CPA Wilmington NC | IRS Form 8936 | Qualified Plug-in Electric Drive Motor Vehicle Credit

The record gasoline prices here in Wilmington NC have folks asking their CPAs about the Qualified Plug-in Electric Drive Motor Vehicle Credit: IRS Form 8936. And, apparently, sales people and the Internet are not explaining this tax credit well.

Qualifications for Form 8936 - Qualified Plug-in Electric Drive Motor Vehicle Credit

New vehicles purchased after 2009:

• Must have a gross vehicle weight of less than 14,000 pounds.
• Must be propelled to a significant extent by an electric motor that draws electricity from a battery with a capacity of not less than 4 kilowatt hours.
• Is capable of being recharged from an external source of electric power (plug in).

The vehicle doesn’t have to just be electric like the Nissan Leaf. Plug in hybrids that also have a gas engine qualify too, like the Chevy Volt and upcoming Ford Escape.

Is the Qualified Plug-in Electric Drive Motor Vehicle Credit Available to Businesses?

Yes! Just use Form 8936 to calculate the credit, but don’t file it. Instead, enter the amount of the credit on Line 1y of Form 3800. Form 3800 has its own limitations of course. The tax credit can’t be used to offset AMT, ouch, but unused tax credit can be carried forward one year or carried back 20 years.

“Planning your electric or hybrid car purchase is prudent to help maximize the actual worth of Form 8936.”
-Gary Bode, CPA in Wilmington NC

How do Individuals File for the Qualified Plug-in Electric Drive Motor Vehicle Credit?

Fill out and file Form 8936 with your Form 1040. Enter the credit amount on Line 53 of Form 1040

Form 8936 General Discussion for Form 1040 Filers

The amount of tax credit can be up to $7500. Starting with a $2500 base, and then another $417 of tax credit for each additional Kilowatt Hour past five, up to $7500 all told.

The tax credit directly offsets qualifying tax liability dollar for dollar. This is better than a tax deduction that just reduces taxable income. A $7500 tax credit could be worth $7500. A $7500 tax deduction may only be worth $2500 ($7500 x an assumed marginal tax rate of 33%). Why is a $7500 tax credit worth less than $7500? The Qualified Plug-in Electric Drive Motor Vehicle Credit is a non-refundable tax credit. That means it can only reduce your tax liability to $0. If you owe $6000 to the IRS after your 2011 Form 1040 preparation, but have a potential $7500 Form 8936 tax credit available, you can bring your tax liability to $0 but the additional $1500 is lost. Some tax credits, like the Adoption Credit are refundable.

Cash flow of the tax credit should be considered. If you buy in January of 2011, you can only claim the credit on Form 8936 on your 2011 Form 1040 tax return. In the mean time you’re probably paying off a loan at full purchase price and interest.

In addition, there are the inevitable IRS wrinkles. The good news is that Form 8936 can now off set AMT. But other tax credits factor in too, but not the Adoption Credit or Residential Energy Efficient Property Credit. There is a production limit phase out and the tax credit is reduced after the first 200,000 vehicles are manufactured. Possibly that number could increase. So investigating this production phase out, at the time of purchase, is wise.

TIGTA, the enforcement division of the IRS, found 20% error rate on Form 8834 (a different but analogous tax form). So I expect there will be documentation requirements by the IRS in the future. Like the IRS did with the Homebuyer’s Credit.

Car dealerships are notorious for misguidance. Creative bookkeeping allows them to create an invoice for a vehicle that is actually well under their total costs, as just one example. Beware of your actual price, as it appears this is sometimes quoted net, with Form 8936 already factored in at the full amount.

Information Required on Form 8936 - Qualified Plug-in Electric Drive Motor Vehicle Credit

• Date Purchased.
• Date Placed in Use.
• Amount of Battery Capacity in Kilowatt Hours.
• Gross Vehicle Weight.
• Percent of Personal Use.

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