Its not based on how much you owe at year end, its based on how much you paid in. If you are married, the standard deduction is $24,000 ($12,000 if you are single). That means you are probably paying taxes on any income above that $24k (or $12k). Based on current tax rates, a couple making $58k a year (or a single person making around $45k) would pay $7500 in taxes. Either way, I would assume someone in the market for an automobile between $40k - $60k would make more than the amounts above. Granted if you have kids, the formula changes a bit. And you may have some individuals who are retired or semi retired with a large nest egg and little to no taxable income.
You won't get the full $7,500 tax credit unless you make a lot of money
The tax credit only gets deducted from the amount of taxes you owe for the year.
So if you only owe $2,000 in taxes for the year, you will only get a $2,000 deduction, not $7,500
So if you only owe $2,000 in taxes for the year, you will only get a $2,000 deduction, not $7,500
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You would have to make around $64,000 a year for a single person to get the full credit
$64,000 - $12,200 personal deduction = $51,800
$39,475 x tax rate of 12%= $4,800
$12,325 at tax rate of 22%= $2,711.5
$4,800 + $2,711.5 = $7,511.5
$64,000 - $12,200 personal deduction = $51,800
$39,475 x tax rate of 12%= $4,800
$12,325 at tax rate of 22%= $2,711.5
$4,800 + $2,711.5 = $7,511.5
I stand corrected there. The website I was reading showed tax brackets of 12% up to the first 9,700 in income versus 12% between 9,700 and $39,00 in income.
Most of these cars are pretty expensive anyway, so you'd have to already be making a good amount of money in order to even afford the car, let alone get the tax credit.
So I have 2 reservations. One premium and a gt. If I buy the Premium below the $60k mark and get the 7,500 fed credit and the 2,000 PA state credit, can I trade it in 3-5 months later on the GT and get the Federal 7,500 credit again? Assume I have enough taxes to use the credits.
My memory of reading the irs website is that you get one shot at your $7,500 tax credit in one year. You don't get any carryover to another year. If you do not have $7,500 in tax liability you only get the amount of tax you would have owed for that year. You must take DELIVERY of the vehicle in the same year you claim the credit.So I have 2 reservations. One premium and a gt. If I buy the Premium below the $60k mark and get the 7,500 fed credit and the 2,000 PA state credit, can I trade it in 3-5 months later on the GT and get the Federal 7,500 credit again? Assume I have enough taxes to use the credits.
I plan to create an additional tax liability (I'm retired) by rolling over a traditional IRA to a Roth IRA thereby creating additional taxable income. So I need to know if Ford will sell me my vehicle in 2020 or 2021 before I do that. I think each person has to plan their own strategy to take full advantage of this credit.
In my case, i want to end up with the GT but it may be several months behind the Premium delivery. Driving a couple 1,000 miles on the Premium and then trading it in I will take a hair cut. But if I use the 7,500 credit on both plus the 2,000 state credit that has to be below a 60k price on the Premium, seems I could trade in the Premium for the GT without losing much depending on the trade in value they give me on the Premium.
@Plutoman15 - i don’t understand your need to get the first Mach e if you really want the GT. Why take a loss at all, it’s not smart economics.
Buying a new car is not smart economics...we are past that point.@Plutoman15 - i don’t understand your need to get the first Mach e if you really want the GT. Why take a loss at all, it’s not smart economics.
With 9,500 in credits for the premium, how much would I get trading it in if it only has a few 1,000 miles? Driving off the lot the value is instantly less, but more than $9,500 from a selling price of 59,999?
The other side of this is if there is a 6 month or more gap between the models. No one really knows the timelines yet. If it is only a couple months then I would wait for the GT.
In general yes. But depends on car and popularity. I know when I got my mini cooper 10 years (more!) ago ..the waiting list was so long you could drive it off forecourt and immediately sell it for at least 5% more than what you paid new.Buying a new car is not smart economics...we are past that point.
In short, the credit works like this correct? I'm going to list a couple scenarios just so I get it right. Also, I'm making it rather simplistic but this keeps it logical and makes the math easy to follow.
$10,000 withheld for my federal taxes throughout the year
$1,000 owed at end of year after doing taxes typically (before the $7,500 credit)
After the $7,500 credit would mean that I would get a refund for $6,500
$10,000 withheld for my federal taxes throughout the year
$1,000 refund owed to me at end of year after doing taxes typically (before the $7,500 credit)
After the $7,500 credit would mean that I would get a refund for $8,500
$10,000 withheld for my federal taxes throughout the year
$1,000 owed at end of year after doing taxes typically (before the $7,500 credit)
After the $7,500 credit would mean that I would get a refund for $6,500
$10,000 withheld for my federal taxes throughout the year
$1,000 refund owed to me at end of year after doing taxes typically (before the $7,500 credit)
After the $7,500 credit would mean that I would get a refund for $8,500
Go to irs.gov and download “Instructions for Form 8936” and “Form 8936”. It explains most everything. It looks like you could claim credits on two vehicles, but you are still limited to $7,500 maximum credit and both vehicles would have to be put in service during that year. The IRS wants the VIN numbers. They is no carryover of unused credit to the next year allowed.In short, the credit works like this correct? I'm going to list a couple scenarios just so I get it right. Also, I'm making it rather simplistic but this keeps it logical and makes the math easy to follow.
