S2_E9_Teri_Viswanath_2023_Tax_Update

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[00:00:00] Welcome to MTE's Plugged In Podcast. This podcast focuses on the world of electric vehicles. We combine expert interviews and personal stories to educate and inform listeners about electric vehicles. So whether you're an early adopter who has been driving an EV for years, or you're just starting your research, this podcast is for you.

Amy & Brandon: I'm Brandon Wagner

and I'm Amy Byers and welcome to Middle Tennessee Electric's Plugged In Podcast. Today we are welcoming back Teri Viswanath with Cobank. She is here to talk about tax credits for electric vehicles.

Teri is the lead economist in Cobank's knowledge exchange division, where she focuses on energy industry, including the electrical distribution generation and transmission sector. So that's, that's a mouthful of what you do. But why you are here today is what we found out last year. Is you know, all there [00:01:00] is to know on tax credits for electric vehicles.

You are the go to person. And I know we got a lot of really good feedback on our podcast we did last year. So, uh, we're going to do it again and probably keep this going. I think this is , um, this is a topic that changes every year. So it's good to kind of keep on top of that. So welcome to the podcast, Teri.

Terri: Hey, thank you. My, my pleasure for joining. And, um, this year I think hopefully we'll be on. So folks that are going to go back and maybe look at last year's podcast. Uh, what I didn't know is that we actually, you know, we have a video so you can see us communicate and talk, which is great. And I should have known that part, but last year I had my, my kids baseball cap on, you know, so, so do not unearth that podcast where we're going to say all new things this time.

So just stay with

us on this version.

Amy & Brandon: good. So the first thing we'll kick it off with is any advice on the guidelines for people filing for 2023 to [00:02:00] receive the tax credit for electric vehicles. What, what, where to start with

Terri: Oh, absolutely. That's a good place to start. So, first, um, you know, for folks that are, this is, this is an incredibly great break on the cost of owning a vehicle. So, let's start there. Um, so, first, the maximum amount you can claim and that's important to know. So, seventy five hundred for a new electric vehicle. If you're purchasing a used electric vehicle, it's 4, 000. Um, but you have to have some qualifying factors, uh, that first for last year, at least is that what's, what's really important in 2023, as you file your taxes, this go round is that, you know, the credit is only available to cars that are manufactured in North America.

And that's going to be really. That manufacturing requirement is, is kind of the stickler. Um, but there are also, you know, a few more, which is going to be, you know, the cost of the [00:03:00] vehicle. So if it is a sedan, you're looking at, uh, you know, a cap at 55, 000. If it's an SUV or truck, it's 80, 000. And then we also have an income restriction. Oh, and, and on the used vehicle, by the way, uh, the cap was set at 25, 000. So your MSRP, that's going to be really important. The other is your income restriction, um, which if it is a new vehicle, if you're married filing joint, uh, the, you know, you're, you're going to have to stay under 300, 000. If you're a head of household, it's 225, or if you're filing single 150, and that actually squeezed down a little bit for used vehicle where the married filing joint is 150. So those restrictions are in place and that's important to, uh, to kind of keep in mind those, those are going to be relatively important.

Amy & Brandon: Um, well, Brandon, I'm going to kind of switch to you a little bit. Um, you just filed your taxes. Um, and you bought a [00:04:00] Tesla this year or last year in 2023. So you just filed your taxes. Why don't you tell us a little bit about your experience? And, and that may prompt you, Teri, to Yeah.

Well, I mean, this is the first time I've been excited about filing my taxes.

You know, knowing that I bought this car in January of 2023 and I'm just now getting to harvest the tax credit. So that's exciting. And I just tried to do it on my own. A lot of the tax online tax, uh, Services will let you do some free stuff to kind of see how your, uh, taxes are shaping up. And if you don't want to submit, you know, you're not out any money.

So I tried to do that. And I didn't see, you know, a lot of times they'll ask you some questions and they never asked me, did you buy an EV? But I searched in, uh, and I used TurboTax and I just searched for, uh, different tax, uh, benefits. And They called it energy efficiency vehicle, I believe. [00:05:00] And so once I found it and I told a little bit of info about the car, I had to have the VIN number.

I put that in there and it just populated everything for me. So it was a pretty pleasant, uh, experience. Um, so Teri, one thing that I did, cause I was. I, my wife and I, we always file jointly, but this time I thought, well, I'm going to go ahead and try to file in, uh, um, what's, what's the other one? I'm sorry.

I can't even remember. Separately. Yeah. Separately. I don't know what, what's the term I'm looking for.

Terri: Oh, yeah, yeah. Instead of filing joint. Yeah. Yeah. So you're actually, um, did you file head of household or, um, but filing separately, all of a sudden there's just, there's some differences. So you, you tried both

out. So, on your TurboTax

Amy & Brandon: And then it gave you,

Terri: Okay. All right. What did you find?

