Tesla Price Reduction Not Eligible for EV Tax Credit for Some Buyers

Shares Of Tesla Inc. Have Decreased By 0.94%.

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Lowering the cost of certain models will make it possible for more customers to receive the $7,500 federal electric-vehicle tax credit, however, there is a caveat: new income limits that took effect on January 1st.

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In 2009, EV tax credits were established, but in late 2019, the government altered a number of the regulations. They eliminated the limit on the number of cars sold per producer, and added limitations based on the cost of the vehicle, the place of production and the taxpayer's income.

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Taxpayers with a modified adjusted gross income of $150,000 for individuals or $300,000 for joint filers are no longer eligible to receive the tax credit. The Internal Revenue Service states that the limit can be based on either the modified AGI for the year the vehicle is purchased or the year prior. If an individual's income is above the limit for 2023, but was lower in 2022, they may still qualify.

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Incentives for car buyers to switch to electric vehicles have been implemented, but the process of understanding the changes can be difficult since they are still in the process of being adjusted.

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Claudia Hill, an enrolled tax agent in Cupertino, Calif., has been receiving numerous inquiries in her tax practice regarding the alterations to EV credits that Congress implemented in the energy bill last summer. According to Hill, there are a few potential pitfalls to be aware of. She states that a lot of individuals are unaware that these are dependent on income.

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The income limits for the EV tax credit are applicable to vehicles that are put into use starting on January 1st of the current year. Therefore, if you purchase an EV this year, the income limits will apply. Additionally, if you bought an EV last year but didn't take delivery until this year, the income limits will still be applicable, according to Mark Luscombe, a federal tax analyst at Wolters Kluwer Tax & Accounting.

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The recent changes to the rules have made it more challenging for taxpayers to take advantage of the credit. To qualify, the vehicle must have been manufactured in North America and the manufacturer's suggested retail price must not exceed $80,000 for vans, SUVs and pickups or $55,000 for all other vehicles.

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Tesla recently reduced the cost of its Model Y crossover to $52,990 and the price of its Model 3 sedan's high-performance version to $53,990. The EV credit is a tax credit that can be used to reduce your income tax dollar for dollar, up to $7,500. This credit is nonrefundable, meaning that any unused portion of the credit cannot be used to get a tax refund or be carried over to use on a future tax return.

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On January 1st, Congress eliminated the previous limit that excluded vehicles from the credit once a certain amount had been sold. Tesla was the first company to reach the 200,000 mark. This change was beneficial for Tesla, General Motors Co. and Toyota Motor Corp.

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When the cap was removed for 2023, some purchasers canceled their car orders in the autumn, believing they would be eligible starting January 1, according to Ms. Hill. Unfortunately, those with higher incomes may still not qualify.

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The Internal Revenue Service (IRS) is still in the process of providing guidance on the new law, and recently announced that it will be postponing the release of regulations regarding electric-vehicle battery requirements until March. The IRS has a list of "Manufacturers and Models for New Qualified Clean Vehicles Purchased In 2023" available on its website, and also issued a 10-page fact sheet in late December.