperz Kreeperz

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And... research/document the minimum amount of time you need to keep the car for to prevent IRS from invalidating your credit. Minimums do exist for purchases, somewhat gray for leases.
What you’re describing is an electric vehicle tax credit “recapture”, and it is described in section 130-1 of the tax code, found here:

https://www.law.cornell.edu/cfr/text/26/1.30-1

It’s often misunderstood to mean that if you sell within 3-years, you have to give back a portion, or all, of your tax credit. However, in the overwhelming majority of secondary EV sales, a recapture event does NOT occur. The three most common situations where a recapture occurs would be:

1. You sell the EV to another party, AND you know PRIOR TO THE SALE that the other party is planning to convert the vehicle to a non-EV. (Extremely rare).
2. You sell the EV to a tax-exempt entity (Also extremely rare).
3. You convert the vehicle to a non-EV (Also extremely rare).

You can trade it in to a dealer, sell it to a third party, total it in an accident, or lose it via alien abduction 👽, and you still get to keep your full credit; even if said trade/sale/accident/abduction occurs in the same tax year as your purchase.

The key to understanding this obscure rule is to focus on the word “and” in (2) (i) (C) below as excerpted from the above link:



(2) Recapture event -

(i) In general. A recapture event occurs if, within 3 full years from the date a qualified electric vehicle is placed in service, the vehicle ceases to be a qualified electric vehicle. A vehicle ceases to be a qualified electric vehicle if -

(A) The vehicle is modified so that it is no longer primarily powered by electricity;

(B) The vehicle is used in a manner described in section 50(b); or

(C) The taxpayer receiving the credit under section 30 sells or disposes of the vehicle and knows or has reason to know that the vehicle will be used in a manner described in paragraph (b)(2)(i)(A) or (B) of this section.

(ii) Exception for disposition. Except as provided in paragraph (b)(2)(i)(C)of this section, a sale or other disposition (including a disposition by reason ofan accident or other casualty) of a qualified electric vehicle is not a recapture event.




Of course, all the usual disclaimers apply...this is not specific tax advice for your own situation...do your own research...consult your own tax advisor...

Just didn’t want anyone to get frightened into thinking if they bought an EV, claimed a credit, and then lost their job the next week and had to sell it, that they would lose the tax credit!
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Ratiogear

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So this is unlikely to occur, but let's say they sell enough 4xes and other PHEVs to get to 200k by end of May. When I file my tax return next year, I would get the full refund still if my purchase date was within the first window?

https://www.fueleconomy.gov/feg/taxevb.shtml

Currently it lists the 4xe as 'full credit 7500' from " 1/1/10 to Present " whereas GM models (for example) have listed dates:


1/1/10 to 3/31/19
4/1/19 to 9/30/19
10/1/19 to 3/31/20
Jeep Wrangler JL 4xe Tax Credit explained and hints by someone who has done it twice. 2017_Chevy_Bolt_EV
2017–20 Chevrolet Bolt EV
EV$7,500$3,750$1,875

with a big red disclaimer "

General Motors vehicles purchased after 3/31/2020 are not eligible for these tax credits.

Further info says: The credit begins to phase out for vehicles at the beginning of the second calendar quarter after the manufacturer has sold 200,000 eligible plug-in electric vehicles (i.e., plug-in hybrids and EVs) in the United States as counted from January 1, 2010. IRS will announce when a manufacturer exceeds this production figure and will announce the subsequent phase out schedule (Plug-In Electric Drive Motor Vehicle Credit Quarterly Sales).


It seems pretty airtight, but at the same time 7500 is like 15% of the total purchase price. It's a huge deal to make sure to get. Anyone here who has purchased an EV in a year where the credit phased out for that brand?
 
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Asterix2112

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So this is unlikely to occur, but let's say they sell enough 4xes and other PHEVs to get to 200k by end of May. When I file my tax return next year, I would get the full refund still if my purchase date was within the first window?

https://www.fueleconomy.gov/feg/taxevb.shtml

Currently it lists the 4xe as 'full credit 7500' from " 1/1/10 to Present " whereas GM models (for example) have listed dates:


1/1/10 to 3/31/19
4/1/19 to 9/30/19
10/1/19 to 3/31/20
Jeep Wrangler JL 4xe Tax Credit explained and hints by someone who has done it twice. 2017_Chevy_Bolt_EV
2017–20 Chevrolet Bolt EV
EV$7,500$3,750$1,875

with a big red disclaimer "

General Motors vehicles purchased after 3/31/2020 are not eligible for these tax credits.

Further info says: The credit begins to phase out for vehicles at the beginning of the second calendar quarter after the manufacturer has sold 200,000 eligible plug-in electric vehicles (i.e., plug-in hybrids and EVs) in the United States as counted from January 1, 2010. IRS will announce when a manufacturer exceeds this production figure and will announce the subsequent phase out schedule (Plug-In Electric Drive Motor Vehicle Credit Quarterly Sales).


