# 1040 Line For Tax Credit?



## Dan Detweiler

I know this has been specified somewhere but I can find it with a normal search. Can anyone verify which line on the 1040 Federal Tax Form it is that has to be at least $7500 to get the full tax credit? Doing my taxes now and am managing to get myself confused...I know, big shock.

Any help is much appreciated.

Dan


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## garsh

Line 47 is your liability before any other credits are factored in.
Line 63 is your final liability after all credits are factored in.

Explanation:
https://teslaownersonline.com/threads/pre-pay-loan-using-tax-credit.4659/page-2#post-40710


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## Dan Detweiler

garsh said:


> Line 47 is your liability before any other credits are factored in.
> Line 63 is your final liability after all credits are factored in.
> 
> Explanation:
> https://teslaownersonline.com/threads/pre-pay-loan-using-tax-credit.4659/page-2#post-40710


Thank you sir. Looks like I won't qualify for the full credit no matter how many cars get sold! Oh well, I'll take what I can get. Wasn't planning on the credit anyway.

Dan


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## garsh

Dan Detweiler said:


> Thank you sir. Looks like I won't qualify for the full credit no matter how many cars get sold! Oh well, I'll take what I can get. Wasn't planning on the credit anyway.


In that case, I strongly suggest that you look into converting some of your 403b retirement savings into a Roth IRA. This will cause you to owe taxes on the converted money now (which you can offset this year with the EV credit), but allow you to take out that money tax-free later (with a 403b, you will owe income tax on the money you withdraw).

https://www.fool.com/knowledge-center/can-a-roth-conversion-be-done-from-a-403b.aspx
_However, one of two conditions has to be met before you can do so. You must either be over 59 1/2 years of age so you can withdraw your retirement funds penalty-free at will, or you must no longer be working for the sponsoring employer._​
Do either of those two conditions apply to you?


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## Dan Detweiler

garsh said:


> In that case, I strongly suggest that you look into converting some of your 403b retirement savings into a Roth IRA. This will cause you to owe taxes on the converted money now (which you can offset this year with the EV credit), but allow you to take out that money tax-free later (with a 403b, you will owe income tax on the money you withdraw).
> 
> https://www.fool.com/knowledge-center/can-a-roth-conversion-be-done-from-a-403b.aspx
> _However, one of two conditions has to be met before you can do so. You must either be over 59 1/2 years of age so you can withdraw your retirement funds penalty-free at will, or you must no longer be working for the sponsoring employer._​
> Do either of those two conditions apply to you?


I miss the age by 4 years and am another year away from retirement...crap. Oh well, it's only money, right? 

Dan


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## garsh

Dan Detweiler said:


> I miss the age by 4 years and am another year away from retirement...crap. Oh well, it's only money, right?


Have you worked for the same school (I'm assuming you are a teacher - feel free to correct me) the entire time? Or do you have another 403b from a previous employer?


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## Dan Detweiler

garsh said:


> Have you worked for the same school (I'm assuming you are a teacher - feel free to correct me) the entire time? Or do you have another 403b from a previous employer?


Same school system since 1999.

Dan


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## garsh

Dan Detweiler said:


> Same school system since 1999.


Any retirement accounts from an employer before taking that job?


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## Dan Detweiler

garsh said:


> Any retirement accounts from an employer before taking that job?


I think I rolled it over when I came to this system. I honestly don't remember!

Dan


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## Jasper

Question, If I am able to get delivery before the $7,500 gets cut in half and if my total Federal taxes taken out for the year from are $7,500 but after taxes are done say I get $2,000 back in Federal refund. Does that mean that I'd get the 2k back plus the $7,500 ?


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## PNWmisty

Ken D said:


> Question, If I am able to get delivery before the $7,500 gets cut in half and if my total Federal taxes taken out for the year from are $7,500 but after taxes are done say I get $2,000 back in Federal refund. Does that mean that I'd get the 2k back plus the $7,500 ?


