Federal tax credit only provides credit against tax liability?

[Davedough]

So you're in the 24% tax bracket. We add the 10% tax early withdrawal penalty to get 34% and while I'm not sure about Virginia taxes, let's call it 6% to get a nice round 40%. So on a $15K withdrawal, you'll pay $6,000 in taxes. Using $15K to drive down the price of you car, only drives it down $9K, which is very in-efficient. (I'd certainly be surprised if you could save that much in interest with the larger downpayment.) OTOH, if you took $15K out of a regular savings account--assuming you have one--you'll get the full benefit of the $15K.

The $7500 tax credit doesn't come into play here. If you're in the 24% tax bracket, you're paying a minimum of $30K/year in federal taxes, so you'll get the $7500 tax credit whether you touch your IRA or not.

Lastly, you're giving up tax-deferred money. That IRA has the potential to grow faster than a normal account due to the tax deference. (Well, maybe not if you're investing in penny stocks.) And it doesn't have to remain an orphaned account--in all likelihood you can roll it over into your existing 401(k). Sorry for the unsolicited advice, but I'm hoping to help you buy many more $65K cars over your lifetime.

Thank you, that’s good advice. I was mainly just curious because, like I said, it’s money I discovered that I didn’t know I had. The more I think about it and the more everyone replies, the more I realize it’s not a good use of money. I do have a savings I could take that money from, it would just take me being able to convince my wife it’s a good idea

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[RedStallion]

Alternatively, one could do a traditional-to-roth conversion instead of a distribution, so that the money can continue to grow (and the growth will now be tax free). The strategy depends heavily on personal situations.

Do you have to convert the whole account or you can do only part of it? If the whole account then it makes no sense as it would generate huge amount in taxes and push you into a high tax bracket.

 

[Mickey the T]

Do you have to convert the whole account or you can do only part of it? If the whole account then it makes no sense as it would generate huge amount in taxes and push you into a high tax bracket.

You can convert as much or as little as you want to a Roth. I've had clients do it and in one case we converted exactly enough to give them $7,500 of tax, which we zeroed out with the credit. (FYI, we got a bit lucky since we had to estimate how much interest income they would have over the course of the year.)

 

[dbsb3233]

Doing my taxes now. Here's what TurboTax has to say about the credit for buying/installing a charger...

~~~

Alternative Fuel Vehicle Refueling Property Credit

Charging stations for plug-in electric vehicles qualify for this credit.

You can claim this credit if you installed a charging or refueling station at your home.

You can claim this credit if you installed a charging or refueling station at your business location.

Credit Requirements
The following conditions must be met to qualify for this credit:
- You started using the station in the current tax year (2020).
- You are the original owner of the station.
- The station is used primarily in the United States.
- The station is installed at a residential or business location.

Eligible Expenses to Claim
The cost of the charging or fueling station include:
- The amount you paid to purchase the station
- The fees you paid to have the station installed in your home or business location (i.e., electrician fees).
- Permit fees
- Any city, local, or state fees that you were required to pay in order to be able to install your station.

Example: You purchased your charging station for $850, paid an electrician $2,000 for installation and hardware. You would enter total cost as $2,850 for your station.

Limitations of this credit - Personal Use
- If your credit is bigger than what you owe in taxes, the taxes you owe are reduced to zero, and the rest of your credit is lost.

Example: If you owe $500 in taxes, and you receive a credit of $1,000, the tax you owe is reduced to zero, and the remaining $500 is lost. You won't receive a refund for the remaining $500.

- If you pay alternative minimum tax (AMT) you will not be able to claim this credit. If you are close to paying AMT, this credit may be limited by your tentative minimum tax as calculated on Form 6251, Alternative Minimum Tax - Individuals, line 33.

Limitations of this credit - Business Use
- The business portion of the credit is part of Form 3800, General Business Credit, so any unused amount of the credit is not lost, but is eligible for the carryback/carryforward provisions of the general business credit.

- If you use this station for business and claim a depreciation deduction, you must subtract the credit amount when TurboTax asks you to enter the cost of the station in the Business (Schedule C) or Farm section of the program.

Example: You paid $5,000 to purchase and install your station at your business location. The station is eligible for a credit of $1,500. To claim the depreciation deduction, you must subtract this credit amount when entering the cost of the station in the Business or Farm section of TurboTax.

Credit Recapture
You may have to recapture some or all of the credit if the station no longer qualifies for the credit.

This credit is claimed on Form 8911.

 

[fallguy]

We will get this next year, as we bought it this year. Is there a number or something that we are in for this. As it does run out. I don't want someone who buys one this December to get my tax credit where I bought mine earlier.

 

[SteelMach]

We will get this next year, as we bought it this year. Is there a number or something that we are in for this. As it does run out. I don't want someone who buys one this December to get my tax credit where I bought mine earlier.

You will claim it on your 2021 taxes, which you will file in the spring of 2022.

There is no "running out." Even when Ford sells their 200,000th, it doesn't even start stepping down until the end of the following quarter to the 200,000th sale. The form on your taxes asks the sale date and VIN and how much you claim. Presumably they check that date against the manufacturer's phase out timeline.

 

[BDC]

Doing my taxes now. Here's what TurboTax has to say about the credit...