It seems pretty airtight, but at the same time 7500 is like 15% of the total purchase price. It's a huge deal to make sure to get. Anyone here who has purchased an EV in a year where the credit phased out for that brand?
Yes. To use the above example, as long as you bought the Bolt by 3/31/19 you would get the full $7500, even though you aren't filing your tax return for 2019 until March of 2020.
 

Jeeperz Kreeperz

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@Ratiogear, I wrote a detailed post about the EV Tax Credit phase out here:

https://www.jlwranglerforums.com/fo...om-4xe-wrangler-test-drive.60027/post-1425344

I also included some examples that might help explain how it works.

There should be no surprises on the amount of the tax credit - unless you failed to look at a calendar before going to the dealer to purchase, and you didn’t notice that a new calendar quarter had begun with a reduced credit amount.

The one scenario that could be problematic, however, is if someone places a factory order, since the buyer would have virtually zero control over the delivery date. As we get to the last quarter of the full credit, there would be a strong incentive to purchase directly off a dealer lot (where you can pick your purchase date with precision, so it falls within the qualifying quarter), rather than place a factory order with an unknown delivery/purchase date. At that point, any delay on the part of FCA, the rail yard, the trucking company, or the dealer could cost you your $7,500 tax credit!
 
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Jeeperz Kreeperz

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Good question. The author is trying to make the point that 2021 will result in a lower average tax rate for a lot of taxpayers. This is true.

The part of the article that is a bit misleading is that they use “average” for tax rates instead of using “median”. To give you an example, imagine a married couple with 3 children, and taxable income of only $10K/year. Deductions could easily push their taxable income to zero. Then add in some refundable tax credits, and their average income tax rate would be a negative number. For someone with very little taxable income, their tax rate could be -50% or -100%, or even -200%! Those large negative figures need to be averaged in with the folks who are up at the top end of the scale for the $0 to $75,000 cohort - maybe making $74K and paying an average tax rate of 5% or 10%. That’s how that chart can show the projected “average” income tax rate of less than zero for those earning up to $75K.

Math anomalies in the article notwithstanding, it really is tougher to qualify for the credit if your taxable income is low, and/or if you are paying a low average tax rate, because you may not have sufficient tax liability to get the full credit.

The key to determining your eligibility for the full credit is to talk to your tax advisor or financial planner, or perform your own projection (if you are comfortable with that), to find out if your total tax liability (not to be confused with tax due at filing time) for the year of EV purchase is expected to be equal to or greater than $7,500. If it is not, talk to your advisor about “creating” taxable income in the form of IRA distributions, or Roth conversions, or capital gain realization, or my personal favorite - marrying someone with a big paycheck. Just make sure to tie that knot before midnight on 12/31!

That last strategy could be viable - since the very purchase of a 4xe should make you significantly more attractive to a potential mate :like:
 
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Jeeperz Kreeperz

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For those concerned about FCA hitting the 200,000 EV vehicle threshold, and having their tax credit reduced, here’s a chart (although it’s a bit stale with data only through June of 2020) showing EV sales by manufacturer in US:

https://evadoption.com/ev-sales/federal-ev-tax-credit-phase-out-tracker-by-automaker/

(Does anyone know of an updated tracker for this?)

Through June of 2020, FCA was only at about 47K EV sales in US. Although Wranglers make up about 220K sales per year, only a fraction of those will be 4xe models, and count toward this 200,000 phase out threshold. It appears it’s going to take at least a couple years before the full $7,500 credit is reduced due to the 200,000 vehicle sale phase out.

Besides, there are rumors of expanded EV tax credit legislation - which could push that date out further, and/or expand the amount of the credit.
 

LJ_3M121318

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What you’re describing is an electric vehicle tax credit “recapture”, and it is described in section 130-1 of the tax code, found here:

https://www.law.cornell.edu/cfr/text/26/1.30-1

It’s often misunderstood to mean that if you sell within 3-years, you have to give back a portion, or all, of your tax credit. However, in the overwhelming majority of secondary EV sales, a recapture event does NOT occur. The three most common situations where a recapture occurs would be:

1. You sell the EV to another party, AND you know PRIOR TO THE SALE that the other party is planning to convert the vehicle to a non-EV. (Extremely rare).
2. You sell the EV to a tax-exempt entity (Also extremely rare).
3. You convert the vehicle to a non-EV (Also extremely rare).

You can trade it in to a dealer, sell it to a third party, total it in an accident, or lose it via alien abduction 👽, and you still get to keep your full credit; even if said trade/sale/accident/abduction occurs in the same tax year as your purchase.

The key to understanding this obscure rule is to focus on the word “and” in (2) (i) (C) below as excerpted from the above link:



(2) Recapture event -

(i) In general. A recapture event occurs if, within 3 full years from the date a qualified electric vehicle is placed in service, the vehicle ceases to be a qualified electric vehicle. A vehicle ceases to be a qualified electric vehicle if -

(A) The vehicle is modified so that it is no longer primarily powered by electricity;

(B) The vehicle is used in a manner described in section 50(b); or

(C) The taxpayer receiving the credit under section 30 sells or disposes of the vehicle and knows or has reason to know that the vehicle will be used in a manner described in paragraph (b)(2)(i)(A) or (B) of this section.