The amount you had withheld is immaterial to the value of the tax credit. All that matters is whether you owed enough taxes to get the full credit. In your example above you only owed $5,500 in tax and that is the amount you would save by using the tax credit. Instead of a $2,000 check you would get all of the taxes paid back ($7,500). At least that is my understanding and I'm not a tax accountant.


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## Bokonon

Ken D said:


> Question, If I am able to get delivery before the $7,500 gets cut in half and if my total Federal taxes taken out for the year from are $7,500 but after taxes are done say I get $2,000 back in Federal refund. Does that mean that I'd get the 2k back plus the $7,500 ?


Agree with @PNWmisty. Although you'd get a refund check for $7500, the numbers would actually work out like this...

Federal tax liability: $5500
Federal taxes withheld: $7500 (an overpayment of $2000)
EV Tax Credit: $5500 (the lesser of your tax liability and $7500)

Refund: $2000 overpayment + $5500 EV tax credit = $7500


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## Jasper

Ok, thank you very much. I really appreciate it. So basically I wouldn’t make enough to take full advantage of the $7,500.
I ask because I was expecting to buy a 35k car when I sat in line for several hours on that first day over two years ago.
I made two reservations and refunded one last week. Very easy by the way, you do it online and enter an debit card and it’s refunded in a few days. When I called Tesla they said the store has to do it and it takes 4-6 weeks until a check is mailed out, or refund to your initial card you made the deposit on.

Anyways, I guess I’ll wait for the short range and at least get the $3,750 and $2,500 California rebates.
I wonder if by the time the short range is produced there will be more al la carte items like a sunroof. I’ll really miss not having a sunroof anymore.


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## SoFlaModel3

Ken D said:


> Ok, thank you very much. I really appreciate it. So basically I wouldn't make enough to take full advantage of the $7,500.
> I ask because I was expecting to buy a 35k car when I sat in line for several hours on that first day over two years ago.
> I made two reservations and refunded one last week. Very easy by the way, you do it online and enter an debit card and it's refunded in a few days. When I called Tesla they said the store has to do it and it takes 4-6 weeks until a check is mailed out, or refund to your initial card you made the deposit on.
> 
> Anyways, I guess I'll wait for the short range and at least get the $3,750 and $2,500 California rebates.
> I wonder if by the time the short range is produced there will be more al la carte items like a sunroof. I'll really miss not having a sunroof anymore.


Just to clarify for you for sure - it's based on your tax liability not a refund amount or an amount owed at the end of the year.

If your liability for the year was $7,500+, you'll get the full boat. If your liability was less than the credit maxes out at your tax liability.

If you get a refund of $2,000 and then tack on the full credit, you'd get a $9,500 refund.

I'm not a tax accountant, but I try not to give out $2,000 interest free loans


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## Jasper

OK, so to be exact, I just looked at my last year taxes and the Federal taxes I paid was $6,304 and my refund was $804. So if I'm thinking correctly, does that mean if the $7,500 was still available I would take $5,497 advantage out of it ?


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## garsh

Ken D said:


> OK, so to be exact, I just looked at my last year taxes and the Federal taxes I paid was $6,304 and my refund was $804. So if I'm thinking correctly, does that mean if the $7,500 was still available I would take $5,497 advantage out of it ?


Correct.

Definition: US Federal Tax Liability
Your tax liability is the total amount of tax on your income.
...
Your federal tax liability amount is found on Form 1040 (line 63), Form 1040A (line 39), and Form 1040EZ (line 12).​


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## Kizzy

Ken D said:


> OK, so to be exact, I just looked at my last year taxes and the Federal taxes I paid was $6,304 and my refund was $804. So if I'm thinking correctly, does that mean if the $7,500 was still available I would take $5,497 advantage out of it ?


Refund of $5,500 based on last year's taxes (using the numbers you provided).


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## NOGA$4ME

Ken D said:


> OK, so to be exact, I just looked at my last year taxes and the Federal taxes I paid was $6,304 and my refund was $804. So if I'm thinking correctly, does that mean if the $7,500 was still available I would take $5,497 advantage out of it ?