~~~

Alternative Fuel Vehicle Refueling Property Credit

Charging stations for plug-in electric vehicles qualify for this credit.

You can claim this credit if you installed a charging or refueling station at your home.

You can claim this credit if you installed a charging or refueling station at your business location.

Credit Requirements
The following conditions must be met to qualify for this credit:
- You started using the station in the current tax year (2020).
- You are the original owner of the station.
- The station is used primarily in the United States.
- The station is installed at a residential or business location.

Eligible Expenses to Claim
The cost of the charging or fueling station include:
- The amount you paid to purchase the station
- The fees you paid to have the station installed in your home or business location (i.e., electrician fees).
- Permit fees
- Any city, local, or state fees that you were required to pay in order to be able to install your station.

Example: You purchased your charging station for $850, paid an electrician $2,000 for installation and hardware. You would enter total cost as $2,850 for your station.

Limitations of this credit - Personal Use
- If your credit is bigger than what you owe in taxes, the taxes you owe are reduced to zero, and the rest of your credit is lost.

Example: If you owe $500 in taxes, and you receive a credit of $1,000, the tax you owe is reduced to zero, and the remaining $500 is lost. You won't receive a refund for the remaining $500.

- If you pay alternative minimum tax (AMT) you will not be able to claim this credit. If you are close to paying AMT, this credit may be limited by your tentative minimum tax as calculated on Form 6251, Alternative Minimum Tax - Individuals, line 33.

Limitations of this credit - Business Use
- The business portion of the credit is part of Form 3800, General Business Credit, so any unused amount of the credit is not lost, but is eligible for the carryback/carryforward provisions of the general business credit.

- If you use this station for business and claim a depreciation deduction, you must subtract the credit amount when TurboTax asks you to enter the cost of the station in the Business (Schedule C) or Farm section of the program.

Example: You paid $5,000 to purchase and install your station at your business location. The station is eligible for a credit of $1,500. To claim the depreciation deduction, you must subtract this credit amount when entering the cost of the station in the Business or Farm section of TurboTax.

Credit Recapture
You may have to recapture some or all of the credit if the station no longer qualifies for the credit.

This credit is claimed on Form 8911.

This looks like the credit for installing a charging station, not the $7500 vehicle purchase credit. Though grabbing them both is a good idea!

 

[dbsb3233]

This looks like the credit for installing a charging station, not the $7500 vehicle purchase credit. Though grabbing them both is a good idea!

You're right, I should have clarified that. I edited it to make it clearer for anyone new coming in to read it.

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