Tax Credit Info

[Zinc]

I am a February 2021 Dual motor reservation so not sure when that will be available, hoping within 1 year. Today went and test drove a Y performance to maybe pick up prior to the cybertruck and really liked it. Nobody in the place had answers to the tax credit. If I owed on my taxes an additional 3k at year end, the tax credit would wipe the $3k and the $4.5k balance would come by check?

Can anyone explain further on the credit?

Thoughts on the Y, loved the tightness of the vehicle, steering and suspension felt solid, no creeks or rattles. Awesome room in the back for a K9 and amazing sound system. I spent a grand on sound upgrade in my Gladiator and the Y stereo was still better. One thing that was very different is coasting was non existent. You let off the pedal and it feels like the emergency brake is on. I actually stopped to see where the emergency brake was which I never found. No biggie and if I can figure out the tax credit, I might just add a Y model.

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[Crissa]

The tax credit is just a credit reducing the amount you owe. That include taxes you're paying ahead of time with any withholding. So for most American households, that means it works fine, just delayed gratification.

Next year they'll have a system so you can get the credit off the price of the car before you drive it off the lot.

-Crissa

 

[RonM]

You are correct. If you owe $3,000 Federal taxes at the end of this year and had already prepaid at least $4,500, you will get a refund of $4,500. The braking on the model Y could have been due to one-pedal drive setting?

 

[cvalue13]

If I owed on my taxes an additional 3k at year end, the tax credit would wipe the $3k and the $4.5k balance would come by check?

check with a tax advisor, but this is a tax “credit” and not a tax “rebate”

If you only eg $3K in tax liability for 2023, you’ll only get $3K “credit” (and no additional $4.5K “rebate”)

Initially, there was some confusion around this with respect to the 2024 “on the hood” language, as such point-of-sale incentives can be “rebates” rather than “credits.” Folks were hopeful it would be a rebate.

But subsequent guidance made it clear it’s a point-of-sale credit, not a rebate (so if you get $7,500 off “on the hood,” but in your 2024 tax filings didn’t earn the credit, you’d end up owing the undeserved credit in additional taxes)

If you’re considering buying and only have $3K tax liability, it’s theoretically possible to consult with a tax advisor and see if there are any steps you can take to generate an additional but advantageous $4.5K in tax liability in the year.

It would take a tax advisor to make sure you didn’t shoot self in foot, but an example advantageous tax liability might be if you had any reason to for example pull money out of a tax-advantaged retirement or similar account. In a normal year, you wouldn’t do this because it would generate a taxable withdrawal. But with the credit, you could balance the taxable event with the credit.

Now, that alone would be a zero sum game, so there’d be no reason to do that unless you wanted the withdrawn money out for some other reason but hadn’t done it because of the taxable event. Here, it’s basically a pass to get out the money you need with no penalty (if you balance the taxable event to the credit).

This just back-of-napkin gabbin’

 

[Royal Fish]

A tax reduction Lowers the amount That you're taxed on. A tax credit comes right off of the money that you owe, which is way better.

 

[Zinc]

check with a tax advisor, but this is a tax “credit” and not a tax “rebate”

If you only eg $3K in tax liability for 2023, you’ll only get $3K “credit” (and no additional $4.5K “rebate”)

Exactly what I needed to know. For some of us a rebate is more advantageous and would have easily closed the deal. But now I will wait and see if that becomes a rebate in 24 when the cybertruck order is ready. Thank you and everyone else for chiming in.

 

[Zinc]

You are correct. If you owe $3,000 Federal taxes at the end of this year and had already prepaid at least $4,500, you will get a refund of $4,500. The braking on the model Y could have been due to one peddle drive setting?

It would make sense that is was a 1 peddle setting. If only the Tesla employees had any info at all and the rest of the customers weren't playing the loud fart noises the whole time I might have known that. Even still, the one peddle deal, not bad at all. Enjoyed.

