$7500 US Federal Tax Credit on 4xe - Do you qualify or not?

bjm00se

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The US Tax Credit is a common source of confusion on this forum. This post will clarify that in plain language using a simple example.

Q: Does the 4xe qualify for US $7500 Federal Tax Credit?
A: YES!
Source: https://www.fueleconomy.gov/feg/taxevb.shtml
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Q: Can I personally claim that credit?
A: PROBABLY! If you can afford a 4xe the answer is probably yes! See detailed example below.

Let’s use the example of “Ferbie '', a hypothetical taxpayer. To keep it simple, Ferbie is single, has no dependents, and takes the standard deduction. Ferbie made $72,000 last year. Yes, that’s quite a bit of money. If you make less money than Ferbie, you may start to lose out on *some* of the tax credit benefit.

Like most folks, Ferbie works for an employer who withholds money from every paycheck. Again, to keep it simple, let’s say Ferbie gets a monthly paycheck of $6,000. Based on standard tables, $732 is withheld from every paycheck. (https://www.irs.gov/publications/p15t#en_US_2020_publink100018434)

So, at the end of the year, Ferbie has had $732*12 = $8784 withheld from paychecks over the last year.

Before the year is out, Ferbie buys a new 4xe! Yay!! The exact amount paid is unimportant. But - it is a purchase - not a lease. That *is* important.

Now, Let’s do Ferbie’s Taxes!

Form 1040 - Line 1 “Wages, salaries, tips, etc. Attach Form(s) W-2 .” $72,000

Form 1040 - Line 9
“Add lines 1, 2b, 3b, 4b, 5b, 6b, 7, and 8. This is your total income” -- $72,000

Form 1040 - Line 11:
“Subtract line 10c from line 9. This is your adjusted gross income” -- $72,000

Form 1040 - Line 12: (Ferbie takes the “standard deduction” of 12,400)
“12 Standard deduction or itemized deductions (from Schedule A)” -- $12,400

Form 1040 - Line 15
“15 Taxable income. Subtract line 14 from line 11. If zero or less, enter -0-” -- $59,600

Form 1040 - Line 16 (Tax using IRS tax table instructions on page 107)
“16 Tax (see instructions).” $8902. (This is Ferbie’s basic tax owed.)

Form 1040 - Line 18 (same as 16) $8902

Now, Ferbie Comes to Line 20, and needs to Fill out Schedule 3 “Additional Credits and Payments.”

In order to claim the EV Credit, Ferbie Fills out Form 8936 “Qualified Plug-in Electric Drive Motor Vehicle Credit” :

Line 19 (Vehicle Credit amount - see instructions) $7500

Line 20 (Copy from Form 1040 Line 18) $8902

Line 23 (Enter the smaller of Line 20 or Line 19) $7500.
This right here - this is where all the confusion always comes in. The credit is applied to the TOTAL tax, the amount on Form 1040, Line 18. NOT simply any amount remaining to be paid at the end of the year!

There are a couple of limits that apply on 8936:
  • Additional EVs purchased
  • Any Fuel Cell (Mirai) vehicles purchased,
  • Solar equipment installed on your home credits,
  • “Elderly or Disabled” credit.
As they say "consult your tax advisor." :)

The Line 23 amount gets copied back to schedule 3:
Schedule 3 - Line 6 “Other credits from Form: 8936” $7500.

And gets copied immediately back to the 1040:

Form 1040 - Line 20: $7500
Form 1040 - Line 21 (same as line 20)

Form 1040 - Line 22 “Subtract line 21 from line 18. If zero or less, enter -0-” $1402
Form 1040 - Line 24 (same as line 22) $1402
Form 1040 - Line 25a “Federal income tax withheld from W2” $8784

Form 1040 - Line 33 “Add lines 25, 26, and 32. These are your total payments” $8784

And, thank you for sticking with me this far - we now get the final relevant line!!
Form 1040 - Line 34 “If line 33 is more than line 24, subtract line 24 from line 33. This is the amount you overpaid” $7382

Ferbie can now have the $7382 amount refunded directly. If Ferbie had NOT purchased a 4xe, the amount owed at the end of year would have been $118.
 
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Sgt Beavis

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Several states have similar tax credits.
 

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