Paying Back the Fed $7500 Tax Credit if Selling a Leaf?

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voltamps

Well-known member
Joined
Dec 17, 2020
Messages
233
(This was off-topic in another thread recently.) I recently sold a 2020 Leaf at 4,900 miles and 7 months after buying it and getting Fed & State tax credits. The used car market is hot right now, and I did well, we'll Leaf it at that.

Somebody thought the IRS would want their $7.5K back, since I only had the car 7 months after buying it.

I did read some Tesla Model 3 threads about this topic.
**** If you recall, when the first people who reserved the Model 3 started getting theirs around 2018, many just pocketed the tax credits and simply sold the car real quick, in some cases a few days after registering theirs, for a profit on the open (hot) market for new Model 3's.

Somebody in the thread said the IRS just didn't want business dealerships buying an EV and flipping it quickly in their inventory, pocketing the Fed tax credit and making a profit on the sale. Indeed, I can't find anywhere a private owner got attacked by the IRS for selling their new Model 3 quickly.

Here are references from the actual Tax Code & form instructions for reference:

from https://www.irs.gov/irb/2009-48_IRB
also https://www.irs.gov/instructions/i8936
and 26 U.S. Code § 30D - New qualified plug-in electric drive motor vehicles:

(2) The original use of the vehicle commences with the taxpayer;

(3) The vehicle is acquired for use or lease by the taxpayer, and not for resale;


I can't find any mention of any IRS (or Colorado State) tax law or form instructions that say anything about selling a vehicle (private seller) before 1 year has elapsed.

Then, wbusch, this person's first post, drops this "insider info" (presumed) about the possible future for the EV Tax Credit:

wbusch said:
The IRS has proposed regs that suggest you must recapture 100% of the credit if it was sold within the first year. Second year 66 2/3% and third year recapture is 33 1/3%

in the present time, I guess the IRS can sort of "interpret" the "not for resale" portion of their Tax Code as a 1-year requirement. They have been known to throw around interpretations freely when attacking some people in the past, just letting the person defend themselves with personal expensive lawyers, while leaving the fed gov paying for the IRS's time pursuing it. Doesn't usually happen that way, but the IRS is notorious.
 
I'm no expert either but I think the answer would be in the text of the statute that authorized the rebate. And/or the statutes referenced therein, etc, etc. and in any prior court precedents, etc, etc.

Or more simply, has anyone ever heard of anyone being denied the credit or having trouble with the IRS because of it? It may have happened but I don't recall ever hearing of any instances of that and I would guess there have been multiple instances of folks arbitrating the tax rebate and selling their new EV for an immediate profit.
 
Learjet, makes sense. I could think of some logical, fair rules on this. I was wondering what the IRS actually feels about it all.

goldbrick, The very famous case of the first 10,000 Model 3's that came in to people on the reservations list was well known to the IRS. Many people pocketed the market-demand induced price increase once they registered & drove their new Model 3 for about a week in some cases, selling it very soon after buying it, for profit. Never heard of the IRS going after any of those very visible cases. There would have been some internet whining for sure if it did happen.
 
Learjet said:
looking back at my tax return...this might help www.irs.gov/Form8936 ...Edit...link not working...but google that form and instructions...
That was in the original post above. Looked at all of that. No general guidance, IRS "advice", not even any vague reference to any Time Period. So far, the leading theory is that the IRS would only object if you're a used car dealership or some broker of some kind. Not private individuals. ... Any inside info from an IRS official who reads these threads, or a Tesla Model 3 ex-owner flipper now in jail, is welcome.
 
The IRC Treas Reg 1.30-1(b)(2)(i) state that you only have to recapture the tax credit if it ceases to be used as an electric vehicle.

(2) Recapture event -

(i) In general. A recapture event occurs if, within 3 full years from the date a qualified electric vehicle is placed in service, the vehicle ceases to be a qualified electric vehicle. A vehicle ceases to be a qualified electric vehicle if -

Example 8
Examples. The following examples illustrate the provisions of this section:

Example 1.
A, a calendar-year taxpayer, purchases and places in service for personal use on January 1, 1995, a qualified electric vehicle costing $25,000. On A's 1995 federal income tax return, A claims a credit of $2,500. On January 2, 1996, A sells the vehicle to an unrelated third party who subsequently converts the vehicle into a non-electric vehicle on October 15, 1996. There is no recapture upon the sale of the vehicle by A provided A did not know or have reason to know that the purchaser intended to convert the vehicle to non-electric use.

Thus no recapture when selling the car to be used as an electric vehicle by the new owner.
 
We have to watch for any future new IRS tax rules, yet they should be clearly stated on the forms, instructions, and the IRS tax code itself.

About an EV being converted into an ICE vehicle, losing the tax credit, that is rare. Although a Leaf with a Chevy LS V8 would be sorta interesting on cruise nights. :shock:
Goes the other way sometimes, with Leaf drivetrains put in something like a Miata, and works well there.
 
Not sure what state the OP is in, but he also said STATE credit. Last I checked, in CA, they require you to own the vehicle for 2.5 years or you have to repay the rebate. Do they actually enforce that rule? No idea.
 
danrjones said:
Not sure what state the OP is in, but he also said STATE credit. Last I checked, in CA, they require you to own the vehicle for 2.5 years or you have to repay the rebate. Do they actually enforce that rule? No idea.

Great point. I'm checking Colorado state law on that. Interesting California has the repay clause, hope Californians read this, as many have bought the Tesla Model 3 when it first came out and pocketed a profit as soon as they got it practically.

You're Ridgecrest, cool. Lived in Palmdale 21 years ago, knew some China Lake Navy technicians that came down to Edwards AFB & Palmdale too to work Lockheed programs with me. A Leaf is perfect for those commutes to the local base up there!
 
voltamps said:
danrjones said:
Not sure what state the OP is in, but he also said STATE credit. Last I checked, in CA, they require you to own the vehicle for 2.5 years or you have to repay the rebate. Do they actually enforce that rule? No idea.

Great point. I'm checking Colorado state law on that. Interesting California has the repay clause, hope Californians read this, as many have bought the Tesla Model 3 when it first came out and pocketed a profit as soon as they got it practically.

You're Ridgecrest, cool. Lived in Palmdale 21 years ago, knew some China Lake Navy technicians that came down to Edwards AFB & Palmdale too to work Lockheed programs with me. A Leaf is perfect for those commutes to the local base up there!

This generation of the Leaf seems to be holding up acceptably well here in the heat, so far. But when I first got it I saw stories on here of one of the very early Leaf adopters, also who lived here, and his story did not end well. The heat cooked his early Leaf to the point he had to get rid of it (at a big loss) because he couldn't make his commute anymore. I have a coworker who drives a Bolt between Palmdale and Ridgecrest every day. So times are changing, but there are always growing pains.
 
https://www.google.com/amp/s/www.forbes.com/sites/ashleaebeling/2019/10/04/irs-fails-to-stop-electric-car-tax-credit-cheats/amp/

I think the bit issue ended up being with blatant fraud prior to VIN number request and confused people who leased the cars trying to claim the credit - not so much a bona fide purchase where you decide to sell later for the federal tax credit.
 
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