Tax credit Q

[RickMachE]

https://fas.org/sgp/crs/misc/IF11017.pdf

this 2019 report does confirm no carry forward for Individual tax credit on EV.... bummer, but I have not gone looking to see if anything changed in the 2021 tax code.

Nothing has changed. You use it, or lose it. That's why everyone buying an EV needs to review their tax situation and ensure they will have at least $7,500 (or less, depending on the vehicle) in tax obligation, for the year. Or, in late December, make adjustments such as doing Roth conversions, or selling taxable investments with long term capital gains.

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[Mach1E]

https://fas.org/sgp/crs/misc/IF11017.pdf

this 2019 report does confirm no carry forward for Individual tax credit on EV.... bummer, but I have not gone looking to see if anything changed in the 2021 tax code.

Nothing changed as far as the credit goes.

Use it or lose it.

Roth conversion would definitely be the easiest way to create income.

And if you’re funding a 401k or IRA, fund a Roth or Roth 401k instead.

Everything except the ira funding has a Dec 31 deadline.

 

[timbop]

Does anyone know if the EV credit come off first before other credits? I’m getting solar this year too and I’m wondering if the solar credit will come off after the EV credit since that one can be carried over?

You can deduct the EV credit "first" and carry over the excess solar credit until the next year - but ONLY through one additional year: if you have any solar credit leftover after the second years' taxes it is lost

 

[RickMachE]

Does anyone know if the EV credit come off first before other credits? I’m getting solar this year too and I’m wondering if the solar credit will come off after the EV credit since that one can be carried over?

There is no order.

EV credit goes on one form, residential energy credit goes on another, and BOTH then post to Form 1040, schedule 3. They total and go to line 20 on the 1040. https://www.irs.gov/pub/irs-pdf/f1040s3.pdf

 

[dtbaker61]

Nothing has changed. You use it, or lose it.

UNLESS you claim the EV as a depreciable asset for your business.... then you can carry forward unused tax credit from what I read in this article.

If anybody has any good tips on the ins and outs of setting up a vehicle as a business asset in a Sole Prop LLC, please post. I use my MME for business 80% of its miles, and I do have another car for personal use... so is there anything tricky about setting up the MME as a business vehicle eligible for depreciation and tax credit?

 

[Motomax]

There is no order.

EV credit goes on one form, residential energy credit goes on another, and BOTH then post to Form 1040, schedule 3. They total and go to line 20 on the 1040. https://www.irs.gov/pub/irs-pdf/f1040s3.pdf

If they combine, how does the carryover of solar work. Do you just claim less on the form and claim the remainder the following year?

Edit: nvm I found my answer. There’s a calculation sheet for line 14 on the form. All other credits get deducted first.

 

[RickMachE]

If they combine, how does the carryover of solar work. Do you just claim less on the form and claim the remainder the following year?

You should probably review the form. States on there exactly how it works. https://www.irs.gov/pub/irs-pdf/f5695.pdf

 

[ooHi-Fioo]

EV Tax Credits are not refundable nor can they be rolled over. Use it or loose it.

A Complete Guide to the Electric Vehicle Tax Credit (greenmatters.com)

So it reduces my federal tax liability...is this federal and fica withholdings?

I won't have a daycare deduction next year or much for school deductions either, but as of right now I barely pay any federal taxes with those deductions.

 

[dtbaker61]

Thank you for this information, this makes sense to maximize the credit. I actually ordered an explorer st but due to some poorly worded information on Ford's part, it looks like I either need to upgrade the package to near mach-e prices or go with a mach-e. My biggest hangup is no towing on the mach-e, for things like a utility trailer for home depot runs. Another topic though...

the TorkLift receiver fits great, and is an easy install, 'for bike racks',

 

[engnrng]

So it reduces my federal tax liability...is this federal and fica withholdings?

I won't have a daycare deduction next year or much for school deductions either, but as of right now I barely pay any federal taxes with those deductions.

