Much Needed Electric Vehicle Tax Credit Reforms Finally Announced

· · 3 years ago

One of the biggest challenges that I’ve harped on with the burgeoning plug-in electric vehicle (PEV) market is that the vehicle pricing remains high regardless of whether tax incentives are available. Why? Because if I want to buy a Nissan LEAF or Chevy Volt, I still have to pony up (or finance) the full MSRP of either $33,000 or $42,000 and wait until tax time to get the credit. The vehicle costs alone will eliminate a lot of potential buyers simply because they won’t be able to afford to finance the vehicle.

The way tax credits work, this could net you the full $7,500 in a refund, but more likely you will receive a refund of less than $7,500 (although you may still retain the full value of the tax credit). This gets confusing, so some examples might be helpful. For this example, we’ll consider a single person with one exemption earning $70,000 of taxable income per year. Note that these are simplified examples, not tax advice. I am not a tax expert and you should discuss your taxes and potential tax credits with your tax professional.

EV Tax Credits

In the first example (A), the recipient gets the full value of the tax credit and ends up with $6,719 cash come April (we’ll just assume they then put that cash right towards paying down their car debt). Overall, this is not too bad.

However, if you are more like the person in example B and have been working to reduce your tax bill through other deductions and other tax credits, then you won’t get the full value of these credits and this credit could possibly be worth significantly less. In example B, the recipient went on a buying spree, bought a home and a PEV, but only receives $7,481 value from their $15,500 in tax credits, and they only end up with $7,200 in cash.

Last week, Vice President Biden announced three initiatives aimed at driving the PEV market to 1,000,000 vehicles by 2015. The first of these is a much needed change to the way the PEV tax credit works. This would give the tax credit to the dealer who then would pass along the savings to the purchaser at the time of purchase much like the Cash for Clunkers program (I’d like to suggest they call this the “Greenbacks for Non-Gassers” program).

The president’s second and third initiative are to increase support for battery and electric drive R&D and increase recharging equipment grants to communities. These are both important initiatives as well, but as most dealers will tell you, cash incentives are one of the easiest and fastest ways to drive sales volume. Prior to these announcements, Pike Research has been predicting that the U.S. light duty PEV sales will be just over 232,000 vehicles in 2015. Will these initiatives be enough to boost this market another approximately 770,000 vehicles that year? It seems unlikely, but they will certainly move the market in the right direction.

Of course, now the challenge looms of getting this change passed through what is expected to be a very contentious budget season. However, I am optimistic that at least the tax credit will get reformed.

Comments

· · 3 years ago

What does "announced" really mean ? It still needs to pass congress, right ?

Looks like as usual early adopters miss out on this :(

· · 3 years ago

If a federal rebate can be applied before state sales taxes are assessed, then it would seem that this change would significantly lower the amount of sales tax that EV purchasers need to pay. Also, California annual registration "fees", which are based on the total purchase price, would consequently be lower.

· · 3 years ago

@abasile · I don't think it works like that. CA will charge tax on that (just like they charge on leases now where $7.5K is taken off at the time of sale).

· merlinus (not verified) · 3 years ago

Go Green for Greenbacks

· ChuckR (not verified) · 3 years ago

A tax exemption reduces your taxable income, the same as an itemized deduction does, NOT your tax liability.

· · 3 years ago

Ditto ChuchR's comment -- the tax scenarios are wrong in that an exemption is a tax deductjion, not a tax credit. It also seems a bit far fetched to presume that most or all EV buyers also happened to buy a home the same year.

A closer rule of thumb is that if you have $7,500 in tax liability, you get the entire credit the year you file. I *think* but am not sure that any unclaimed credit is not lost, and can be picked up at a later tax year so I consider this entire discussion a mountain out of a molehill.

That said, and as OP hinted, *financing* the entire car is a different animal because credit worthiness will be based on the the pre-tax-credit amount. That is bound to exclude some interested buyers, but since I think they *should* be excluded, my pajamas are not in a knot.

· · 3 years ago

@SageBrush, I believe that the tax credit can't be carried forward to future years — unlike the solar panel tax credit — which makes it a very big deal for those who have less than $7500 in tax liability. That is the problem with the tax credit in its current form.

http://www.irs.gov/pub/irs-pdf/f8936.pdf

Line 14
If you cannot use part of the personal portion of the credit because of the tax liability limit, the unused credit is lost. The unused personal portion of the credit cannot be carried back or forward to other tax years.

· · 3 years ago

Fair enough, and thanks for clarifying dgpcolorado.
How many people do not have a $7500 tax liability but enough income to buy a new car with minimal financing ? For those few, they can just move their property tax payment a few months to either side of the year they want to buy a car. Molehill, I say.

