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
2017_Chevy_Bolt_EV.jpg
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
2017_Chevy_Bolt_EV.jpg
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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