Yes, if you pay exactly the same amount in taxes for this year. Which, implies that maybe there is a strategy you could use to increase your tax liability for this year. Do you have some appreciated assets you could sell for a gain (and be taxed on) to take advantage of more of the tax credit? This would literally be like free money. There are other strategies you could use to generate taxable events (such as rolling over certain types of retirement accounts into others). I will refrain from being more specific as I'm not a tax advisor or accountant, but it might be worthwhile to have a discussion with a pro to devise a strategy where you can take full advantage of the tax credit.


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## Brokedoc

Ken D said:


> Ok, thank you very much. I really appreciate it. So basically I wouldn't make enough to take full advantage of the $7,500.
> I ask because I was expecting to buy a 35k car when I sat in line for several hours on that first day over two years ago.
> I made two reservations and refunded one last week. Very easy by the way, you do it online and enter an debit card and it's refunded in a few days. When I called Tesla they said the store has to do it and it takes 4-6 weeks until a check is mailed out, or refund to your initial card you made the deposit on.
> 
> Anyways, I guess I'll wait for the short range and at least get the $3,750 and $2,500 California rebates.
> I wonder if by the time the short range is produced there will be more al la carte items like a sunroof. I'll really miss not having a sunroof anymore.


I apologize if I'm making incorrect assumptions but your profile shows that you're in Tucson. Isn't that Arizona? You can't take the California rebate.

Also, with a tax liability that low, the most common reason is because you have limited income. There are other reasons like crazy deductions but if you have limited income, it would make more financial sense to not stretch yourself to get a car with pricey options that aren't really necessary. It sounds like you're OK with the standard range battery so spending $9000 to get $1750 more tax credit doesn't sound reasonable (If your annual federal tax liability is only $5500).


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## Long Ranger

Ken D said:


> OK, so to be exact, I just looked at my last year taxes and the Federal taxes I paid was $6,304 and my refund was $804. So if I'm thinking correctly, does that mean if the $7,500 was still available I would take $5,497 advantage out of it ?


When you say "Federal taxes I paid was $6,304" it's not clear to me which line of your tax return you are referring to. If it's one of the lines mentioned by garsh (called total tax) then you'd get $6304. If you are referring to a line called "total payments" then you'd get $6304-$804=$5500, and you should also see that the total tax line was $5500. In either case, the only line on the tax return that matters is your total tax.


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## PNWmisty

Ken D said:


> OK, so to be exact, I just looked at my last year taxes and the Federal taxes I paid was $6,304 and my refund was $804. So if I'm thinking correctly, does that mean if the $7,500 was still available I would take $5,497 advantage out of it ?


Basically, yes. But to be perfectly clear, it sounds like the $6,304 you paid was not "Federal taxes you paid", it was estimated withholding ON Federal taxes. When you send the government money (or have it deducted) before the taxes are due, you are not paying taxes, you are just complying with withholding laws. The accounting comes later.

As far as not giving the government an "interest-free loan" of $2000, I see this advice all the time but, sheesh! There are bigger fish in the sea to catch! I haven't worried about that since interest rates went to a low level. Buy less crap, free up your mind and become more productive/profitable. Don't worry about small 6-12 month interest-free loans to the government! One error in trying to cut estimated taxes too closely could cause interest/penalties to wipe out the interest you saved over a number of years by having the money in your account. I don't clip coupons either because my time is better spent focussing on more important thing (like whether I actually WANT the item in the coupon). On the other hand, in my ICE vehicle, I love to hypermile. It's not about saving money, it's about having fun and reducing consumption.


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## summerfun

Ken D said:


> Question, If I am able to get delivery before the $7,500 gets cut in half and if my total Federal taxes taken out for the year from are $7,500 but after taxes are done say I get $2,000 back in Federal refund. Does that mean that I'd get the 2k back plus the $7,500 ?


