I think you probably realize that last Monday was the final deadline for 2021 taxes, and we can now (finally) put those returns to bed.
Or can we?
Frankly, with a number of our new Western Illinois clients this past year, we reviewed returns prepared via software and/or other pros (as we typically do), and discovered multiple instances in which amending a previous return would make an ROI, even when taking our fees into account.
If this is something you want to explore with us, shoot me an email or use this:
Moving on to what I am nerding out about today … you might not know this, but the first electric vehicle was invented in the 1830s by Scotsman Robert Anderson. Electric cars were actually a thing before combustion engines became widely accepted as the primary car type.
Of course, when you think of an electric vehicle, you think energy-efficient, sleek, noiseless, but the first commercial electric vehicle – called the ElectroBat – was anything but. Things have evolved a little bit since then.
Electric cars are becoming ever-more popular thanks to shifting interests in the car industry (and in Washington)… and also due to Elon Musk’s ability to have created a brag-worthy acceleration EV (let’s not forget how many people over the last decade have raved about that 0-60mph in 3 seconds you can get from a Tesla).
Now, thanks to the “Inflation Reduction Act” (the one just recently passed), if you’re thinking about investing in an electric vehicle, you could qualify for a special EV tax deduction – but as is the case with many deductions, there are some (ahem) … details you’ll have to sort through to determine eligibility.
My team and I have some experience with that if you want to flesh it out. Let me know.
But let’s start the conversation here:
A Tricky Tax Credit for Western Illinois Electric Vehicle Owners
“Nothing in fine print is ever good news.” – Andy Rooney
I’m guessing that you:
- Pay taxes
- Live in Earth’s atmosphere
- Own a car or are thinking of owning a car.
If all three are true, you’ve probably heard the noise lately about the Inflation Reduction Act and one of its headliner tax breaks: a credit you can get for buying a new electric vehicle.
Sounds like a great deal, right?
Like all great deals, however, it comes with a great deal of fine print.
Let’s peek under the hood.
Several different concerns have driven many to consider switching to electric vehicles, aka “EVs.” A recent survey found that one in four would-be car buyers will be looking at electric next time they visit the lot, and most of those surveyees said environmental concerns, wanting the latest technology, and the pain at the pump were big reasons.
We’ve had a tax credit for EVs for a long time. The latest legislation tweaked it (and, many say, made it harder to qualify for as of right now). The revamped credit’s worth up to 7500 bucks for a new EV and is nonrefundable, which means you need to have a federal tax liability to get any benefit. (A slightly less generous credit is available on used EVs.) You don’t get to carry any leftover benefit amount: If you get the credit and you owe only four grand in taxes, let’s say, that’s all the credit you get. By 2024, you will be able to transfer your tax credit to the dealer, who will then supposedly lower your sticker price by that amount.
Beyond just getting you behind the wheel of a car that doesn’t burn gas, the credit also aims to make EVs 40%-50% of car sales just eight years from now and get manufacturers to build more electric cars (and more parts of electric cars) in this country. We’ll see …
Devil in the details
Sounds great. Too bad it’s tricky to get.
Generally, only new EVs with final assembly in North America qualify. Many brands of vehicles will qualify – you can find a list here of some that the government says “may” qualify – but some big-name EV automakers won’t make the grade right now based on assembly locations. Cars have to cost 55 grand or less; trucks, vans, or SUVs must cost 80 grand or less.
Credit for used EVs (up to four grand) kicks in January 1. The vehicle has to be at least two years old, cost 25 grand or less, and be sold through a dealer, among other conditions.
Since they’re thinking the rich don’t need help to buy an electric vehicle, so you can’t take the credit if you make 150–300 grand a year, depending on your tax-filing status; if you’re looking at used EVs, your income threshold will be about half that. Check with us.
Seems like a lot of work for a tax credit I can’t even use all of. Yup – and of course, with cars, there’s never labor without parts …
Beginning next year, about half the EV credit you can get will depend on where the raw materials and components of the battery are made. Half of the components will have to come from either this country or one we have a free-trade agreement with (that percentage will go up with each coming year) – and decidedly not from what the law calls an overseas “entity of concern.” Bad guys, in other words.
When did you sign?
If you bought or signed a purchase agreement for a new EV that qualifies under the original program before the new law, the old rules for the tax credit apply. (There was no program for used EVs under the old law.)
If you purchase a new EV between August 16 and the end of this year, you may qualify for the full tax credit. Your vehicle will be subject to the North American production rule but not the battery or material-sourcing rules.
They say you should never buy a car in a hurry. You certainly shouldn’t buy an EV in a rush if you’re keen on that tax credit.
Some automakers have hit a production cap for this year and their EVs (under old rules) don’t qualify for the new credit. Experts add that few (if any) EVs made today can meet both the production and material-sourcing requirements. In the years ahead, automakers will only get better at supply chains to meet the sourcing requirements.
This credit seems to be a tax carrot that will have more long-term benefits for American independence in EV production than immediate benefit for your wallet.
If you own an electric vehicle or bought one this year from a Western Illinois dealership or seller, I’d be more than happy to take a look and determine if you’re eligible for the tax break. There are some tricky requirements and sometimes you need to speak tax-ese to figure out if a deduction applies to you – which I do.
And, I’m also here to help you with end-of-the-year tax planning measures. There’s still time to set yourself up for a lighter tax burden come January 2023.
At your service,