Tax planning

IRS logoAs we’re about to enter the final quarter of the year, thoughts turn to the holidays and then…tax season. This year and next planning is especially important. The three top producers of plug-in vehicles, that qualify for the full $7,500 Federal Income Tax Credit for all-electric and plug-in hybrid vehicles will probably hit their 200,000th unit sale in 2018. Depending on the modeling you employ, this could start happening as early as mid-year or closer to the end of 2018.

For the uninitiated, there is an income tax credit for those who buy (not lease) all-electric and plug-in hybrid vehicles. But not all vehicles get the same tax credit. The amount of the tax credit is determined by the size of the battery pack. Also, it is important to understand the difference between a tax deduction (like the deduction for having a child, property taxes paid or mortgage interest paid) and a tax credit.

A tax deduction is a deduction off your income, so if you have a deduction, with a value of $2,000, it reduces your taxes by the deduction multiplied by your tax rate. It’s a little more complicated than that, due to how tax brackets affect the calculations, but this example is close enough for horseshoes or hand grenades. If your tax bracket is 25%, the tax deduction of $2,000 only reduces the taxes you owe by $500 ($2,000 X 25%).

A tax credit actually reduces your income tax by the stated amount of the credit. So, in the example above we used a value of $2,000. A tax credit would of that amount would reduce your taxes by $2,000. Easy, peasy. There are some other considerations, so consult your tax preparer.

The plug-in vehicle income tax credit phases out, for a manufacturer’s vehicles, Once they have their 200,000th sale. Once the 200,000 mark is hit, the countdown begins. For the quarter, in which the 200,000th vehicle is sold, and the following quarter, that manufacturer’s vehicles still qualify for the entire $7,500. Qualifying vehicles from that manufacturer are eligible for 50 percent of the credit ($3,750) if purchased in the first two quarters after the end of the $7,500 tax credit mentioned above. The tax credit then drops to 25 percent ($1,875) of the original amount, if purchased in the third or fourth quarter of the phase-out period.  After that point, the credit goes away completely.FITC RulesWho are the three manufacturers that will be affected first? They are Nissan (maker of the Leaf), Tesla Motors (maker of the Roadster, Model S, Model X and Model 3) and General Motors, (maker of the Cadillac ELR & CT6, Chevy Volt, Bolt EV and Spark EV).

So, in planning your taxes, if you want to make a purchase in 2017 and collect the tax credit when you file in 2018, you need to be working on that purchase now. If you want to order exactly what you want, it’s too late for a Tesla, since their waiting list is so long. For the current GM models, you should place your order no later than October 15th, as it usually takes eight weeks from order to delivery (depending on dealer allocation). Unfortunately, I do not know what the order cycle is for the newly redesigned Nissan Leaf.

If you want to make a purchase in 2018 and collect the tax credit when you file in 2019, you need to keep an eye on how the manufacturers are each progressing toward the 200,000 vehicle limit. As of last month, it shaped up like this:

  • Tesla Motors – 138,469
  • Nissan – 113,263
  • General Motors (Cadillac and Chevrolet) – 149,649

The Tesla numbers were based on estimates. I will endeavor, over the next year, to keep an eye on this and post my findings here.

2 thoughts on “Tax planning

  1. The new Leaf 40 kWh Leaf is out in Japan this year but no US release until 2018. 60kWh leaf will not ship in the US until late 2018. Model 3 will start customer deliveries before years end, but only a few thousand will get it this year. Most will be employees, current Tesla owners, and living in California.

    So anyone who wants one of the three new longer range plug-ins, and wants to claim the tax credit next year: the Bolt is their option. 🙂

  2. Pingback: February 2018 Sales Numbers | My Electric Vehicle Journey

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