Electric Car Tax Credits Warning

[clifp]

I learned an expensive lesson this week. Always read the fine print of any special tax break you get before the end of the year not after. I cheated myself out of $2,000 -$3,000

I always file an extension, because I generally don't get reports from the small companies I'm invested with before May or June. I generally make preliminary estimate in Dec, using last years tax program. Start doing1/2 of the work in April, than finish up in late summer.

This year with the $7,500 tax credit I bought for the Tesla (which is available for most EV and smaller one for hybrids) I figured I'd owe minimal taxes. In 2012 I paid just under $9,000 in Federal.

I figured this year I'd owe about the same since, I didn't sell much appreciate stocks, sold any position with a loss, but my rental properties were pretty much rent all year.

Well I was wrong I actually I owe only between $4,000-$5,000 since I end up with $3,300 capital gains loss. No big deal I figure the $7,500 car tax credit will wipe out any tax liability and i can roll whats left into this year.

BOY WAS I WRONG. It turns out the unlike virtually any other tax credit (e.g. installing a PV system, the Earn Income Tax credit, etc), the one for EV is a use it or lose it. Not only is not refundable but if your tax liability is less than $7,500 use simply don't get the credit..

If I had known this (I had googled the damn thing last year and nobody mentioned the limitations of the credit, just turbotax and the IRS regs) I would sold some stocks with gains, done a Roth conversions and moved my last donations from Dec 31, to this year..

If anybody has creative ideas how I can pump my 2013 income, by $10,000 or so, I'd love to hear them. I'm depreciating 3 rentals can I not take depreciate this year, or even not tax the EV tax credit this year?

 

[karluk]

BOY WAS I WRONG. It turns out the unlike virtually any other tax credit (e.g. installing a PV system, the Earn Income Tax credit, etc), the one for EV is a use it or lose it. Not only is not refundable but if your tax liability is less than $7,500 use simply don't get the credit..

Sorry to hear about your bad experience. The tax laws are not easy to master, and you ran into a wrinkle that cost you a lot of money.

I don't think it's accurate to say, though, that "virtually any other tax credit" is refundable. Some are and some aren't. Anyone planning on getting a tax credit should look into the specifics of their anticipated credit to see if it's refundable. The following link suggests that refundable tax credits are the exception rather than the rule.

Refundable credits are contrasted with nonrefundable tax credits. The vast majority of tax credits are nonrefundable: meaning that these credits can reduce your federal income tax liability to zero, and any remaining credits won't be refunded to the taxpayer.

Refundable Credits - What's a Refundable Tax Credit?

 

[clifp]

You are probably right the majority aren't refundable. But even the link doesn't really characterize tax credit correctly. (Any CPA please correct my terminology) There are fully refundable credit which are relatively rare like the Earned income tax credit, or child tax credit which can give you a refund even if you owed no taxes.

But among non refundable tax credits there are different provision with a carry over. AFAIK, most tax credits that are unused roll over into the next year. For instant, I was carrying for a credit on Alternative Minimum Taxes on incentive stock options for years. It is not as good as getting it back all at once but sure beats losing it.

If you install at $30K on a solar/PV system in 2013 you get a tax credit of 30% ($9K) if you tax liability is only 4K the unused $5,000 is applied to your 2014 taxes. None of the info on Federal Tax Credit for Electric Vehicles Purchased in or after 2010 mentions that you have to use it or lose. You have to read the damn IRS form to find that out. I Obviously it is too much to expect consistent tax treatment for energy saving related credits.

 

[ERD50]

... Obviously it is too much to expect consistent tax treatment for energy saving related credits.

Simplify that to:

Obviously it is too much to expect consistent tax treatment. (period)

-ERD50

 

[marko]

But you still get to drive the coolest car to come along in 20 years, right?

 

[samclem]

Dang, sorry to hear about the lost money. I don't have any great ideas on how to show more 2013 taxable income at this point.

 

[Chuckanut]

So, no Tango in your future?

Commuter Cars - The Tango, ultra-narrow electric car for commuting; 0-60 in 4 seconds

 

[ivinsfan]

I suggest you run your tax program excluding the capital loss and maxing out the credit and then run it including the capital loss and with less credit..see which way that you owe less tax. Is it mandatory to claim a capital loss, I don't know, you'd need to spend a little time reading up on that area....would they actually send you a tax letter saying you forgot to take a loss? Generally, you get much more tax relief with a credit then a deduction..