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Tesla buyers' tax break will be reduced in 2019 — if the federal tax credit is continued

Tesla Model 3 courtesy Tesla

Those of us of a certain age — translation: before video games, handheld devices and Wi-Fi equipped cars — staved off road trip boredom with a variety of games. One was counting the various auto makes and models we came across in our travels.

The hubby and I found ourselves doing a version of that last week when we were out running errands. It happened organically when we noticed there were an awful lot of Teslas on Austin's roads.

My Central Texas neighbors are not alone in loving Elon Musk's electric auto. The Internal Revenue Service confirmed the national popularity of Teslas last week when it announced that the auto maker has sold more than 200,000 vehicles during the third quarter of 2018.

That 200K sales mark earns this week's By the Numbers honor.

And while it's good for Tesla's bottom line, it's not good not for future buyers of this electric auto.

Good sales mean bad tax news for buyers: By becoming the first to sell 200,000 electric vehicles, Tesla also became the first company to trigger a phase-out, beginning Jan. 1, 2019, for its subsequent customers of the federal plug-in electric drive motor vehicle tax credit.

The plug-in electric drive motor vehicle credit was enacted in the Energy Improvement and Extension Act of 2008 and modified in later law. As it now stands, five quarters after reaching the sales threshold, the credit ends for the manufacturer.

For Tesla, that means the tax break (if the credit is renewed/continued) will be less beneficial for buyers.

Specifically, for new qualified Tesla plug-in electric drive motor vehicles sold or leased beginning next year, the allowable tax credit is as follows:

 

 Qualifying Vehicle

Full Credit When Purchased by 12/31/2018
(1st quarter =
100% credit allowed)

Reduced Credit When Purchased 1/1/2019 through 6/30/2019
(2nd & 3rd quarters =
50% credit allowed)

Reduced Credit When Purchased 7/1/2019 through 12/31/2019
(4th & 5th quarters =
25% credit allowed)

Credit available starting 1/1/2020

 All Tesla Vehicles

$7,500

$3,750

$1,875

$0


End of EV (and more) extenders?
Of course, this presumes the electric vehicle (EV) tax credit survives. It's part of the tax extenders, that group of temporary tax breaks that must be periodically renewed by Congress. The EV tax break and more than two dozen others, expired at the end of 2017.

There had been hope among those who use the tax breaks that Congress would renew them this year, making them available on 2018 tax returns due next April.

That was the plan of House Ways and Means Committee Chairman Kevin Brady (R-Texas) when he included the extenders — including the EV tax break — as part of a tax package he hoped to push through the lame duck Congressional session.

No such luck. As time has slipped away, in part due to a legislative break following the death of former President George H.W. Bush, the House has pulled the extenders from the tax bill.

Brady remains hopeful the extenders can be approved on a separate legislative track before the 115th Congress wraps up this month. But with the House and Senate facing more pressing issues, like keeping the federal government open past Dec. 21, it's looking more likely that the extenders will slip into 2019.

That possibility poses another set of problems for the expired tax breaks.

Different ideas from Democrats: When the 116th Congress convenes next month, the House will be under Democratic control.

Will incoming Ways and Means chairman Rep. Richard E. Neal (D-Mass.) be supportive of the extenders as they now stand? Or will Neal and other Democrats want changes that could further complicate both retroactive-for-2018 and future extenders' approval.

"We'll have to wait and see [how many are considered], but we certainly intend to move on them fast," Neal told Tax Notes last week.

Other Dems weren't so politically vague, specifically noting that there's interest in paring down the tax extenders package.

House Ways and Means member Rep. Sander M. Levin (D-Mich.) told reporters that while some of the extender provisions are "very solid," others are too narrow and "don’t belong [in the tax code] — they're just a boondoggle."

Trump EV anger: Will the EV pass Democratic extenders' muster? If it makes it past that first political hurdle, will it and whatever extenders bill the House approves be passed by the Senate? And if so, will Donald J. Trump sign a bill that offers the EV tax break.

Trump, unhappy with General Motors' plan to shut down plants, has threatened to ax the EV credit.

Even if GM survives Trump's wrath and Congressional fights over extenders, buyers of Chevrolet's now tax-credit eligible fully electric Bolt and gas-electric Volt could soon be in the same reduced tax break situation as Tesla customers.

GM is next in line to meet the 200,000 electric auto tax credit sales trigger. As 2018 winds down, the U.S. automaker was pushing the limit, having reported sales of nearly 197,000 through October.

Taxes ancillary to auto choices: I suspect most auto buyers make their make and model choices for reasons other than tax breaks.

Sure, it's nice when you can save any money on such a major purchase, either by haggling at the dealership or via Uncle Sam's tax help. And a tax benefit might be just enough to push you from one car camp into another.

But if a tax break is why you're considering an electric auto, my best advice is to work out your purchase price sans the federal tax credit.

If the EV extender is eventually approved, then you'll get a bit of price break when you file your taxes. But if it's not, at least you won't be surprised.

You also might find these other tax reform posts of interest:

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