$7,500 Reduction in Tax Liability Question

[jimelston]

Hey all,

Greatly appreciate the info from this thread but i must admit i am confused a little.

I have 2 questions if someone could help me clarify please

1. If i were to buy a LEAF the $7500 tax credit would only benefit me if i have a high tax liability come April?
2. Will it increase my refund on top of what i would already have received for that tax period?

Thank you for taking the time to answer these questions from a new possible LEAF buyer!

 

[davewill]

Hey all,

Greatly appreciate the info from this thread but i must admit i am confused a little.

I have 2 questions if someone could help me clarify please

1. If i were to buy a LEAF the $7500 tax credit would only benefit me if i have a high tax liability come April?
2. Will it increase my refund on top of what i would already have received for that tax period?

Thank you for taking the time to answer these questions from a new possible LEAF buyer!

Yes, It will lower your tax liability by up to $7500. A lot of people get confused by the terminology "not refundable" which has nothing (directly) to do with your tax refund, it simply means that the credit can't lower your tax liability past zero*. That's why you need to have a large tax liability to take full advantage of the credit. Of course, lowering your tax liability will increase your refund, and/or lower what you owe in April.

* Some credits ARE refundable, and these can be used by people who have little to no tax liability. This can end up netting them a "refund" of taxes they never actually paid come April.

 

[smkettner]

If you prepay $6,000 and you otherwise owe $8,000 you would normally pay $2,000 in April.
With LEAF you would get additional credit for $7,500 and owe $500 ($8,000 less $7,500) and since you prepaid $6,000 you would get $5,500 back.

If this is confusing you need to go talk to an accountant with your specifics.
Or post some of your estimated numbers or your 2010 numbers assuming 2011 will be similar.

 

[jimelston]

I think that clears it up for me. Thank you for your help guys!!

 

[hill]

Rather than start a new tax thread, thought I would resurrect this one. Disclaimer - I have zero tax expertise.

It appears that many LEAF purchasers have two Federal tax credits available to them. If they have a large enough tax liability, then all should benefit from the $7,500 tax credit (IRS Form 8936). If a person did not receive a free EVSE installation and paid for such an installation, then a 50% credit is available (IRS Form 8911).

For many years, I have used tax preparation software as my personnel situation easily allows such. My problem is that I can not find out which packages will support the above mentioned credits. A customer support person at H & R Block revealed that none of their At Home products do so. I've run into a blank wall at Turbo Tax trying to find out ANYTHING about such support. . . . . . . . . . . . . . . .

Oh please - do NOT get me started on how pathetically worthless junk turbotax and junk H&Rblock are when it comes to any degree of tax complexity. OK, I gues It'll work for 90 % of people.

 

[ebill3]

Oh please - do NOT get me started on how pathetically worthless junk turbotax and junk H&Rblock are when it comes to any degree of tax complexity. OK, I gues It'll work for 90 % of people.

Well, I don't recall that anyone ask for an evaluation so you don't have to get started. Sadly, many of us in the unwashed masses are happy with "junk" software. I guess the princely can go elsewhere.

Bill

 

[aqn]

You are missing the 2011 form.

Also keep in mind the refueling credit is subject to AMT so if the vehicle and refueling equipment are purchased in the same year there is a good chance the refueling credit will not apply. That is my understanding YMMV.

Yes - even though the 2011 form is not available, it appears that it is 30% for all alternate fueling equipment installed in 2011. I stand corrected, darn it.

Bill

2011 IRS form 8911 is currently available in draft form, here. And, yes, the EVSE credit is 30%.

 

[smkettner]

Oh please - do NOT get me started on how pathetically worthless junk turbotax and junk H&Rblock are when it comes to any degree of tax complexity. OK, I gues It'll work for 90 % of people.

Kinda like the LEAF :lol:

 

[LTLFTcomposite]

Here's a thought, if you have any doubt whether you will qualify for the full credit and you have any appreciated positions where you can book some long term capital gains, go ahead and do the sale in 2012, then rebuy the asset if you want. Sort of like a wash sale in reverse, I think you're allowed to go that direction. You may not save anything on taxes this year, but you'd increase the cost basis on the asset and potentially save later.

Of course any tax advice from random people on message boards should be verified.

 

[aqn]

Here's a thought, if you have any doubt whether you will qualify for the full credit and you have any appreciated positions where you can book some long term capital gains, go ahead and do the sale in 2012, then rebuy the asset if you want. Sort of like a wash sale in reverse, I think you're allowed to go that direction. You may not save anything on taxes this year, but you'd increase the cost basis on the asset and potentially save later.

Good idea: realize your taxable capital gains to offset the $7,500 tax credit. Also, last I heard (a year ago), you'd have to wait one month before buying the asset/equity back, else the IRS won't consider the gain realized. (I've only done it to realize losses, not gains, but I imagine the same is true for gains.)

Of course any tax advice from random people on message boards should be verified.

Ditto.

 

[HighDesertDriver]

Of course any tax advice from random people on message boards should be verified.

Ditto.