Amy & Brandon: 90 percent of the time it's better to file jointly. I don't [00:06:00] know why that is, but I thought, well, let me just go ahead and see what it's like. And mine came out just about the same. So even if I did it separately or, or, uh, jointly, it was about the same.

But I thought, well, you know, this might be one of those times if you're an EV. and, uh, you can get maybe one of the spouses has a different tax appetite than the other. Maybe it'd be better to file that way. Have you, what was, what's your experience been with something like that? And, uh, and I know that, you know, we're not giving tax advice or anything like that.

We're just exploring things.

We should have

Terri: For sure, for

Amy & Brandon: that. This is just informational. This is,

Terri: you're right.

Amy & Brandon: not giving tax advice.

Terri: Yeah, you know, so those are really important. So you really need to understand and it comes down to the deductions, you know, when you're when you're filing. So there are some benefits. Um, and that's why most people file, you know, married filing jointly. Um, but, but it's important to know the distinction, but I think, You know, I think the important, you know, [00:07:00] Jerry Maguire moment you had me at, you know, you're, you were actually able to get a discount from that new vehicle cost.

You bought a Tesla, and by the way, what kind of Tesla? Cause that's important. It's a very important

discussion as we get into 2024.

Amy & Brandon: I

got the Tesla model. Why?

So it technically I think

Terri: Nice.

Amy & Brandon: they used to qualify that as a sedan unless you got the seven seater then it was more of a EUV I think Which up the MSRP level? So but yes, I was Tesla Model Y So if it came in underneath the the MSRP limit as a sedan

Terri: And so this is a really important conversation, especially as we talk about cars, is that this tax break is so important because for a lot of folks, it really kind of make, well, it's a make or break decision at, on the dealer. Dealership lot, right? Because the average cost of a vehicle prior to COVID, and this is something that's [00:08:00] kind of shocking, is it prior to COVID, the average cost of a new U.

S. new car purchased in the U. S. was under 40, 000. So in 2019, it was, it was sub. 40, 000. Uh, as of last year, you know, you're, you're getting closer to 50, 000. So in a space of four years, you know, we have seen, uh, an increase of about 10, 000, a radical

increase in the cost of a new vehicle. So in some ways, by setting that MSRP cap, uh, for an electric vehicle at 55, you know, the federal government was sort of signaling to your auto manufacturers that, hey, we know. Like you that this tax breaks important, but we need to kind of set a limit here because if you're if it's a you know If it's a hundred thousand dollar vehicle, right most Consumers are not going to take advantage. So setting it pretty close to the average cost of the vehicle and in some ways has incentive because, uh, as we fast [00:09:00] forward to the current year, um, where, you know, all of a sudden, you know, the distinction on which cars are eligible becomes really, really important.

And the MSRP now is an important discussion. So your own experience, which is like, finally, I'm excited about filing my taxes. Why? Because I can, in my mind, discount what I just paid for this vehicle.

Amy & Brandon: Yeah, exactly. And, and I know this year, the Tesla model three, we'll, we'll talk a little bit more about what vehicles don't, uh, qualify, but I know the model three doesn't. And I think I heard that the Ford Mustang Mach E doesn't. So we'll get to more of that. But yeah, this has been, it's been a good exercise and it's been pretty easy to find the thing.

And, uh, the, itemized portion of my tax return and to fill it out. So,

uh, so last year the tax credits were Uh, what we just described, um, I would [00:10:00] finance, let's say I was buying an EV. I would finance the amount I wanted or pay cash for whatever. And then I would get that back as a credit when I paid my taxes, but there was. Guidance towards making it a point of sale reduction starting in 2024.

Can you give us an update on that? Is that, is that, is that what's going on now? Is it a point of sale now?

Terri: you want to start with the good news. So we first said we're not, but you also want to, so I, this was it. And this is, this is important for our listeners, you know, cause we're going to give you the good news first. And that's really about this. Your tax credit can become redeemable at the point of sale.

It's a rebate. So in 2024, big news, and this is, this is the good news, which is, you know, EV buyers can give, um, can get their tech, they basically, it's called transferability, but they transfer the tax credit over to the dealer selling the EV to them, and in [00:11:00] return, the dealer can provide the equivalent amount in either cash or as a partial down payment for that vehicle.

That is just great. The other part. Super important is that it no longer really matters if you owe taxes, okay? So the tax burden, um, if it's smaller than the full amount, so say, you know, you don't have 7, 500 in tax burden and, and so you kind of reduce that, that benefit, right? But this is no longer the, the, uh, the issue because transferability, you get that onto the, um, you know, the, the dealer, right? And the IRS is not going to recapture the difference. So if I owe 3, 000, I transfer the whole 7, 500 onto my dealership, right? Um, they're not going to play this game of recapture. So it also makes the pool of eligibility maybe a little

Amy & Brandon: Yeah. That's great.