The only number that matters is what your tax liability is for the year in which you buy your car. Look at line 47 on Form 1040 for 2017. This is your tax liability that the credit can be applied towards. There are also some personal credits that must be applied to this number as well that you will see in the instructions for IRS Form 8936.

How much you may have already paid into the IRS through quarterly submissions or payroll deductions does not matter at all.


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## summerfun

Bokonon said:


> Agree with @PNWmisty. Although you'd get a refund check for $7500, the numbers would actually work out like this...
> 
> Federal tax liability: $5500
> Federal taxes withheld: $7500 (an overpayment of $2000)
> EV Tax Credit: $5500 (the lesser of your tax liability and $7500)
> 
> Refund: $2000 overpayment + $5500 EV tax credit = $7500


You are close. Don't forget that any personal credits (line 21 of Form 8936) must be subtracted from the $5,500 tax liability amount too.


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## summerfun

Ken D said:


> OK, so to be exact, I just looked at my last year taxes and the Federal taxes I paid was $6,304 and my refund was $804. So if I'm thinking correctly, does that mean if the $7,500 was still available I would take $5,497 advantage out of it ?


Again no. Your refund amount (if based on an overpayment) does not affect how much you can claim for the credit. Get that part out of your mind. Here, just do this. What amount is on line 47 of your Form 1040 in 2017? In its simplest form, this is how much of the credit you could use last year. But if you want the full picture, look at the instructions for Form 8936 for 2017. There are some personal credits, that if they applied to you, would reduce the amount of the EV credit you could use.

Keep in mind you are very likey to have a lower tax liability in 2018 (even if you earn the exact same amount) due to increased personal exemptions, etc.


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## summerfun

garsh said:


> Correct.
> 
> Definition: US Federal Tax Liability
> Your tax liability is the total amount of tax on your income.
> ...
> Your federal tax liability amount is found on Form 1040 (line 63), Form 1040A (line 39), and Form 1040EZ (line 12).​


Garsh... wrong line for 1040. It was line 47 in 2017. On Form 1040NR it was line 45. The odds are a taxpaper who used 1040A or EZ will not have enough liability to use the EV credit, but they will now need to file one of the forms I listed.


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## Bokonon

summerfun said:


> You are close. Don't forget that any personal credits (line 21 of Form 8936) must be subtracted from the $5,500 tax liability amount too.


Correct, but his simplified example did not include any other credits, so I didn't see a reason to add them in to help illustrate the point.


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## summerfun

Long Ranger said:


> When you say "Federal taxes I paid was $6,304" it's not clear to me which line of your tax return you are referring to. If it's one of the lines mentioned by garsh (called total tax) then you'd get $6304. If you are referring to a line called "total payments" then you'd get $6304-$804=$5500, and you should also see that the total tax line was $5500. In either case, the only line on the tax return that matters is your total tax.


Sorry but you are incorrect. The important line on IRS Form 1040 that the EV tax credit applies to is line 47, not the "total tax" line 63. Please stop posting incorrect information.


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## summerfun

Bokonon said:


> Correct, but his simplified example did not include any other credits, so I didn't see a reason to add them in to help illustrate the point.


Fair point. What concerned me was his claim of "$7,500 taxes taken out". I do not think he understood "tax liability" or which line to look at and what other credits many people qualify for that reduce the amount of the EV credit.


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## Dr. J

Ken D said:


> OK, so to be exact, I just looked at my last year taxes and the Federal taxes I paid was $6,304 and my refund was $804. So if I'm thinking correctly, does that mean if the $7,500 was still available I would take $5,497 advantage out of it ?


Sorry if someone else already addressed this, but your language is still ambiguous. Your refund amount is immaterial. Your withholding amount (and other tax payments like estimated payments) is immaterial. The only number that matters is the number @garsh pointed out in post # 536: your federal tax liability.

