Updated January 5, 2018
With the exact timing of the Tesla Model 3 release still up in the air, and around 500,000 total reservations so far, many people are wondering if they will qualify for the US federal EV tax credit. There is still a lot of confusion, so I wanted to clarify exactly how it works and if you can expect to get the credit.
First, this is a tax credit, not a rebate. This means that you have to owe $7500 in taxes at the end of the year that you buy your car to receive the full amount.
This is not based on how much was withheld from your paycheck throughout the year, but the final amount you actually owe.
To find this out, look at your most recent form 1040. Look at line 47. This is how much you owed. So, for instance, if line 47 says you owe $9,000 for the year, you would qualify for the full $7500. If, however, line 47 says you owe $5,600, then $5,600 is the maximum you will receive back. If you only paid in $5,000 for the year though, that's all you get back. If for some reason you only paid in $1000 for the year, and line 47 says you owe $8,500, you would subtract the $7,500 and that would leave you with a balance owed of $1,000, which you already paid in, meaning you get nothing back, but owe nothing more. Assuming nothing changes in your income or deductions, this would be about the same next year.
Now, the other big question and misunderstanding I have seen is when the credit runs out. Many still believe this is a hard cutoff at 200,000 cars delivered in the US. In fact, a Tesla employee just said the very same thing to me a few days ago and I had to correct him.
Here is how it works, directly from the IRS:
The qualified plug-in electric drive motor vehicle credit phases out for a manufacturer’s vehicles over the one-year period beginning with the second calendar quarter after the calendar quarter in which at least 200,000 qualifying vehicles manufactured by that manufacturer have been sold for use in the United States (determined on a cumulative basis for sales after December 31, 2009) (“phase-out period”). Qualifying vehicles manufactured by that manufacturer are eligible for 50 percent of the credit if acquired in the first two quarters of the phase-out period and 25 percent of the credit if acquired in the third or fourth quarter of the phase-out period. Vehicles manufactured by that manufacturer are not eligible for a credit if acquired after the phase-out period.
Let me explain this further. I'll use Tesla as the example here. Tesla is currently on track to deliver their 200,000th vehicle (in the US)
around the end of this year or beginning of next year in Q2 of 2018 (see update below).
If Tesla delivers #200,000 in March 2018, then the full $7,500 tax credit would still apply to all vehicles delivered in the US in both March as well as Q2 of 2018. For cars delivered in Q3 and Q4 of 2018, the credit would be reduced to $3,750. For cars delivered in Q1 and Q2 2019, the credit would be reduced to $1,875, and after that it would be gone.
If Tesla holds off #200,000 until April 1, 2018, though, cars delivered in both Q2 and Q3 2018 would get the full $7,500 credit, cars delivered in Q4 2018 and Q1 2019 would get half that, or $3,750, and Q2 and Q3 of 2019 would get $1,875.
This is important, and Elon Musk hinted that if they were close, they would hold off delivering #200,000 until the beginning of a new quarter, even if it meant Tesla taking a temporary financial hit.
UPDATE: Tesla released 2017 total delivery numbers
We now know that Tesla has delivered about 161,571 cars in the US as of December 31, 2017. Model S and Model X sales should be similar to last year, or about 10,000 in Q1. That puts them at 171,000 by the end of Q1 not counting Model 3. Model 3 production has just reached 1,000 per week, and is now expected to reach 2,500 per week by the end of Q1.
That would mean they would deliver a maximum of approximately 20,000 Model 3s, putting them at 191,000 at the end of Q1. Another 10,000 Model S+X in Q2 would put them at 201,000. Even if Model 3 production stays flat through Q2 at 2,500 per week, that's 30,000 Model 3s in Q2, for a grand total of 231,000 deliveries in Q2. If they do ramp up to 5,000 per week though by the end of Q2, then it would be closer to 240k-250k. If production stays flat at the current rate of 1,000 per week, all the way through June 2018, then they would still be at 207,000 by the end of Q2.
That's almost a guarantee they will sell their 200,000th car in Q2 of this year.
What that means is that anyone who gets their Model 3 before October 1 of this year will qualify for the full $7,500 tax credit.
Again, take a look at your current tax filings, and see if you even qualify for the full $7,500. If not, no need to even worry about the timing.
This also applies very soon to GM, as the Volt and Bolt sales will likely reach 200,000 this year as well, though likely a quarter or two later in the year.
I am personally torn on whether I will wait for AWD or get RWD on my Model 3 now that the full tax credit is almost certain to last until September 30. If ordering dual motors means I miss out the tax credit for this year, then it is not worth it. Assuming that dual motors will cost $3,500, that would mean waiting would cost me $11,000 ($3,500 + $7,500 tax credit).
Hope this helps everyone understand how the EV tax credit works.