· · 3 years ago

I think the biggest question that still remains is: WILL they pass the changes and WHEN will it be active/retroactive?

· · 3 years ago

@SageBrush, It is likely true that most people who could afford a $30K new car probably do have at least $7500 in income tax liability. For a single person using the standard deduction it would have taken an adjusted gross income of about $55,000 in 2009 to generate a $7500 income tax. For those with higher deductions or those who are married and/or have dependents, it could take a substantially higher income to be able to use the full plug-in vehicle tax credit.

As someone who has a tiny income but plenty of savings I could tap to buy an EV, the fact that the tax credit is not refundable nor can be carried over to future tax years is a big deal for me. But, from a national policy perspective, outliers like me don't really count.

@Stanton, It seems unlikely to me that the proposed changes to the EV tax credit could pass the current Congress. If they did pass, they would likely be designed to take effect as of the beginning of this year. But I'm just guessing, of course.

· · 3 years ago

dpgcolorado,
Even for people like you living off savings, which we agree is a small fraction of the populace, most are actually living off *interest* from their savings. That is interest they pay income tax on, and will pay less of because of the tax credit.

So really, how many people are left who are EV car buyers ?

Nah, this is about putting people into cars they can ill afford.

· · 3 years ago

@SageBrush, To generate a $55K AGI with interest in these days of low interest rates would require a gigantic portfolio of several million dollars. Someone with half that amount could easily afford a $30K EV without a second thought. But people who live entirely off of savings are a very small portion of the population, as you say.

As for your assertion that the tax credit is about putting people in cars they can't afford, I don't think that is the intention but it could be the effect, I suppose. The entire business of selling cars seems to be about putting people in cars they can't afford and getting people to trade in for a new car frequently. It is part of the buy now, pay later consumer credit mentality. As someone who saves up, pays cash, then keeps the car for decades, perpetually paying off car loans or leases is something I never understood. But I don't think that the EV tax credit will significantly exacerbate that mentality. (But who am I to say, since I don't understand it anyway.)

The idea behind the tax credit is to jump-start (to use the ICE term) the EV market. I think that it will probably help to do that. But I can well understand the view that it is a wasteful and unnecessary boondoggle.

· · 3 years ago

@SageBrush · "Nah, this is about putting people into cars they can ill afford."

In a poll I ran in Leaf forum, only 25% said they would get Leaf without incentives. So, the incentives are definitely expanding the market. That is the intention of the tax credit.

BTW, we could say the same thing about a lot of things like
- Bigger houses (various subsidies on loans including deductions for interest but not rent)
- Gas cars (highly subsidized gas compared to actual cost to the nation)
- Education (highly subsidized education using tax payer money)
etc etc

· · 3 years ago

We certainly live similar financial lives. I consider my 15 year old Subaru 'middle-aged', and I have high hopes our Prius will last 400k miles. Is that PV in your logo yours? It looks *exactly* what I want on my property, the neighborhood association willing. Cheers!

· · 3 years ago

"In a poll I ran in Leaf forum, only 25% said they would get Leaf without incentives."
As I said, people buying cars they cannot afford.

I know it is convenient to think that the gassers are subsidizing your EV hobby, but I assure you that the oil subsidy coming out of your pocket is greater. Idiotic, the entire subsidy scam.

· · 3 years ago

U.S. Senator Debbie Stabenow has introduced a bill in the senate for this : 6. S.298.

http://stabenow.senate.gov/

Do write to your senators - esp if they are in the comittee - to support this.

@SageBrush : We all know you worship at the altar of OPEC. 'nuf said.

· · 3 years ago

@SageBrush, Yes, my avatar picture is of my PV array (since I don't have an EV yet). I installed it several years ago as "phase 1" of a future electric car. Now that I have data on how much electricity EVs use, I plan to double my system this Spring (PV prices are way down from a few years ago and there is a new model of individual panel inverter out now that is more versatile than the traditional models). Meanwhile my current array offsets about 75% of my household usage.

Good luck with your "neighborhood association". Here in Colorado a law was passed in the '70s that bans covenants that prohibit or unduly restrict solar panels. HOAs here can't regulate them in ways that significantly increase the cost or decrease the performance. [CRS 38-30-168. Unreasonable restrictions on renewable energy generation devices.]

· · 3 years ago

dgpcolorado, thanks for the local ordinance. I think I'll look for a sympathetic politician in my state and pass this on.

· TEKLa (not verified) · 3 years ago

dgpccolorado, are you refering to the micoinverters that control each individual panel? I am looking to go the same route you seem to be following (PV first, EV next). Would you share the name of the "new model of individual panel inverter"? I am having one quoted now.

