Newbie Question about $7,500 Credit and Tax liability

[BravoSix]

Guys long time lurker, close to trading in a G37x for an i3 Rex.

I'm reading that you need a tax liability of $7,500 to qualify for the credit. Does that mean after all calculations I need to still owe $7,500?

We pay in like $30k a year claiming 1 and end up with a $10k refund each year. I'm confused on if I do or do not qualify.

With all of the deals floating around the $7,500 credit that I have to deal with vs the leasing company adding to residual like the leaf is throwing me for a loop

 

[jadnashuanh]

I'm having some discussions with the IRS right now...the tax code requires you to use the Alternate Minimum Tax tables if you want to claim the EV credit. If you aren't using it for business, 99% of the entries in that form are totally meaningless. I'm not sure where I'll end up eventually.

I'd like to hear what other people have had in this situation. My tax bill was over the $7500, so I thought I'd be getting a refund...instead, they wanted another about $4k!

Typically, you'd figure your taxes, add up what you've already paid and whatever credits are allowed, then based on what your taxes were, you'd either owe or get a refund.

 

[alohart]

In 2014, I was able to claim most, but not all of the $7,500 EV tax credit and none of the EVSE installation tax credit. I use TurboTax to complete my Form 1040, and it did not use the EMT tables to compute my tax liability, and no AMT Form 6251 was completed. When I purchased an EV in 2012, TurboTax allowed me to claim the full $7,500 EV tax credit without completing AMT Form 6251, and the AMT tables were not used to compute my tax liability. This difference is probably due to our having a higher tax liability in 2012 than in 2014.

So as usual, computing one's federal tax liability is usually complex and inscrutable. One's individual tax situation determines whether one can claim the full EV purchase and EVSE installation tax credits with no simple guidelines that predict whether one would be able to claim these tax credits. Only after one completes the federal tax return does one know whether the EV purchase and EVSE installation tax credits can be claimed.

The federal tax code needs to be replaced by a much simpler tax code that allows most people to compute their tax liability without hiring a tax accountant or buying tax preparation software.

 

[imolazhp]

I'm no math wiz, but I do believe as long as you typically pay in more than $7500, you will get to use the full amount. So I gather that you typically pay in $20k net and should be able to claim the full amount. This will increase your refund next year handsomely, or, since there are still 8 months left in the year you might consider paying in less so that you will have more cash monthly for the rest of the year.

 

[mjk]

If you owe tax, what you owe is reduced by up to $7,500 by the credit. It's kind of like any other credit.

I'm low in taxable income, so I only got a partial credit. But it was better than nothing and reduced my tax liability to zero in a tax year where I had an artificial increase in income.

Now I just have to get off my rump and file for the $2,500 California refund.

 

[imolazhp]

^ I plan to artificially increase my income as well, transfer monies from a traditional IRA to a ROTH IRA. Its the only way for me to take full advantage of the $7500 too. I just got educated about this yesterday, I did not realize your traditional IRA would be taxed when you retire, I just didn't know. Had I known, I would have been transferring it over for the past 5 years I've been in school and have gotten back big income tax returns. Not that I didn't put them to good use, I didn't just blow them, but I should have been moving these funds over a little each year and gotten back either nothing or less money. Now I know and now I'll start moving them over a little each year, the end-savings when I retire will be worth the trouble.

 

[Jeffj]

Re: traditional IRA vs. Roth IRA

If you run the numbers, assuming equal returns either way and constant tax rates/brackets, the tax benefits of traditional IRA (pre-tax, pay when you withdraw) and Roth (post-tax, nothing to pay on withdrawl) end up the same.

The real difference is trying to guess what your relative tax rates are going to be. If you think that your taxes will be higher when you withdraw than they are now (both brackets as well as rates), then Roth makes more sense. If you think your taxes will be lower when you withdraw, then traditional makes sense.

If you have a line on what is actually going to happen, I'm sure that we'd all like to know.