A couple of other points: tax law changed A LOT last December (and effective Jan. 1, 2018): different brackets, different rates, different credits (especially the child tax credit), different standard deduction amounts, elimination of personal exemptions, etc. Last year will be a less than reliable guide to this year's tax liability. Also, tax liability is a number that many people can manipulate up or down, perfectly legally, as pointed out by a poster above. My favorite trick for increasing tax liability is to convert funds in a traditional IRA to a Roth IRA. The converted amount is taxable as ordinary income, meaning it raises your tax liability. To make most effective use of this strategy, you should have funds outside the IRA to pay the tax--OR have a big 'ol $7,500 non-refundable tax credit that soaks up your added tax liability.

Of course, you should consult your own tax professional for advice. This is just one strategy, it may have limitations, YMMV, etc. etc.


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## Dr. J

summerfun said:


> Keep in mind you are very likey to have a lower tax liability in 2018 (even if you earn the exact same amount) due to increased personal exemptions, etc.


Technically incorrect: the personal exemption was eliminated. Different tax rates, tax brackets, and standard deduction amounts; limitations on itemized deductions; some changes to tax credits, such as increased child tax credit and higher refundable amount. So one is likely to have lower tax liability in 2018, but it all depends: whether you were itemizing, whether you had eligible children, etc.


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## garsh

garsh said:


> Correct.
> 
> Definition: US Federal Tax Liability
> Your tax liability is the total amount of tax on your income.
> ...
> Your federal tax liability amount is found on Form 1040 (line 63), Form 1040A (line 39), and Form 1040EZ (line 12).​





summerfun said:


> Garsh... wrong line for 1040. It was line 47 in 2017.


You're getting confused by the instructions for filling out the EV credit form.
References: Form 8936 and Instructions.
On the 1040, you start with line 47, subtract lines 48-51 from it, and put this value into 54.
Then you add all of the credits (lines 48-54), and subtract that from 47, and put that in 56.
Lines 57-62 ("other taxes") are 0 for most people. So 56 gets copied to 63.

Basically, if all of your credits are more than your tax liability before any credits, you end up having $0 liability.
So taking a look at line 63, and confirming that the value is >= $7500 (before including form 8936 results on line 54), is the correct thing to do.


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## Jasper

Thank you for all the responses.
My first post was just guessing since I didn't have my tax info with me.
My W2 says Federal Income Tax withheld was $6,304, same as Item 64 and 74 on my 1040. And Item 75 says $801 overpaid.
Since I'm probably going to wait for the short range battery end of the year or later, It looks like I'd at be able to take advantage of the full $3,750.


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## Dr. J

garsh said:


> In that case, I strongly suggest that you look into converting some of your 403b retirement savings into a Roth IRA. This will cause you to owe taxes on the converted money now (which you can offset this year with the EV credit), but allow you to take out that money tax-free later (with a 403b, you will owe income tax on the money you withdraw).
> 
> https://www.fool.com/knowledge-center/can-a-roth-conversion-be-done-from-a-403b.aspx
> _However, one of two conditions has to be met before you can do so. You must either be over 59 1/2 years of age so you can withdraw your retirement funds penalty-free at will, or you must no longer be working for the sponsoring employer._
> Do either of those two conditions apply to you?





Dan Detweiler said:


> Thank you sir. Looks like I won't qualify for the full credit no matter how many cars get sold! Oh well, I'll take what I can get. Wasn't planning on the credit anyway.
> 
> Dan


This is merely an observation and should not be taken as tax advice, since I know nothing about 403(b) withdrawals and am not motivated enough to research the question--sorry!

Think of the lost plug-in vehicle tax credit (due to insufficient tax liability) as a 100% marginal tax rate, because the credit reduces tax liability dollar-for-dollar. Compare that to the tax rate you would pay if you juiced your income to increase tax liability. In nearly all cases, your marginal tax rate (even with a 10% early withdrawal penalty in the scenario from Motley Fool) will be lower than 100% and you will come out ahead, with tax liability up to but not exceeding the credit amount. The cases I can think of where a marginal tax rate *might* be higher than 100% involve phase outs, like the Section 199A self-employed/small business 20% Qualified Business Income deduction from taxable income, which happens
between $315,000 and $415,000 for married taxpayers filing jointly; between $157,500 and $207,500 for others. Another case *might* be with the increasing taxability of Social Security benefits as earnings rise. Anyway, rare but cautionary cases.

