It seems like Tesla’s are a dime-a-dozen as you drive down the roads around town. But, its’ not usually a real estate professional. Why is that?
Well, most successful real estate agents already know about the tax deduction for work vehicles based upon weight of the car. The heavier the car, the larger the tax deduction. This is why you don’t see successful real estate agents driving Tesla’s, but rather a Range Rover, Land Rover, or any other large SUV.
You know what you also see a lot of from those same real estate agents?? A gas pump tied to their hand! Although, gas is a deductible expense for real estate professionals, it’s obnoxious to always be tethered to the nearest gas station.
Real estate professionals drive, A LOT. And when you are showing clients properties, it’s not ideal to have to plan your day around the nearest gas pump.
Previously, I discussed important proposed tax law changes, likely to occur, that affect real estate professionals. But, this is an additional tax change worth noting for real estate agents.
ELECTRIC VEHICLES MAKE AN APPEARANCE IN THE PROPOSED BUILD BACK BETTER PLAN
The current administration has shown a clear desire to fund infrastructure plans to incentivize clean air and green options.
Electric vehicles are no exception.
That is why I find this topic worthy of a blog post, because the likelihood of democratic leaders pushing this bill through is high. So, you may want to consider the proposed tax credit I’m about to share and begin looking at your favorite electric cars for a potential purchase.
Here’s what is currently being proposed when it comes to the purchase of an electric car:
There is a total tax credit proposed of up to $12,500 for an electric vehicle purchased after December 31st, 2021 and before January 1st, 2027.
The requirements to receive the full $12,500 have some layers that will require some car research on your part, or some thorough questions at the dealership (If you trust the car salesman- no comment here).
The base amount of tax credit remains at $4,000 for purchasing an electric vehicle.
But, you can earn up to an additional $3,500 tax credit for purchasing an electric vehicle with a battery pack that has, at least, 40 kilowatt-hours of capacity. If you are looking at a plug-in hybrid, the gas tank cannot surpass 2.5 gallons.
If you are doing your math right now, I have only explained $7,500 worth of a tax credit. That’s because you have one or two more hurdles to jump to get the full tax credit.
The government wants to stimulate our economy right now, so they are willing to give an additional $4,500 in tax credit for an electric vehicle that is made by an automaker making the car in the US.
But, we are $500 short.
There will be another $500 in tax credit for the purchase of an electric vehicle with an automaker using a US-made battery.
There you have it! All $12,500 in tax credit for the purchase of an electric vehicle….with a 3 or 4 hurdles to jump.
This bill would not only incentivize consumers, but it clearly is meant to incentivize automakers, because currently only the Chevrolet Bolt EV and Bolt EUV would qualify for all components of the tax credit.
Additional requirements are that the credit only applies to electric vans, trucks and SUVs up to a retail price of $80,000.
In addition, there is a phaseout that applies to the tax credit if you make too much income. The phaseout begins for single tax filers at $250,000 adjusted gross income, and $500,000 adjusted gross income for married filing jointly tax filers.
WHY IS THIS TAX CREDIT A BIG DEAL?
You should know there are some differences between a tax credit and tax deductions. The two are not equal and a credit is much better than a deduction for the purposes of reducing your overall tax burden.
Tax Deductions help you reduce how much of your income is subject to taxes. So, let’s say your federal tax bracket is at the 32% tax bracket in the year 2022 and you receive a $1,000 tax deduction, you essentially save $320.
Tax Credits directly reduce the amount of taxes you owe, which results in a dollar-for-dollar reduction in your tax liability. Let’s say you owe $20,000 at the end of the 2022 tax year, but you received the full $12,500 electric vehicle tax credit. Well, now you would only owe $7,500 to the IRS.
For real estate professionals who drive all over God’s green Earth, making sure your clients get into the house of their dreams, this could offer a solution with many benefits!
I’ll remind you that this is still a proposal. It is also not applicable until the year 2022, so DO NOT go a buy an electric vehicle this year (2021) and expect the tax credits.
But, maybe you might want to think about setting that money aside for next year…
If you want to run by your tax situation with a CERTIFIED FINANCIAL PLANNER™, I’m here to assist. Just click the button below!
Content in this material is for general information only and not intended to provide specific advice or recommendations for any individual.
The economic forecasts set forth in this material may not develop as predicted and there can be no guarantee that strategies promoted will be successful.
This information is not intended to be a substitute for specific individualized tax advice. We suggest that you discuss your specific tax issues with a qualified tax advisor.