You really need to learn the difference between a deduction, withholding, FICA, tax liability, and tax credits. Considerable differences! And the consequences of not understanding can cost you $megabucks due to poor decisions. Or, you have to hire a tax preparer. ;-}

Hint: Tax liability has nothing to do with any withholdings that show on a pay stub or W2.

 

[RickMachE]

So it reduces my federal tax liability...is this federal and fica withholdings?

I won't have a daycare deduction next year or much for school deductions either, but as of right now I barely pay any federal taxes with those deductions.

No, a tax credit does not reduce your tax liability.
No, it has zero impact on your federal withholdings (*). And FICA (which stands for Federal Insurance Contributions Act) is basically Social Security and Medicare, and has zero to do with federal income tax.

Here's what a tax credit does for you. Let's assume your taxable income is $X, and therefore your tax on that income is $Y. $Y is your tax liability. A tax credit reduces $Y by the amount of the credit.

So, if your taxable income leads to $4,580 in tax liability, and you have a $7,500 tax credit, you don't owe anything and in fact have lost part of the tax credit.

If your taxable income leads to $10,000 in tax liability, and you have a $7,500 tax credit, you still owe $2,500.

After this calculation, the taxes you have paid already are taken into account, i.e. payroll withholding. So if you owe $2,500, and you withheld $8,000 during the year, you'll get back $5,500 from the IRS. You can think of that as the $7,500 tax credit getting you a $5,500 refund.

* If you know you have a $7,500 tax credit coming, you COULD reduce your federal tax withholding during the year (assuming the current IRS methodology let you do so), and then have the tax credit make up the difference. Best done by people who do quarterly estimates, whereby they can reduce the quarterly payments after they buy the vehicle, because they know they have a $7,500 credit coming.

 

[Earplug]

UNLESS you claim the EV as a depreciable asset for your business.... then you can carry forward unused tax credit from what I read in this article.

If anybody has any good tips on the ins and outs of setting up a vehicle as a business asset in a Sole Prop LLC, please post. I use my MME for business 80% of its miles, and I do have another car for personal use... so is there anything tricky about setting up the MME as a business vehicle eligible for depreciation and tax credit?

You would need to Title and Register the vehicle in the Business Name.

How to Transfer a Private Vehicle to an LLC (chron.com)

 

[Mach1E]

UNLESS you claim the EV as a depreciable asset for your business.... then you can carry forward unused tax credit from what I read in this article.

If anybody has any good tips on the ins and outs of setting up a vehicle as a business asset in a Sole Prop LLC, please post. I use my MME for business 80% of its miles, and I do have another car for personal use... so is there anything tricky about setting up the MME as a business vehicle eligible for depreciation and tax credit?

Do you use it 100% for business use only?

The rules with business vehicles have gotten more an more restrictive.

Sure lots of small business owners put a lot of personal assets in the business name, but it’s a dangerous game to play.

 

[timbop]

So it reduces my federal tax liability...is this federal and fica withholdings?

I won't have a daycare deduction next year or much for school deductions either, but as of right now I barely pay any federal taxes with those deductions.

The explanation by @RickMachE is an excellent one, I would just add that in his second example the reason that the refund you get is only $5500 is that your witholdings were less than your liability, so had you not bought the car you would have owed the IRS $2000 (bold added by me):

You can think of that as the $7,500 tax credit getting you a $5,500 refund instead of you owing the IRS $2000 when you filed your taxes.

 

[yngwenli]

You can deduct the EV credit "first" and carry over the excess solar credit until the next year - but ONLY through one additional year: if you have any solar credit leftover after the second years' taxes it is lost

Can't the solar credits be carried for multiple years till fully claimed? I'm pretty sure that's the case.

For EVs, that's use it or lose it and if you don't have enough income, it's worthless. If anything, that hurts less well off people (it not being refundable) in regards to EV adoption and 'fairness' IMO in the current tax code.

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