 

[cvalue13]

Exactly what I needed to know. For some of us a rebate is more advantageous and would have easily closed the deal.

Do note the point by:

If you owe $3,000 Federal taxes at the end of this year and had already prepaid at least $4,500, you will get a refund of $4,500.

Knowing your exact answer requires your exact facts.

There are folks who don’t have $7,500 in total tax liability annually, and who don’t withhold - which is the fact pattern I was describing to outline the credit/rebate distinction.

But if instead your situation is like the one outlined by @RonM, and you were asking about a refund on over-paid withholdings then his fact pattern is along the lines of what you’re looking for.

Re-reading your post and seeing the words “additional $3K at year end” seems I may not have been answering your exact question, but @RonM has. Refund back, or elect to roll forward to next year’s liabilities.

 

[Zinc]

Do note the point by:



Knowing your exact answer requires your exact facts.

There are folks who don’t have $7,500 in total tax liability annually, and who don’t withhold - which is the fact pattern I was describing to outline the credit/rebate distinction.

But if instead your situation is like the one outlined by @RonM, and you were asking about a refund on over-paid withholdings then his fact pattern is along the lines of what you’re looking for.

Re-reading your post and seeing the words “additional $3K at year end” seems I may not have been answering your exact question, but @RonM has. Refund back, or elect to roll forward to next year’s liabilities.

I was actually interested in knowing either scenerio so I appreciate both answers. Here is one that I just read in another thread that I was not aware of either. If I were to purchase the Y and get the tax credit, I would not be eligible for a tax credit on the Cybertruck unless it was a 3 year delay.

"There is a limit of one tax credit every three years (pdf page 147 paragraph 3 D), and a used vehicle only qualifies for one tax credit in it's lifetime (pdf page 141 paragraph f 8)...

 

[intimidator]

Exactly what I needed to know. For some of us a rebate is more advantageous and would have easily closed the deal. But now I will wait and see if that becomes a rebate in 24 when the cybertruck order is ready. Thank you and everyone else for chiming in.

I don't see our Congress going back and changing this existing legislation to make it a "rebate". For those that qualify for the tax credit, just be happy with whatever you can get.

 

[Trbizwiz]

Here is a chart for tax rates, per income bracket. It’s important to note, certain other credits and deductions could impact the amount you owe, so if you owe $9190, in the minimum tax bracket in this chart, but you have other tax credits or deductions that diminish your taxes owed, you may still not get the full refund. But if you earn at least $41,775, you have some chance at a full credit refund. Only you and your tax advisor know what other credits and deductions you already have. Only a tax advisor would have any clue which credits would cancel one another out off a specific tax debt. The child tax credit could be a stumbling block for some tax payers here.

Tax brackets for income earned in 2022

• 37% for incomes over $539,900 ($647,850 for married couples filing jointly)
• 35% for incomes over $215,950 ($431,900 for married couples filing jointly)
• 32% for incomes over $170,050 ($340,100 for married couples filing jointly)
• 24% for incomes over $89,075 ($178,150 for married couples filing jointly)
• 22% for incomes over $41,775 ($83,550 for married couples filing jointly)

 

[LKP]

I am a February 2021 Dual motor reservation so not sure when that will be available, hoping within 1 year. Today went and test drove a Y performance to maybe pick up prior to the cybertruck and really liked it. Nobody in the place had answers to the tax credit. If I owed on my taxes an additional 3k at year end, the tax credit would wipe the $3k and the $4.5k balance would come by check?

Can anyone explain further on the credit?

Thoughts on the Y, loved the tightness of the vehicle, steering and suspension felt solid, no creeks or rattles. Awesome room in the back for a K9 and amazing sound system. I spent a grand on sound upgrade in my Gladiator and the Y stereo was still better. One thing that was very different is coasting was non existent. You let off the pedal and it feels like the emergency brake is on. I actually stopped to see where the emergency brake was which I never found. No biggie and if I can figure out the tax credit, I might just add a Y model.

