How much one should earn to get $7,500 tax credit ?

We see some people post that they may not have $7,500 tax liability to benefit from 7.5K credit available to Leaf buyers. I was intrigued, just like many others, how would anyone who doesn't even pay 7.5K in taxes, be able to afford buying a $32K car.

I did some rough calculations on what a family/individual has to earn to have a minimum of $7,500 in tax liability.

I've taken 3 kinds of owners - people filing jointly (and have 2 children), people filing jointly (no children) and filing individually. In each of these cases I've listed two situations - one where the itemized deduction is higher than standard deduction available and the other where standard deduction is higher. Ofcourse, the income needed to have a minimum of $7,500 in tax liability varies depending on the exact itemized deduction - these are just some examples.

Nice! Thanks. Each household's situation will be different ("YMMV" as we always say), but nevertheless a good "ballpark estimator".

The "Taxible Income" line (after deductions) applies to essentially everybody.

garygid said:

The "Taxible Income" line (after deductions) applies to essentially everybody.

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Yes - though different for filing jointly or as individuals.

Ahhh, but what about... dun dun dun AMT. :-o

Either way, I pity the Californian family earning only 75k given the cost of living out there in general. Still, I think in the mid west there's going to be a lot of folks not taking full advantage assuming we still have this credit in place next year and they can get those "Autumn/ Winter 2011" ready before 2012!

TimeHorse said:

Ahhh, but what about... dun dun dun AMT. :-o

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7.5K credit is against AMT as well.

In anycase, what are the chances someone pays AMT but doesn't even have 7.5K tax liability ?

Interesting numbers, evnow - a great look at an earned-income situation.

One thing that many folks might consider is not: how to make more money in order to have a higher tax liability in order to take advantage of the $7500 EV credit, but how to reduce their tax liability so that they don't have to pay as much tax year after year. That's MUCH more valuable than a $7500 credit.

Take advantage of the low stock market and buy a dividend bearing stock or three. Or start a small business. Or take advantage of the real estate market (amazing sales in progress!) and get a rental house. Each of these opens the door to tax benefits not available to wage earners that are much more valuable than the EV credit while also bringing one passive income that isn't taxed as highly as earned income.

Grab a copy of The Four Hour Work Week - or anything from Kiyosaki - or Carleton Sheets - or Dean Graziosi. Why work harder for money when it's so easy to have money working for you?

Err.. isn't rental income taxed exactly the same as "earned" income?

DeaneG said:

Err.. isn't rental income taxed exactly the same as "earned" income?

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Yes but you have expenses against it not to mention depreciation of the property.

Rental property ?

http://www.bogleheads.org/forum/viewtopic.php?t=58255

I'm sure there are other threads there as well. If I really was bullish about real estate, I'd invest in the real estate ETF.

Effects of Peak Oil on rental property is a major unknown as well ....

Oh brother. One can find a group of pessimists to cover any possible need. The good news is that the won't get in the way of those actually doing a thing... :lol:

The folks in that thread are talking about capital gains not cash flow - two entirely different views of 'reality'.

None of my income is 'earned'. About half the miles I'll drive my Leaf will be offset by the standard mileage deduction ($0.50/mile for 2010). Over the life of the car that'll be worth much more than the $7500 credit.

When I was on the road selling and delivering long-life synthetic oil and filters, I could have used a small pickup truck and lived with 20mpg. Instead I sold my '96 VW Passat diesel sedan to get a '97 VW Passat TDI station wagon. It would haul 1200 lbs of cargo and return 40mpg at 70-80mph. The car and required 'make ready' maintenance cost $6k. 20,000 to 30,000 miles per year (80% business) returned almost $7K per year from mileage alone. The car was paid for the first year and kept paying me to drive it after that. I really like business deductions and the IRS!

edit... I get that the mileage rate is different from the $7500 EV incentive - just wanted to communicate that there are a number of ways to view the tax 'problem' and that any of us wage earners can choose to play by different rules if we wish, as there are a number of different 'realities' allowed in the tax system.