The optimal 403(b) withdrawal will put your total tax liability right at $7,500 (plus any other credits you're eligible for). The problem with withdrawing 403(b) funds with a 10% early withdrawal penalty (if that's even possible) for a Roth IRA conversion is that you don't want to mess up the calculations, which are dramatically more complex with the latest tax reform, and overdo it (or underdo it). Close will work, but if you miss the magic number by more than a little, you'll end up paying more in tax than you need to and perhaps more than you otherwise would have.

For me, it would be worth it to have the flexible Roth IRA: with non-taxable sources, I can manage my income in retirement to stay within a certain tax bracket, taking from this (taxable) account or that (non-taxable) account as needed. But I tend to overthink these things. YMMCV (C=Certainly).


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## Dan Detweiler

KGTES said:


> Thanks Dan, I am hoping this is the case. With the 12-16 weeks timeframe for AWD and with Elon's comment about prioritizing AWD P over AWD, and if I convert Elon time of 12-16 weeks into regular time, I am thinking 20-22 weeks.
> If I configure on 6/30 (say), that takes me to near the end of the year, cutting it very close to halving my federal credit....


Keep in mind, being a tax credit, you have to have a minimum $7500 tax LIABILITY in order to take full advantage of the full $7500 CREDIT. That would typically represent a pretty sizable income. As an example, I don't think I will qualify so half the credit is still fine with me.

Not trying to rain on your parade, just making sure you understand how the tax credit works.

Dan


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## lairdb

Dan Detweiler said:


> Keep in mind, being a tax credit, you have to have a minimum $7500 tax LIABILITY in order to take full advantage of the full $7500 CREDIT. That would typically represent a pretty sizable income.[...]
> 
> Not trying to rain on your parade, just making sure you understand how the tax credit works.


People keep pointing this out, so perhaps I'm confused. My calculations: $7,500 of income tax liability is reached for a single filer at $47,046 of ordinary income, which is below the median income, or at $56,215 for MFJ (still below the median).

(These are 2017 figures; 2018's rate cuts will move that a little higher, but I don't have those numbers handy.)


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## tivoboy

Dan Detweiler said:


> Keep in mind, being a tax credit, you have to have a minimum $7500 tax LIABILITY in order to take full advantage of the full $7500 CREDIT. That would typically represent a pretty sizable income. As an example, I don't think I will qualify so half the credit is still fine with me.
> 
> Not trying to rain on your parade, just making sure you understand how the tax credit works.
> 
> Dan


It's actually not that high. With the total payroll and income tax combos one needs to only get to about 55000 to have a tax liability above that. With a single filer and no dependents. Of course more deductions will reduce the liability therefore one needs to get a higher income to offset that.

But that is basically an average American household income at this point.

MFJ, self and spouse deduction, two dependents (kids) and 10K worth of deductions one would need about 84,000$ to end up with a total tax liability of 7500$. But it's the deductions and excemptions that basically bring down gross to taxable to roughly the same as the 54000$ example above.

Edit. I see lairdb commented while I was editing. Basically same answer. I think the absolute gross ismhigher though but that adjusted gross is about the same


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## Silvermagic3

Yeah, for the most part, if you can afford the current version of the car and don't have more then a couple kids, then your income is probably high enough and your deductibles low enough that you can use all $7500.


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## Dr. J

lairdb said:


> People keep pointing this out, so perhaps I'm confused. My calculations: $7,500 of income tax liability is reached for a single filer at $47,046 of ordinary income, which is below the median income, or at $56,215 for MFJ (still below the median).
> 
> (These are 2017 figures; 2018's rate cuts will move that a little higher, but I don't have those numbers handy.)