+1 The best I've heard this phrased is "Free advice is sometimes worth everything you've paid for it." :lol:

 

[dgpcolorado]

Here's a thought, if you have any doubt whether you will qualify for the full credit and you have any appreciated positions where you can book some long term capital gains, go ahead and do the sale in 2012, then rebuy the asset if you want. Sort of like a wash sale in reverse, I think you're allowed to go that direction. You may not save anything on taxes this year, but you'd increase the cost basis on the asset and potentially save later.

Of course any tax advice from random people on message boards should be verified.

With that caveat about "tax advice from random people" noted, I will mention that another strategy, which I am using, is to convert some money from a regular IRA to a Roth IRA. That causes the money to become taxable income in the year the conversion is made (meaning by December 31st for the 2011 tax year). If you end up converting too much, meaning your final tax bill is more than $7500, I believe that you can "recharacterize" some of the converted money back to the regular IRA, if done before tax day in April, although it might be more trouble than it is worth for small amounts. For more information on IRA conversions please read IRS Publication 590.

 

[thankyouOB]

Here's a thought, if you have any doubt whether you will qualify for the full credit and you have any appreciated positions where you can book some long term capital gains, go ahead and do the sale in 2012, then rebuy the asset if you want. Sort of like a wash sale in reverse, I think you're allowed to go that direction. You may not save anything on taxes this year, but you'd increase the cost basis on the asset and potentially save later.
... convert some money from a regular IRA to a Roth IRA. That causes the money to become taxable income in the year the conversion is made (meaning by December 31st for the 2011 tax year). If you end up converting too much, meaning your final tax bill is more than $7500, I believe that you can "recharacterize" some of the converted money back to the regular IRA, if done before tax day in April, although it might be more trouble than it is worth for small amounts. For more information on IRA conversions please read IRS Publication 590.

It is good advice, and I have done it. it also has been discussed here before. It is also a good strategy if you are not at the 69k threshold for 25% rate; that is for joint filers.
recharacterization is also doable, but requires some good coordination with the IRA/Roth plan.

 

[shay]

Here's a thought, if you have any doubt whether you will qualify for the full credit and you have any appreciated positions where you can book some long term capital gains, go ahead and do the sale in 2012, then rebuy the asset if you want. Sort of like a wash sale in reverse, I think you're allowed to go that direction. You may not save anything on taxes this year, but you'd increase the cost basis on the asset and potentially save later.

Good idea: realize your taxable capital gains to offset the $7,500 tax credit. Also, last I heard (a year ago), you'd have to wait one month before buying the asset/equity back, else the IRS won't consider the gain realized. (I've only done it to realize losses, not gains, but I imagine the same is true for gains.)
.

The gain is realized when you sell the stock. I think you are thinking of wash sale rules which dictate whether you can take a capital loss.

 

[planet4ever]

Offhand I would think anyone well enough off to be able to use any of these tax gimmicks would either already have at least $7500 in total tax liability or would have a very slick tax accountant. I know I don't qualify for any of those dodges and I pay way more than $7500/year in income tax, almost all of it withheld during the year.

Frankly, and this will probably stir up a hornet's nest, I agree with what the Republicans claim to believe on this subject. We should restructure our tax system to get rid of the loopholes.

Ray

 

[hill]

Oh please - do NOT get me started on how pathetically worthless junk turbotax and junk H&Rblock are when it comes to any degree of tax complexity. OK, I gues It'll work for 90 % of people.

Well, I don't recall that anyone ask for an evaluation so you don't have to get started. Sadly, many of us in the unwashed masses are happy with "junk" software. I guess the princely can go elsewheyre.

Bill

Um - princly has nothing to do with it. Over the years I've had customers (several) that wanted to sue H&R / T-tax because they can't accurately input proper relevant data. In at least 5% of instances, tax software forms are not designed to handle data that needs to be there. So what does Joe Taxpayer do? Leaves it out or puts data in wrong.
Joe Taxpayer cals the software helpline, and gets piss poor help, or no help at all with their non-standard inquiry, but only after spending tons of time on hold. Tax software warranties don't cover you when you try and do the best you can - it only covers the limited capability they build it for. You're on your own if/when you get that dreaded letter, 2 or 3 years later.
Way back over a decade ago, back before H&R ever thought of getting into the software business, T-tax was built by a company called ChipSoft. The T-tax tax program was quite wonderful, way back when. Once Intuit bought 'em out, the trouble began.
The tax code is thrown together "last minute" every year. Thus, the CPA/software writers cut corners ... and that time-saving strategy gets your software to YOU on time. But it screws over at least 5% of their customers. Think about what 10's of millions of potential software purchasers represents, and you can see how a lot of folks get the shaft.
The IRS doesn't catch a bunch of it when returns get filed, because their programmers have deadlines too.
Anyway, I'd tell my customers that their issue is not a tax court issue, and send 'em off to a firm that handles defective products. So be glad your tax matters are not princely - if that's what they're now calling atypical deductions.

.