(ii) Exception for disposition. Except as provided in paragraph (b)(2)(i)(C)of this section, a sale or other disposition (including a disposition by reason ofan accident or other casualty) of a qualified electric vehicle is not a recapture event.




Of course, all the usual disclaimers apply...this is not specific tax advice for your own situation...do your own research...consult your own tax advisor...

Just didn’t want anyone to get frightened into thinking if they bought an EV, claimed a credit, and then lost their job the next week and had to sell it, that they would lose the tax credit!
This is interesting.

So if I buy the 4xe and then three months later I trade it in to the dealer for a non 4xe, will I still be able to claim the $7500?
 

Jeeperz Kreeperz

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This is interesting.

So if I buy the 4xe and then three months later I trade it in to the dealer for a non 4xe, will I still be able to claim the $7500?
First, my disclaimer: I’ve never done this myself, or assisted a client with the sale of an EV. However, the language in the code sure seems to indicate that there is no recapture of the tax credit upon a typical resale event (as long as it doesn’t break one of the rules above). Please confirm with your tax advisor before you sell.

However, market forces being what they are, a new 4xe should lose $7,500 of value the moment it is sold to the first owner - because the tax credit is no longer available to the 2nd owner. And that doesn’t count the depreciation hit for driving it off the dealer’s lot (although in the current used vehicle market, you might not even take that hit!).
 

MallBrawler

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This is interesting.

So if I buy the 4xe and then three months later I trade it in to the dealer for a non 4xe, will I still be able to claim the $7500?
And if you are applying for local EV credits / discounts, check the policy language as well. Make sure to print out/document the rules on *the day* you claim it in case it changes. In California I remember a clause requiring the car to be registered to you for a minimum amount of time or they will send you a bill.
 

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Don & Barb

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All - I and putting a deposit down tomorrow for my Wrangler 4xe (it will be replacing my Cherokee Trailhawk), so I have been trolling these forums. I have noticed some confusion and misinformation about the tax credit. I have done it twice now, First for my BMW i3, and then a couple of years ago for my Chevy Bolt that I still have. So I thought I'd give some advice and some hints.

Yes the $7500 tax credit is really $7500, at least for the vast majority of people who are buying a $50k+ car. As long as you owe at least $7500 in tax you can take the full federal tax credit, and that is a full real $7500, which is very different from a deduction which just reduces your income. The easiest way to check is to look at your 2019 tax return and look for the line that says “This Is your total tax“ (it’s line 16 on the 2019 1040). As long as your "total tax" is greater than $7500 you will get the full $7500. For me it's $25k, well above $7500, so I have nothing to worry about. So unless you have a dozen kids or some weird businesses deductions or something odd, most people who are affording a car like a 4xe will have a tax liability well above $7500. (now if it's less than $7500 then you get a credit for whatever it is. if you owe $5000 you can get a $5000 credit, if you don’t owe taxes then you don't get anything). So lets say on a normal year you owe $25k in taxes and have $24k withheld, so you normally pay $1000 (which BTW is what you should do, getting a big refund just means you gave the IRS a year long interest free loan, but that's getting on a tangent). So if you did nothing different, with the $7500 credit you would owe only $17,500 in tax, minus the $24k you had withheld, you would get a $6500 refund instead of owing $1000.

Now none of us are going to get this car until Feb/March next year even if we already put down our deposit, this tax credit will reflect on your 2021 taxes that you pay in early 2022. So no, you cannot take this tax credit on the taxes that you are about to do in a couple of months. So basically, you have to ‘front’ this $7500 for a year before you actually can get the money. But there is a trick you can do that’s fully legal, and that I have done twice. You can change your withholdings so that you get less money withheld from your paycheck during all of 2021 (Form W-4). So this way instead of waiting till early 2022 you could get this money throughout all of 2021. What you do is change your withholding allowances so that you get enough for as many paychecks as you have left for the rest of the year to come fairly close to $7500 by your last paycheck in 2021. For instance, I get paid biweekly, and each withholding allowance is about $50 to me (yours may be very different, there are withholding calculators on the IRS website). So let's say I get my car March 1st, which leaves me about 20 biweekly paychecks left. $7500/20=$375. So to be a little conservative I will probably Add 6 to my withholding (The more allowances you claim on your form W-4, the less income tax will be withheld from each paycheck) which will give me roughly $300 more per paycheck. Now very important, if you do this you absolutely have to remember to reduce your withholdings back down at the beginning of the next year, 2022 in this case!!! (Otherwise you might find yourself with a huge bill and possible penalties in early 2023)

Hope that helps some. – John

PS - If you're looking for a good level 2 charger look at Clipper Creek. They make excellent chargers that are significantly cheaper than buying a charger through a dealer. I have had mine 5+ years, installed in one house in a carport, moved and installed in another in a garage and it has worked perfect since day 1.
Thank you for he information..As I believe this can only be used for 1 year of returns. I have a solar system and I was able to spread out the tax credits over 3 years. I assuming this is not the case for the Wrangler?

Barbara
 
 



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