Ways to get the Federal Tax Credit?

I'm going to be looking to lease another EV this Winter or Spring, but the lease deals for the Leaf and Bolt are looking pretty terrible. I have enough income and savings to definitely buy a Leaf and probably buy a Bolt, but don't have enough taxable income to qualify for more than a small fraction of the $7500 Federal tax credit because I'm retired. Assuming that President Trump (argh) doesn't kill the credit or actually do something helpful like make it a point of sale rebate, I'm thinking about alternative ways to get the credit. My household income (I share ownership of a house with my housemate), though, is mostly taxable. If we were to buy a car jointly, could we receive the credit jointly for the car, allowing me to buy it? I know the credit is attached to the car instead of the buyer, so it seems like this might work, but has anyone here already done this? Has anyone successfully used any other legal means to get the EV credit?

I would suggest consulting a tax consultant for a factual answer on the tax credit, but I don't think you can split it.

However, barring that, you're more likely to get advantage from a lease, even though you said the lease deals are pretty terrible right now. You'll have to run the numbers, but in most cases the lease will come out on top. Also take into account that the resale value of any new Leaf you purchase right now is likely going to tank even more than they currently do given that 2-3 years out, the Leaf should have a much larger battery. From most of what I've read, by leasing you're pretty much knocking $12-13k off the price of the vehicle, only $7500 of which is the tax credit.

That is true for the 2016 Leaf, but the 2017 will be much less appealing with no discounts. The Bolt lease is even worse, as GM is only applying $2500 of the $7500 they get to the down payment on a lease. I'd be looking at $350-$500 a month. I generally tell people to lease as well, but when leases are expensive and buying isn't...

LeftieBiker said:

The Bolt lease is even worse, as GM is only applying $2500 of the $7500 they get to the down payment on a lease.

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Yes, but they are also inflating the residual to 58-61% on a 3 year lease. Depending on how your state handles sales tax, the sales tax rate, the money factor, and whether you want to buy out the lease at the end, that could be better or worse for the lessee than a capital cost reduction.

As to the original question, do you have retirement savings in regular IRAs? If so, you could do a Roth IRA conversion to increase your taxable income during the year in which you qualify for the Federal Tax Credit. That has the effect of moving the future tax liability you have on the IRA funds to the tax year of the conversion, so that you can then use the Federal Tax Credit to offset it. One thing to check would be how the income tax rate at the time of conversion compares to your forecast of the income tax rate you'd otherwise pay in future years of your retirement.

Cheers, Wayne

Not nearly enough savings to do that to get my tax liability up. Basically, I have enough savings to make a large down payment but not buy the car outright. (I could possibly buy a 2016 Leaf after discounts, but that would eat it all.) I have enough monthly income to easily make a finance or lease payment. I will only owe about $700 in federal tax, though, so unless something can be done I'll lose 90+% of the credit if I buy, and if I lease a Bolt but don't buy it, I guess I lose about 66% of the credit. I know a modest amount about leases - all of it learned here! - but could you please explain about the residual inflation and exactly how it affects the lease? I know how residual reductions affect leases, but don't quite follow GM's plan. I think I'd be able to possible buy an LT off-lease, but not a Premiere. I'd be less likely to want to buy the LT, though, as it would lack surround view, unless I can add an aftermarket version that works very well.

LeftieBiker said:

if I lease a Bolt but don't buy it, I guess I lose about 66% of the credit.

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No, if you lease a Bolt and don't buy it, you get (almost) the full benefit of the credit. It's only if you plan to buy it at lease end, and you have to pay the full inflated residual, that you'd lose about 2/3 of the credit.

LeftieBiker said:

I know a modest amount about leases - all of it learned here! - but could you please explain about the residual inflation and exactly how it affects the lease?

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A car lease is just a loan with a balloon payment (the residual), where the car can be turned in in lieu of making the balloon payment. Of course, the residual is supposed to be an accurate forecast of the market value of the car at the end of the lease. Making that forecast is hard to do and open to being manipulated by the manufacturer/captive leasing company for whatever reason.

So let's say you want to lease a $40,000 EV which qualifies for a $7,500 tax credit. The leasing company could use the $7,500 as a capital cost reduction. Let's say an accurate prediction of the residual value will be 40% of the original price (ignoring tax rebates), or $16,000. The total lease payments can be split into two parts: depreciation (principal repayment) of $32,500 - $16,000 = $16,500 ; and interest on the outstanding balance, which starts at $32,500 and decreases down to $16,000 as you make payments.

I like to think of the interest as having two parts: the interest on the residual portion, which is the same each month, and the interest on the unpaid depreciation, which is decreasing each month. [If you choose to may a one payment lease, i.e. $X down and $0 per month, then you can avoid paying any interest on the depreciation. But that creates a risk as far as the vehicle being totaled and losing your down payment, unless you can insure it properly.]

Instead of giving you a capital cost reduction, the leasing company could instead choose to inflate the residual; the depreciation would end up being the same, but the interest would be a little higher, and if you actually buy out the car at the inflated residual, you'd not benefit from the tax credit at all. In the example above, the residual would now be $23,500, or about 59%; the depreciation would be unchanged at $16,500, as would the interest attributable to the depreciation; but the interest each month attributable to the residual would be higher. If you don't buy the car at the end of the lease, you'll have gained most of the advantage of the $7,500 tax credit in terms of reduced depreciation, except you'll have paid interest on that residual inflation each month. So, e.g if your interest rate is 2%, and the lease is 3 years, you'll get about 94% of the benefit of the tax credit (100% - 3 * 2%).

There is one case where the inflated residual is preferable to the capital cost reduction (all other things being the same, and assuming you're not going to buy the car), and that is when the state charges sales tax on capital cost reductions. For example, I hear that California does that, and the sales tax rate is about 9%. So in the above example, even though a residual inflation would cost you 6% of the tax rebate in extra interest, if you saved 9% of the tax rebate on reduced sales tax, you'd come out ahead.

Hope the above helps, if something's not clear just ask.

Cheers, Wayne

I'm slowly getting the gist of it. GM is putting itself into much the same boat as Nissan did in 2013, except that the leases are still rather pricey on top of the un-buyable residuals. One can hope for residual discounts, but I hate to make that guess when leasing a car I'd want only if they are in fact discounted. And it will matter: if residual discounts were likely, I'd grit my teeth and lease a Premiere, to get the surround vision. If they seemed unlikely I'd lease an LT and add an aftermarket, likely inferior parking camera system. I might do that anyway, as I don't want leather-trimmed seats. Feh.