 

[thankyouOB]

Offhand I would think anyone well enough off to be able to use any of these tax gimmicks would either already have at least $7500 in total tax liability or would have a very slick tax accountant. I know I don't qualify for any of those dodges and I pay way more than $7500/year in income tax, almost all of it withheld during the year.

Frankly, and this will probably stir up a hornet's nest, I agree with what the Republicans claim to believe on this subject. We should restructure our tax system to get rid of the loopholes.

Ray

one man's loophole, is another man's mortgage deduction.
I prefer to go back to the rates under Clinton, when the economy was humming, jobs were being created and the debt disappeared.

 

[dgpcolorado]

Offhand I would think anyone well enough off to be able to use any of these tax gimmicks would either already have at least $7500 in total tax liability or would have a very slick tax accountant. I know I don't qualify for any of those dodges and I pay way more than $7500/year in income tax, almost all of it withheld during the year...

Tax gimmicks? Dodges? If you earn a high enough income to pay more than $7500 in income taxes a year then, of course, you don't need to use any methods to raise your income. But my situation is very different: I am retired and live entirely on savings and investments (I am too young for Social Security). Because I am thrifty I can live comfortably on $15,000 to $20,000 a year. Is raising my income to $55-60k, so that I can qualify for the EV tax credit, a gimmick? Is it unethical? I have to pay taxes on that money someday, might as well be this year so I can use the tax credit.

So far as the whole idea of tax credits, deductions, and myriad other "loopholes" goes, if we get rid of them we should get rid of all of them. And that includes sacred cows such as the mortgage interest deduction and deductions for contributions to charities.

Since we, as a society, choose not to make oil and gasoline prices reflect the external costs of their production and use, I think an argument can be made that a temporary tax credit to jump-start EV production is justified. But what I'd really like to see is a stiff tax on gasoline and diesel that covers the external costs, and no tax credits for EVs (or anything else, save for the poverty-related things like the EITC). If gas was $8+ a gallon I doubt that EVs, such as the LEAF, would need a tax credit to be perceived as cost-effective.

IMHO, of course.

 

[ebill3]

Oh please - do NOT get me started on how pathetically worthless junk turbotax and junk H&Rblock are when it comes to any degree of tax complexity. OK, I gues It'll work for 90 % of people.

Well, I don't recall that anyone ask for an evaluation so you don't have to get started. Sadly, many of us in the unwashed masses are happy with "junk" software. I guess the princely can go elsewheyre.

Bill

Um - princly has nothing to do with it. Over the years I've had customers (several) that wanted to sue H&R / T-tax because they can't accurately input proper relevant data. In at least 5% of instances, tax software forms are not designed to handle data that needs to be there. So what does Joe Taxpayer do? Leaves it out or puts data in wrong.
Joe Taxpayer cals the software helpline, and gets piss poor help, or no help at all with their non-standard inquiry, but only after spending tons of time on hold. Tax software warranties don't cover you when you try and do the best you can - it only covers the limited capability they build it for. You're on your own if/when you get that dreaded letter, 2 or 3 years later.
Way back over a decade ago, back before H&R ever thought of getting into the software business, T-tax was built by a company called ChipSoft. The T-tax tax program was quite wonderful, way back when. Once Intuit bought 'em out, the trouble began.
The tax code is thrown together "last minute" every year. Thus, the CPA/software writers cut corners ... and that time-saving strategy gets your software to YOU on time. But it screws over at least 5% of their customers. Think about what 10's of millions of potential software purchasers represents, and you can see how a lot of folks get the shaft.
The IRS doesn't catch a bunch of it when returns get filed, because their programmers have deadlines too.
Anyway, I'd tell my customers that their issue is not a tax court issue, and send 'em off to a firm that handles defective products. So be glad your tax matters are not princely - if that's what they're now calling atypical deductions.

OK, so the programs are now good for 95% of us, up from 90%. That is pretty good, I would say. And since I have never had, and don't expect to have, atypical deductions, I'm good.

Bill

 

[SanDust]

Here's a thought, if you have any doubt whether you will qualify for the full credit and you have any appreciated positions where you can book some long term capital gains, go ahead and do the sale in 2012, then rebuy the asset if you want. Sort of like a wash sale in reverse

With that caveat about "tax advice from random people" noted, I will mention that another strategy, which I am using, is to convert some money from a regular IRA to a Roth IRA. That causes the money to become taxable income in the year the conversion is made (meaning by December 31st for the 2011 tax year).

The Roth conversion is a good strategy. Nice. Selling and rebuying the asset is a little tricky. This isn't like a "wash sale" it could be a "wash sale". If you rebuy the asset within 30 days for tax purposes the sale never happened and there is no recognized gain. Sometimes you can get around this by buying a similar asset. For example, a total stock market index fund might be made up of an S&P index fund and an extended market index fund. You could sell the total market index and buy the other two in the right proportions on the same day without triggering the wash rules.

I think this is BTW what Occupy Wall Street is all about. That's not a criticism of anyone taking advantage of tax loopholes though. If the loophole is there then by all means take it. Manipulating transactions to minimize taxes is no more morally corrupt than taking a CARB rebate even if you don't need it.