EV Credit From Dealer Exceeds Tax on 2024 Return

[BobKamman]

You buy an EV from a dealer who gives you the $7,500 credit as you drive it off the lot, because you signed the paperwork saying you're eligible.  You get to work and find that AI has replaced you with a robot.  You don't find another job and your 2024 income tax turns out to be zero.  Does this mean you have to refund the $7,500 when you file your 1040 next year?

I haven't been able to find an answer.  I do know that it's OK to exceed the income limit in 2024, as long as you were below the maximum for 2023.  

[rbynaker · Accepted solution]

See "Topic H" Q4:

https://www.irs.gov/pub/taxpros/fs-2023-29.pdf

(PDF page 14.)

Q4: What if a buyer has insufficient tax liability to fully use a transferred credit? (added Oct. 6, 2023)
A4. The amount of the credit that the electing taxpayer elects to transfer to the eligible entity may exceed the electing taxpayer’s regular tax liability for the taxable year in which the sale occurs, and the excess, if any, is not subject to recapture from the dealer or the buyer.

[IRonMaN]

You beat me to it Rick.  I was looking for the answer since we have a client that was possibly going to be in that boat in 2024 and I found the same tidbit that you did.

[rbynaker]

Begs the question.  If the IRS has 14 PAGES of Frequently Asked Questions, how many pages are the infrequently asked ones?

[TaxGuyBill]

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@rbynaker wrote:

Begs the question.  If the IRS has 14 PAGES of Frequently Asked Questions, how many pages are the infrequently asked ones?

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One of those questions might be "Does a gaurd dog qualify for the credit?"   🤣

[rbynaker]

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@TaxGuyBill wrote:

One of those questions might be "Does a gaurd dog qualify for the credit?"   🤣

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No.  Only professional sled dogs qualify.  Once you get more than 300 miles from a charging station you need an alternative source of pro-pull-sion.

[BobKamman]

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@rbynaker wrote:

Begs the question.  If the IRS has 14 PAGES of Frequently Asked Questions, how many pages are the infrequently asked ones?

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Exactly.  I vaguely remember seeing that when it was issued, but looking for it now was impossible because of all the dreck for dealers.  But did you notice what happened here?  They turned it into a refundable credit, without anyone noticing.  Or at least reporting on it.  

I have a client who bought one of those EV Mustangs in 2023.  His 1040 tax is usually more than $7,500 but most of it is SE tax.  He's going to be disappointed with the actual amount of credit, especially when he finds out what it could have been had he waited till now.