· TEKLa (not verified) · 3 years ago

Concerning the article, I for one am not sure I want the Dealer in control of the tax credit. My view ia that they will use the opportunity to claw back the credit through additional fees and delivery charges.

· · 3 years ago

@TEKLa, Yes, I am talking about microinverters. I have an inquiry in to my solar installer for the model he uses; I'll post it when I get the info.

My current array uses a traditional "string" inverter (Sunny Boy). With the string inverter once one panel gets shaded the production of the entire array crashes. That won't happen with microinverters, from what I understand.

· · 3 years ago

@TEKLa, From the solar guy here: "The microinverters out now are from Enphase." www.enphaseenergy.com

That's what I expect to be using when I expand my system in a few months.

· max (not verified) · 3 years ago

a very interesting discussion. Read every word and realized I will take some of my savings and buy the car because you guys MISSED IT THERE. THE POINT IS THE CAR IS ELECTRIC AND YOU BUY NO GAS GUYS! THE ONE THOUSAND TO FIVE OR SIX THOUSAND BUCKS A YEAR YOU ARE NOW SPENDING ON THE GAS YOU DO NOT SPEND AND THE COST OF THE CHARGING CAN NOT REALLY BE COMPARED TO THE GAS COST. I SAY IF YOU CAN ANY WAY COME UP WITH THE SAVED MONEY, FINANCE IT, OR MANAGE TO BUY THE LEAF IT IS THE ONLY ACT IN TOWN BECAUSE THE MONEY YOU SAVE ON GAS EVERY YEAR MAKES IT WORTH IT. IT IS ONLY VEHICLE EVER OFFERED TO ORDINARY FOLKS THAT PAYS FOR ITSELF. PERIOD

· Steven (not verified) · 3 years ago

Quick correction...Example B would have a $7,481 refund, which is the tax liability. The refund maximum is not based on the amount withheld ($7,200), as that could vary greatly on how well someone filled out their W-4.

· Anonymous (not verified) · 3 years ago

Have a new home, 2 small kids and a wife who stays at home to take care of them. With my mortgage interest deduction and dependants I have far less in tax liability than the $7500 tax credit, so making the credit into a rebate would be key for me. I'd argue too that many younger families are in a similar boat and have a lot of incentive to think about going green for their children. Get them in EVs any way we can.

· Cassidy Daniel (not verified) · 2 years ago

Now the solar energy is much more expensive then the oil energy, but it's already much cheaper that it was a few years ago. So I think in the future, the solar panels will be cheaper and cheaper. solar panel

· Anonymous (not verified) · 2 years ago

this is a ripoff to the american taxpayer you have to have a high income to receive the full credit and most of the cars are extra cars in the family you cannot take a long trip in a full electric car.
plus the money the gov gave GM to build the volt
the american taxpayers are financing with borrowed money for marginal results.
meanwhile a proven all over the worlds clean diesels which the big 4 car makers sell
every place than the us transit express 40+ europe us 26
focus and fiesta 50+ nor picking on ford just have followed them
plus we have the technology to make diesel from coal for about 1.00 gallon
but due to unknown epa and cap and trade we cannot use it yet.

\\\

· Bill Howland (not verified) · 2 years ago

@Anonymous:

Once again, if a tax credit decreases my tax liability from 45% AGI to 40% I dont think I'm stealing money from anyone else. A $7500 tax credit merely means that I am having less money Stolen from me in the year I purchase an EV. Legalized theft is still Theft.

A case of unfairness Could be made saying I'm not paying Road Taxes while my neighbors are. But that's recooped somewhat in taxes on my electric bill.

Ford has basically solved the problem for young families with their C-max suv mentioned elsewhere on PlugInCars.com. Here, the battery is so small that there is only a $2500 tax credit, and the typical family would have this much liability to 'credit'.

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· · 1 year ago

You can buy a 2011 Volt for about $25,000 now, used.

· · 1 year ago

More and More it seems like the way to go is buying used. Take initial savings vs. waiting for the Tax Credit/Rebate. My 2012 Leaf was a Lease and I had the initial $7500 taken off at delivery, covering my negative equity from trade and covering downpayment to keep a low monthly payment. Now I traded that on a VOLT and still taking advantage of the credit, but on my next tax return... I wish we could apply this at Point of Sale (yes rumors are it was being talked about) but It seems in my mind this credit is just.."A $7500 possibility". For me It will gaurantee me I will atleast get $7500 back, and possibly not recieving all of my witholdings back. Time will tell, Ill just have to wait this one out. my $27500 NET volt may be more of a $31000 NET vs the $35900 purchase price (Feb 13)

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