$10,000 withheld for my federal taxes throughout the year
$1,000 owed at end of year after doing taxes typically (before the $7,500 credit)
After the $7,500 credit would mean that I would get a refund for $6,500
$10,000 withheld for my federal taxes throughout the year
$1,000 refund owed to me at end of year after doing taxes typically (before the $7,500 credit)
After the $7,500 credit would mean that I would get a refund for $8,500
yes. the credit is a deduction from the amount of money of yours that Uncle Sam is entitled to have. The scenario you didn't mention is If you had $3000 deducted from your pay and the amount you owed would have been $5000 without the car credit (ie the amount of your money the IRS was supposed to get before you bought the car is $5000), you would get back your $3000 deducted from your pay and nothing more.In short, the credit works like this correct? I'm going to list a couple scenarios just so I get it right. Also, I'm making it rather simplistic but this keeps it logical and makes the math easy to follow.
$10,000 withheld for my federal taxes throughout the year
$1,000 owed at end of year after doing taxes typically (before the $7,500 credit)
After the $7,500 credit would mean that I would get a refund for $6,500
$10,000 withheld for my federal taxes throughout the year
$1,000 refund owed to me at end of year after doing taxes typically (before the $7,500 credit)
After the $7,500 credit would mean that I would get a refund for $8,500
Ah yes, I forgot that scenario if your tax liability was less than $7,500 for the year. Thanks!yes. the credit is a deduction from the amount of money of yours that Uncle Sam is entitled to have. The scenario you didn't mention is If you had $3000 deducted from your pay and the amount you owed would have been $5000 without the car credit (ie the amount of your money the IRS was supposed to get before you bought the car is $5000), you would get back your $3000 deducted from your pay and nothing more.
On the tax credit: i’m thinking since ford is less than 90k units before triggering the tax credit phase out, by selling less that 30k MMe in the US this year, they are basically allowing all their EVs sold in 2021 to still get the full $7500 credit. And in 2022 it would be $3750 jan-jun 2022 and $1875 for jul-dec 2022. The entire program expires Dec 31, 2022.
If they planned to sell more this year the phase out would have started next year.
If they planned to sell more this year the phase out would have started next year.
That is a good tip. Even if not retired, if you have a retirement 401k from your job, often it is setup as as a pre-tax (traditional) account. You can convert funds from this to a roth 401k in order to increase your taxes (and pay less taxes in retirement).My memory of reading the irs website is that you get one shot at your $7,500 tax credit in one year. You don't get any carryover to another year. If you do not have $7,500 in tax liability you only get the amount of tax you would have owed for that year. You must take DELIVERY of the vehicle in the same year you claim the credit.
I plan to create an additional tax liability (I'm retired) by rolling over a traditional IRA to a Roth IRA thereby creating additional taxable income. So I need to know if Ford will sell me my vehicle in 2020 or 2021 before I do that. I think each person has to plan their own strategy to take full advantage of this credit.
if you own securities subject to capital gains taxes, that could work too. Such as selling stocks. Though with the current virus-depressed economy that ship has probably sailed already.
If you don’t have securities to sell or convert, and also a lower income, you probably would be better off long term economically not buying a $50,000+ car. Cars, and even more so new cars and EV cars, are luxuries, not investments.
Another possible option, if your tax liability is not high enough is to have a trusted family member (parent/sibling) with enough tax liability buy it and then immediately sell it to you. In my state, sales taxes are waived for for auto sales between immediate family members. You just need to pay a small title transfer fee. This will vary between differing state laws.
Leasing arrangements might work too; I am not exactly sure how those work, but if it is the leasing company claiming the credit and reimbursing you, you might not need a tax liability.
For a Mustang Mach-E used 100% for personal use, Form 8936 only takes into account your tax liability and tax credits. It uses line 12b for liability, and other forms for credits. (This roughly equates to line 16 "total tax" for most of us.) Taxes withheld from paychecks has no impact on this.If you had $3000 deducted from your pay and the amount you owed would have been $5000 without the car credit (ie the amount of your money the IRS was supposed to get before you bought the car is $5000), you would get back your $3000 deducted from your pay and nothing more.
Yes, I know that the credit is against tax liability and not directly related to withholdings. I was formulating an additional example phrased similarly to the post I was responding to. The intention was to illustrate that the credit can only reduce your tax liability to 0 - one will not get a "rebate" of the balance of the credit beyond that. Which means that the most one can get back is the total amount of one's withholdings and nothing more.For a Mustang Mach-E used 100% for personal use, Form 8936 only takes into account your tax liability and tax credits. It uses line 12b for liability, and other forms for credits. (This roughly equates to line 16 "total tax" for most of us.) Taxes withheld from paychecks has no impact on this.
OK but in your example, you're saying that if $3k is withheld from my paycheck, then the max credit I can get back is $3k, but this isn't correct. You also mentioned $5k "owed" which I think you mean the amount due while filing taxes, but that's also irrelevant.
The relevant numbers are tax liability and your other same-tax-year, non-refundable credits against that liability.
The relevant numbers are tax liability and your other same-tax-year, non-refundable credits against that liability.
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