US Federal EV Tax Credit - Things to know

Eraser

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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.

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 16 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.
 

dcacosta

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Thank you! This is valuable information. Do you have any info to share on the CA EV credit? Can us California people claim both the federal and state credits?
 

FredT

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Thank you! This is valuable information. Do you have any info to share on the CA EV credit? Can us California people claim both the federal and state credits?
The California credit is not a tax credit (a rebate?). It is given directly after submitting required information. As I recall it took perhaps a month on the last one I did. And yes, you can get both Federal and state. California rebate will be $2000 (as long as sticker price is not over $60,000, so most Mach-Es)
 
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stmache

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Thank you for this. I will be checking line 16 on my 1040 tax forms over the last few years tonight. If I do indeed qualify, I may put the Mach-e back on my EV list for next year when I come off lease. I would have to come up with the money as a down payment to make it work for me.
 

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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.

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 16 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.
This was very useful....especially the line 16 number. Looks like it'll be a rebate for me...just hope there will be a delivery in 2020, so I can take advantage in this calendar year.
 

TheBluf

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I'm not a tax professional, but once you know your delivery date, you can also adjust your withholdings throughout the year to equal the $7500 rebate if you're a salaried worker, instead of just getting it all at once at the end of the tax year.

The IRS Tax Withholding Estimator helps with that: https://www.irs.gov/individuals/tax-withholding-estimator
 

kennelh

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I would add one other example:

Example 4: Like Example 3, your tax liability is greater than the tax credit, but in addition your liability is greater than your tax withheld. This could happen when your deductions reduce your total liability.

Tax liability: $17,500​
Apply credit: -$7,500​
New tax balance: $10,000​
Tax withheld: -$12,000​
Refund: -$2,000
 

Chrisw

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For those of you who want to take advantage of the 30%(up to $1000) tax credit for installing a vehicle changer the same rules apply because it is a tax credit. For people whose car will not be delivered until 2021 you could claim the refueling property credit this year (unless extended it expires at the end of the year) and the EV tax credit next year. Of course if your tax liability is more the $7500 and 30% of getting a charger installed then you could claim both in the same year.
 

dcacosta

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The California credit is not a tax credit (a rebate?). It is given directly after submitting required information. As I recall it took perhaps a month on the last one I did. And yes, you can get both Federal and state. California rebate will be $2000 (as long as sticker price is not over $60,000, so most Mach-Es)
Awesome! Thanks!
 

benboy12

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For those of you who want to take advantage of the 30%(up to $1000) tax credit for installing a vehicle changer the same rules apply because it is a tax credit. For people whose car will not be delivered until 2021 you could claim the refueling property credit this year (unless extended it expires at the end of the year) and the EV tax credit next year. Of course if your tax liability is more the $7500 and 30% of getting a charger installed then you could claim both in the same year.
Do you have any details behind this tax credit? Does this cover equipment (Ford connected station), or just the actually installation cost?
 

Chrisw

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Do you have any details behind this tax credit? Does this cover equipment (Ford connected station), or just the actually installation cost?
Here is a link to the IRS form. Like all IRS forms you have to read them a few times to understand them. My interpretation is that it would cover the cost up to 30% ($1000 max) of you being able to charge your electric vehicle at your home which would include the charger, installation.. etc. Of course consult a tax professional but I think it is vague enough that you could argue the cost of what it takes to be able to charge your vehicle at your home.

https://www.irs.gov/pub/irs-pdf/i8911.pdf
 

JCHLi

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Also not a tax professional. But if you are concerned about having enough tax liability in the year to take full advantage of the credit some things to consider might be:

Converting money from a traditional IRA or 401k to a Roth version

Selling some stock or funds which have increase in valve

If you are old enough or meet certain other criteria, taking money or more money from your IRA or 401k accounts.

Talk to your tax expert or financial planner.
 

generaltso

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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..
This part isn’t quite accurate. Ford has been selling PHEV vehicles for quite some time that have qualified and have been eating away at that 200,000 number. That being said, I still don’t expect that Ford will hit 200k in the MME’s first model year.
 

JamieGeek

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This part isn’t quite accurate. Ford has been selling PHEV vehicles for quite some time that have qualified and have been eating away at that 200,000 number. That being said, I still don’t expect that Ford will hit 200k in the MME’s first model year.
C-Max Energi: 40k total
Fusion Energi: 53k total
Focus Electric: 9.2k total
Looks like Ford is about 1/2 way there. A full year of 50k of MME's brings them 3/4 of the way there (not to mention the addition of the Escape PHEV). Of course not all of that 50k will be in the US but I would bet the balance of the 50k is filled in with the Escape.
 

Mach-MI

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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.
Ford has sold 120,795 of the 200,000 vehicles under the Plug-In Electric Drive Motor Vehicle Credit as of 12/31/2019. Ford will likely hit 200,000 sometime in 2021 with the remaining Fusion Energis to be sold, Escape PHEV and Lincoln Aviator and Corsair PHEVs on sale, and the Mach-E joining in late 2020.
 
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