Eraser
Well-Known Member
- Joined
- Jun 23, 2020
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- Location
- California
- Vehicles
- 2021 Mach-E Premium RWD | SR
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- #1
Hey fellow MME (future)owners. Since most of us will be trying to take advantage of any free incentives for buying an electric vehicle I wanted to share some information that I didn’t realize early on. Specifically I wanted to discuss the US federal tax credit of up to $7,500 and how the tax credit actually works. Full disclosure, I’m not a tax professional, so this information should be taken at face value.
On to why you’re here:
1. The federal EV tax credit is just that, a credit not to be confused with a rebate (more on this later)
2. The federal EV tax credit is non-refundable (more on this later)
3. After an automaker sells 200,000 units the available credit begins to phase out, and will decrease over time until eventually nothing is available (state and local incentives may still be available)
Since the MME is Ford’s first long range electric vehicle that would even qualify for the federal tax credit, #3 is nothing to worry about for some time.
Numbers 1 and 2 are where things start to get sticky. Tax credits are applied to your tax liability (taxes you owe). Non-refundable tax credits cannot exceed your tax liability. In other words, depending on your tax liability you might not be able to claim the full $7,500 federal EV tax credit. Also note, this tax credit can’t be rolled over to the following year to claim any unused credit.
Here are some examples that should clear things up.
Example 1: In this example your tax liability is greater than the tax credit, so you can claim the full amount, with a remaining balance of $2,500.
Example 2: In this example your tax liability is less than the tax credit, so you lost $2,500 in tax credit, but you do not pay any taxes.
Example 3: In this example your tax liability is greater than the tax credit, so that is deducted first. You now have a balance of $10,000 in tax liability, however your tax withholding(what you paid throughout the year) exceeds your tax liability, therefore you would receive a refund for the difference.
If you’re in doubt regarding your tax liability you can find that information on line 24 on your 1040 tax form. As long as this number is equal to or greater than $7,500 you’ll take full advantage of the tax credit.
This was an eye opening process for me so I hope others find this information useful. Feedback is welcome, as I’m sure there are some details I missed.
On to why you’re here:
1. The federal EV tax credit is just that, a credit not to be confused with a rebate (more on this later)
2. The federal EV tax credit is non-refundable (more on this later)
3. After an automaker sells 200,000 units the available credit begins to phase out, and will decrease over time until eventually nothing is available (state and local incentives may still be available)
Since the MME is Ford’s first long range electric vehicle that would even qualify for the federal tax credit, #3 is nothing to worry about for some time.
Numbers 1 and 2 are where things start to get sticky. Tax credits are applied to your tax liability (taxes you owe). Non-refundable tax credits cannot exceed your tax liability. In other words, depending on your tax liability you might not be able to claim the full $7,500 federal EV tax credit. Also note, this tax credit can’t be rolled over to the following year to claim any unused credit.
Here are some examples that should clear things up.
Example 1: In this example your tax liability is greater than the tax credit, so you can claim the full amount, with a remaining balance of $2,500.
Tax liability: $10,000
Apply credit: -$7,500
New tax balance: $2,500
Refund: $0
Example 2: In this example your tax liability is less than the tax credit, so you lost $2,500 in tax credit, but you do not pay any taxes.
Tax liability: $5,000
Apply credit: -$7,500
New tax balance: $0
Refund: $0
Credit lost: $2,500
Example 3: In this example your tax liability is greater than the tax credit, so that is deducted first. You now have a balance of $10,000 in tax liability, however your tax withholding(what you paid throughout the year) exceeds your tax liability, therefore you would receive a refund for the difference.
Tax liability: $17,500
Apply credit: -$7,500
New tax balance: $10,000
Tax withheld: -$17,500
Refund: -$7,500
If you’re in doubt regarding your tax liability you can find that information on line 24 on your 1040 tax form. As long as this number is equal to or greater than $7,500 you’ll take full advantage of the tax credit.
This was an eye opening process for me so I hope others find this information useful. Feedback is welcome, as I’m sure there are some details I missed.
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