While the number of plug-in electric vehicles (EVs) is still small compared with other cars on the road, it’s growing — especially in certain parts of the country. If you’re interested in purchasing an electric or hybrid vehicle, you may be eligible for a federal income tax credit of up to $7,500. (Depending on where you live, there may also be state tax breaks and other incentives.)
However, the federal tax credit is subject to a complex phaseout rule that may reduce or eliminate the tax break based on how many sales are made by a given manufacturer. The vehicles of two manufacturers have already begun to be phased out, which means they now qualify for only a partial tax credit.
Tax credit basics
You can claim the federal tax credit for buying a qualifying new (not used) plug-in EV. The credit can be worth up to $7,500. There are no income restrictions, so even wealthy people can qualify.
A qualifying vehicle can be either fully electric or a plug-in electric-gasoline hybrid. In addition, the vehicle must be purchased rather than leased, because the credit for a leased vehicle belongs to the manufacturer.
The credit equals $2,500 for a vehicle powered by a four-kilowatt-hour battery, with an additional $417 for each kilowatt hour of battery capacity beyond four hours. The maximum credit is $7,500. Buyers of qualifying vehicles can rely on the manufacturer’s or distributor’s certification of the allowable credit amount.
How the phaseout rule works
The credit begins phasing out for a manufacturer over four calendar quarters once it sells more than 200,000 qualifying vehicles for use in the United States. The IRS recently announced that GM had sold more than 200,000 qualifying vehicles through the fourth quarter of 2018. So, the phaseout rule has been triggered for GM vehicles, as of April 1, 2019. The credit for GM vehicles purchased between April 1, 2019, and September 30, 2019, is reduced to 50% of the otherwise allowable amount. For GM vehicles purchased between October 1, 2019, and March 31, 2020, the credit is reduced to 25% of the otherwise allowable amount. No credit will be allowed for GM vehicles purchased after March 31, 2020.
The IRS previously announced that Tesla had sold more than 200,000 qualifying vehicles through the third quarter of 2018. So, the phaseout rule was triggered for Tesla vehicles, effective as of January 1, 2019. The credit for Tesla vehicles purchased between January 1, 2019, and June 30, 2019, is reduced to 50% of the otherwise allowable amount. For Tesla vehicles purchased between July 1, 2019, and December 31, 2019, the credit is reduced to 25% of the otherwise allowable amount. No credit will be allowed for Tesla vehicles purchased after December 31, 2019.
Despite the phaseout kicking in for GM and Tesla vehicles, there are still many other EVs on the market if you’re interested in purchasing one. For an index of manufacturers and credit amounts, visit this IRS Web page: https://bit.ly/2vqC8vM. Contact us if you want more information about the tax breaks that may be available for these vehicles at 205-345-9898 and firstname.lastname@example.org.
© 2019 CovenantCPA
It’s not just businesses that can deduct vehicle-related expenses. Individuals also can deduct them in certain circumstances. Unfortunately, the Tax Cuts and Jobs Act (TCJA) might reduce your deduction compared to what you claimed on your 2017 return.
For 2017, miles driven for business, moving, medical and charitable purposes were potentially deductible. For 2018 through 2025, business and moving miles are deductible only in much more limited circumstances. TCJA changes could also affect your tax benefit from medical and charitable miles.
Current limits vs. 2017
Before 2018, if you were an employee, you potentially could deduct business mileage not reimbursed by your employer as a miscellaneous itemized deduction. But the deduction was subject to a 2% of adjusted gross income (AGI) floor, which meant that mileage was deductible only to the extent that your total miscellaneous itemized deductions for the year exceeded 2% of your AGI. For 2018 through 2025, you can’t deduct the mileage regardless of your AGI. Why? The TCJA suspends miscellaneous itemized deductions subject to the 2% floor.
If you’re self-employed, business mileage is deducted from self-employment income. Therefore, it’s not subject to the 2% floor and is still deductible for 2018 through 2025, as long as it otherwise qualifies.
Miles driven for a work-related move in 2017 were generally deductible “above the line” (that is, itemizing isn’t required to claim the deduction). But for 2018 through 2025, under the TCJA, moving expenses are deductible only for certain military families.
Miles driven for health-care-related purposes are deductible as part of the medical expense itemized deduction. Under the TCJA, for 2017 and 2018, medical expenses are deductible to the extent they exceed 7.5% of your AGI. For 2019, the floor returns to 10%, unless Congress extends the 7.5% floor.
The limits for deducting expenses for charitable miles driven haven’t changed, but keep in mind that it’s an itemized deduction. So, you can claim the deduction only if you itemize. For 2018 through 2025, the standard deduction has been nearly doubled. Depending on your total itemized deductions, you might be better off claiming the standard deduction, in which case you’ll get no tax benefit from your charitable miles (or from your medical miles, even if you exceed the AGI floor).
Differing mileage rates
Rather than keeping track of your actual vehicle expenses, you can use a standard mileage rate to compute your deductions. The rates vary depending on the purpose and the year:
- Business: 54.5 cents (2018), 58 cents (2019)
- Medical: 18 cents (2018), 20 cents (2019)
- Moving: 18 cents (2018), 20 cents (2019)
- Charitable: 14 cents (2018 and 2019)
In addition to deductions based on the standard mileage rate, you may deduct related parking fees and tolls. There are also substantiation requirements, which include tracking miles driven.
Do you have questions about deducting vehicle-related expenses? Contact us at 205-345-9898 or email@example.com. We can help you with your 2018 return and 2019 tax planning.
© 2019 CovenantCPA
A revocable trust — often referred to as a “living trust” — can help ensure smooth management of your assets during life and avoid probate at death. And you may know that the trust isn’t effective unless you “fund” it — that is, transfer ownership of your assets to the trust.
But what about assets such as automobiles and other vehicles? Should you transfer them to your revocable trust?
Navigate potential bumps in the road
If you still owe money on an auto loan, the lender may not allow you to transfer the title to the trust. But even if you own the vehicle outright (whether you paid cash for it or your loan is paid off), there are risks to consider before you make such a transfer.
As owner of the vehicle, the trust will be responsible in the event the vehicle is involved in an accident, exposing other trust assets to liability claims that aren’t covered by insurance. So you need to name the trust as an insured party on your liability insurance policy.
On the other hand, because you’re personally liable either way, owning a vehicle through your revocable trust may not be a big concern during your life.
But after your death, when the trust becomes irrevocable, an accident involving a trust-owned vehicle can place the other trust assets at risk. Keeping a vehicle out of the trust eliminates this risk. The downside, of course, is that the vehicle may be subject to probate, although some states offer streamlined procedures for transferring certain vehicles to heirs.
Steer your questions to us
If you’re considering transferring an automobile or other vehicle to your revocable trust, get in touch with us. We’d be pleased to explain the ins and outs of such a move, call us at 205-345-9898.
© 2019 Covenant CPA