I am trying to figure out how the IRA EV Tax Credit works. I am trying to save some coworkers from getting an EV (for many reasons) but also because they misunderstand how the IRA EV Tax credit works.
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Let’s go with 2 examples: assume Person A and B both qualify for the $7,500 tax credit and buy an EV. Come tax season Person A owes $2,000 in taxes while person B owes $8,000 in taxes. Does this mean Person A will only get $2,000 of the $7,500 credit (essentially not owing any taxes to Uncle Sam) while Person B gets the full $7,500 credit (and only ends up owing $500 to Uncle Sam)?? I also understand the credit does not carry over to the following year.
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Right now many people buying EVs think they get the full $7,500 credit regardless of how much they owe in taxes.
If the credit works the same as other deductions, then you subtract it from your gross income. The rest is per usual... you are taxed on the remainder. But they really ought to be talking to an accountant who knows all the IRS ins and outs.
Right now many people buying EVs think they get the full $7,500 credit regardless of how much they owe in taxes.
That's what I would think too. It doesn't make sense to give incentives based on your income tax over/underpayment.
Tell them that if the technology were any good they wouldn't have to be bribed - or later forced - by politicians and bureaucrats to buy into it.
Do my examples above make sense? I am trying to make sure I have understanding of the tax credits correct.
Given how convoluted the tax code is you'd probably need to talk to an accountant, and you may not even get the same answer if you ask more than one.