[Editorial note: This is bound to get these messages thrown out of the P/AWD thread. Calling @garsh!]

Ummmm...I don't think so. Take a look at 2018 tax brackets. The standard deduction, which is applied before you get to taxable income, is $12,000 for singles and $24,000 for marrieds filing jointly.









For *marrieds*, here's the math:

$8,907 is the amount of tax at the top of the 12% bracket (for someone with $77,401 in taxable income). Subtract $7,500, leaves $1,407 in "extra" tax, divide by .12, which is $11,725 in "extra" taxable income, subtract from $77,400 (the taxable income at the top of the bracket), you get $65,675. Add the $24,000 standard deduction, you get $89,675 in total (ordinary) income => $7,500 in tax. If you have other credits (like the child tax credit, adoption credit, etc.), or if your income includes capital gains/qualified dividends, or if you have itemized deductions exceeding $24,000...then you will have lower tax liability than this calculation presumes.

Source: https://www.forbes.com/sites/kellyp...ions-exemption-amounts-and-more/#36340ff03133


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## tivoboy

Dr. J said:


> [Editorial note: This is bound to get these messages thrown out of the P/AWD thread. Calling @garsh!]
> 
> Ummmm...I don't think so. Take a look at 2018 tax brackets. The standard deduction, which is applied before you get to taxable income, is $12,000 for singles and $24,000 for marrieds filing jointly.
> View attachment 10727
> 
> 
> For *marrieds*, here's the math:
> 
> $8,907 is the amount of tax at the top of the 12% bracket (for someone with $77,401 in taxable income). Subtract $7,500, leaves $1,407 in "extra" tax, divide by .12, which is $11,725 in "extra" taxable income, subtract from $77,400 (the taxable income at the top of the bracket), you get $65,675. Add the $24,000 standard deduction, you get $89,675 in total (ordinary) income => $7,500 in tax. If you have other credits (like the child tax credit, adoption credit, etc.), or if your income includes capital gains/qualified dividends, or if you have itemized deductions exceeding $24,000...then you will have lower tax liability than this calculation presumes.
> 
> Source: https://www.forbes.com/sites/kellyp...ions-exemption-amounts-and-more/#36340ff03133


I like the way you back into this, but I don't think the overall calculation is going to be that much of a change to the numbers above.

The 12K per person sounds great and seems high, but historically with the individual deduction and PERSONAL EXEMPTION (now eliminated) the amount was a bit under 11K, so it's not as large a charge as it would appear. 12K vs. ~11K.

thees tables may not include TOTAL TAX, which includes the individual side of payroll taxes, this may include only income taxes at the individual level (or MFJ, etc.).. so that TOTAL TAX amount should be higher, based on lower overall gross and Adjusted Gross incomes.?


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## Dr. J

tivoboy said:


> I like the way you back into this, but I don't think the overall calculation is going to be that much of a change to the numbers above.
> 
> The 12K per person sounds great and seems high, but historically with the individual deduction and PERSONAL EXEMPTION (now eliminated) the amount was a bit under 11K, so it's not as large a charge as it would appear. 12K vs. ~11K.
> 
> thees tables may not include TOTAL TAX, which includes the individual side of payroll taxes, this may include only income taxes at the individual level (or MFJ, etc.).. so that TOTAL TAX amount should be higher, based on lower overall gross and Adjusted Gross incomes.?


Payroll taxes don't count, only income tax counts.


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## tivoboy

Dr. J said:


> Payroll taxes don't count, only income tax counts.


I _don't _believe that is accurate. and If you could provide specific detail I and others I am sure would greatly appreciate it, as it comes up often regarding this question.