Assuming the Cybertruck is eligible for the full $7500 federal tax credit, to get that full benefit, you have to have paid at least that amount in federal tax. You don’t get a refund, and you aren’t allowed to carry any remaining balance over. In other words, if you paid only $4000 in federal tax in the year when you purchase the truck, the 4K is all that you will be eligible to claim as a tax credit. The feds won’t be refunding anything in the form of a check. Remember, this is a tax credit and not a deduction, so it’s of great benefit.

 

[cvalue13]

The child tax credit could be a stumbling block for some tax payers here.

This and similar deduction choke-points is why, on a different thread regarding the 2024 “on the hood” credit, I continue to be curious in what kind of proof the IRS will ask the dealerships to supply at purchase. Not because the dealerships will be ultimately responsible, but because the IRS is keenly aware that the very same tax brackets that will qualify for this credit are often unaware of their annual tax liabilities at this level of agility - and presumably the IRS will take some measures to minimize the number of folks who in, say, June of a year miss-estimate their YE tax situation not due for another year.

On the other end of the spectrum:

When the Lightning was only a few months to market and the IRA was rolling out, you can imagine the confusion and focus over on that forum

One thing I learned from that period is there are a surprising number - not big number, but surprising - of folks interested in BEVs but for whom they have very little earned income in a year. I suspect we could categorize many of them as, but in various senses of the word, tax “retired.”

This very same group of folks will simultaneously be under the credit income caps, but also in questionable range of the requisite annual tax liability to take advantage of the credit.

That context is why I mentioned the possibility of early drawling down tax advantaged accounts to create tax liability - basically a possible free pass to overdraw certain types of accounts.

But I recount that again to say: on either end of the spectrum, young families, or the (variously) tax retired, the IRA’s income caps will hone the universe of qualifying taxpayers down to a bandwidth of taxpayers that have on average more possible bottlenecks. On top of that add the complications of the post-‘23 point-of-sale credit system, and the IRA credits will on average be not as straight forward or error-proof for taxpayers as the prior BEV credit

the silver lining: absent the IRA, there would be near zero credits available to anyone

 

[Trbizwiz]

This and similar deduction choke-points is why, on a different thread regarding the 2024 “on the hood” credit, I continue to be curious in what kind of proof the IRS will ask the dealerships to supply at purchase. Not because the dealerships will be ultimately responsible, but because the IRS is keenly aware that the very same tax brackets that will qualify for this credit are often unaware of their annual tax liabilities at this level of agility - and presumably the IRS will take some measures to minimize the number of folks who in, say, June of a year miss-estimate their YE tax situation not due for another year.

On the other end of the spectrum:

When the Lightning was only a few months to market and the IRA was rolling out, you can imagine the confusion and focus over on that forum

One thing I learned from that period is there are a surprising number - not big number, but surprising - of folks interested in BEVs but for whom they have very little earned income in a year. I suspect we could categorize many of them as, but in various senses of the word, tax “retired.”

This very same group of folks will simultaneously be under the credit income caps, but also in questionable range of the requisite annual tax liability to take advantage of the credit.

That context is why I mentioned the possibility of early drawling down tax advantaged accounts to create tax liability - basically a possible free pass to overdraw certain types of accounts.

But I recount that again to say: on either end of the spectrum, young families, or the (variously) tax retired, the IRA’s income caps will hone the universe of qualifying taxpayers down to a bandwidth of taxpayers that have on average more possible bottlenecks. On top of that add the complications of the post-‘23 point-of-sale credit system, and the IRA credits will on average be not as straight forward or error-proof for taxpayers as the prior BEV credit

the silver lining: absent the IRA, there would be near zero credits available to anyone

I don’t think dealers will have any obligation or responsibility. I think you’ll get the credit if you ask for it. If you don’t qualify, at tax time, you’ll be forced to repay the unqualified portion.

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