The _individual_ side of FICA taxes go into the individual TOTAL tax liability. Ultimately, they will show up in the total amount owed on line 63 of the 1040 form as total tax. Net of any other deductions and withholdings below line 63, IF that line is over 7500$, then you get the whole deduction (not including any other deductions between lines 64-XX)


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## Dr. J

tivoboy said:


> I _don't _believe that is accurate. and If you could provide specific detail I and others I am sure would greatly appreciate it, as it comes up often regarding this question.
> 
> The _individual_ side of FICA taxes go into the individual TOTAL tax liability. Ultimately, they will show up in the total amount owed on line 63 of the 1040 form as total tax. Net of any other deductions and withholdings below line 63, IF that line is over 7500$, then you get the whole deduction (not including any other deductions between lines 64-XX)


https://pocketsense.com/social-security-taxes-withheld-count-toward-tax-return-19859.html. See the first clause in the second sentence.


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## Dr. J

tivoboy said:


> The _individual_ side of FICA taxes go into the individual TOTAL tax liability. Ultimately, they will show up in the total amount owed on line 63 of the 1040 form as total tax.


Here's a way to test your understanding. Locate where on the tax return the amount of FICA tax goes. Or, alternatively, go up from line 63 and see what its inputs are. You will find that FICA tax is not included in that amount.


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## Dr. J

Thanks, @garsh!


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## lairdb

Dan Detweiler said:


> I miss the age by 4 years and am another year away from retirement...crap. Oh well, it's only money, right?


This is really bugging me -- it's like seeing someone walk past hundred dollar bills blowing down the sidewalk. What about taxable investments? Can you take some (free) capital gains to rebalance a taxable account?


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## Dr. J

lairdb said:


> This is really bugging me -- it's like seeing someone walk past hundred dollar bills blowing down the sidewalk. What about taxable investments? Can you take some (free) capital gains to rebalance a taxable account?


Yep, this is legal: the "wash sale" rule does not apply to gains. You could sell your stock/bond/mutual fund shares and immediately buy them back, book the gain, owe the tax. Assuming you've got sufficient tax credit to soak it up, you've accomplished an increased basis for your holding (lowering future taxes upon ultimate disposition).


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## lairdb

Dr. J said:


> Yep, this is legal: the "wash sale" rule does not apply to gains. You could sell your stock/bond/mutual fund shares and immediately buy them back, book the gain, owe the tax. Assuming you've got sufficient tax credit to soak it up, you've accomplished an increased basis for your holding (lowering future taxes upon ultimate disposition).


Hey, I forgot that. So, OP doesn't even need to look for a rebalance -- he could just sell/re-buy the identical security.


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## Dr. J

lairdb said:


> Hey, I forgot that. So, OP doesn't even need to look for a rebalance -- he could just sell/re-buy the identical security.


Yes, assuming he owns appreciated securities. Not everyone does.


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## tivoboy

Dr. J said:


> Yes, assuming he owns appreciated securities. Not everyone does.


And owns them in a taxable account and not an IRA/SEP/Keogh etc.


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## calvan

Just to clarify if you have a big enough tax burden (>$7500 after other deductions/credits) then what is the effective amount you get back, $7500? Or is it less because of tax rates or something else I’m not thinking about? Thanks.


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## smak

$7,500. There's nothing else. 

If you end up with a tax burden of $7,800, and you paid in taxes $8,300, you'll get $7,500 + $500
If you end up with a tax burden of $7,800, and you paid in taxes $7,300, you'll get $7,500 - $500


If you end up with a tax burden of $6,800, and you paid in taxes $7,300, you'll get $6,800 + $500
If you end up with a tax burden of $6,800, and you paid in taxes $6,300, you'll get $6,800 - $500


It's 2 separate things. Once you've determined your tax liability,and thus determined your credit, the rest of your taxes are done normally


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## Sleeping Pelican

This thread has discussed which line you enter $7500 credit amount but I assume you have to prove you purchased the car during this calendar year. I assume the IRS will be responsible for verifying when Tesla crossed the 200,000 threshold. What documentation needs to be included with the federal tax return in order to receive this tax credit? The "Motor Vehicle Purchase Agreement" document?


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