Terri: But here's the trick. So do you know how many, I, I, I looked this [00:12:00] up because I, uh, Amy gave me the questions early.

So thank you very much. So I'm like, huh. Okay. So I thought, how many dealerships? How many new car dealerships are there in the U. S.? It's like that game of jelly beans, right? 71, 309 enterprises in new car dealers in the industry in the U. S. That's, that's the number. So how many of these guys have actually registered with the IRS in order to do this tax transferability, because that's important.

Your dealership has to register to do this game.

Amy & Brandon: Wow.

Terri: 000. So right now only about 10 percent of your dealerships in the U. S. Um, currently can provide that point of sale rebate. You're

Amy & Brandon: And income limit still applies for the purchaser and how does, well, we don't have to get too deep in the weeds, but how does that process work?

Terri: Yeah. Those stick. [00:13:00] Right. So, um, when we talked last time, we're kind of waiting some more treasury guidance, but, but those still stick. So yes, you know. So, know, the things you have to know, you kind of get on the line. Do you know how much you're going to get in a tax rebate? 7,500 for a new, 4,000 for a used? Um, then you also have to make the MSRP requirement 55 on cars, SUVs, and trucks, 80,000. And then the income limits do apply, but the transferability, that's a new part. And then also the tax burden, you know, which is kind of an interesting take on, on this. So that's the good news in 2024,

Amy & Brandon: Very different.

Yeah. Is there any, anything else, um, Coming in 2024 that, that you're aware of that might be of interest to our listeners.

Terri: Oh, yeah. So what Amy's pointing out to, I think, nice is, okay, you gave us the good news. Okay, sister, [00:14:00] lay it out. Right. We set you up already. Okay. The bad news. Um, the bad news is that remember, um, we were trying to do a lot with the inflation reduction act we were trying to do. Do everything right. And part of the do everything was the made in America, uh, requirement to reshore manufacturing.

That was a big part of the administration push with this tax proposal. So yes, we want to clean, but we also want it made in the U S and it's that part, which is a bit challenging. So of the 7, 500 tax credit, you need to really think about it. They're actually two credits. Each is worth, um, 3, 750. Okay. And vehicles have to qualify for both in order for you to get the entire tax credit. So first part of the, you know, to get the 3715 qualification is that we have to make sure that the raw materials included in the battery are certain percent [00:15:00] graphite and cobalt. They need to be processed. Or in the U. S. or a trade partner listed trade part. So part of this is the dominance that China has in this this arena. You know, we want to sort of begin to see diversification. So we want either one or two things. We want international global diversification with our trading partners or have it made in America, ideally made in America. So those are the raw materials in the battery. The second part to get your 3750 is that the battery manufacturing, a certain percent of the batteries components, those are the anoids, the cathoids, the electrolytes, all of those need to be manufactured or at least assembled in North America.

And, you know, the challenge again is that how do we know, right? And there was still as of this year, there was still this uncertainty. So, right now, by my read, so last year there was about 43 [00:16:00] vehicles, um, electric or plug in hybrid variations that qualified for the tax credits. So, 43 last year, 19. This year. So it's a little leaner list, but that list changes every day. So I want to be really definitive about this. So where do you go? Where do I go? You know, I go out to the, uh, fueleconomy. gov website. So if you want to know the definitive source at the source that I'm looking at for eligible vehicles, it's, uh, fueleconomy.

gov and that's a great resource to figure out if it qualifies for both components, uh, to meet the 7, 500 tax credit. Um, and you're right. So you had mentioned now the interesting thing, it's not all. So the Tesla model three, very, very popular. In fact, Tesla accounts still for about half of all EV sold in the U S right.

So it's a big deal, but some of the model threes are no longer. They no longer qualify. The cheaper ones, the long distance, the, uh, the [00:17:00] longest, uh, um, distant vehicles, they no longer qualify. The Mustang Mach E, one of my favorites. And for a moment, like a minute in time, the Volkswagen ID. 4, that was initially dropped off the list, but it is then, you know, came back a few weeks later.

So look, look, look before you begin shopping and, you know, your heart becomes fixed on a particular vehicle

Amy & Brandon: That's good news about the Volkswagen ID4, you know, we're in Tennessee, we have Nissan Leaf is made here, the Cadillac Lyric is made here, the Volkswagen ID4 is made here,

LG is putting in a cathode plant in Clarksville, and of course, the Ford, uh, uh, big manufacturing campus that they're going to build in, in Southwest Tennessee,

Terri: Oh, yeah. Yeah.

Amy & Brandon: that's good news about Volkswagen for sure,

Terri: Oh, yeah. And I, you know, I think all of the dealership or all the manufacturers you mentioned, you know, they're, [00:18:00] they have vehicles that are on the approved list, but, you know, fueleconomy. gov is a good resource just to check because it

changes, right? And the manufacturers are scrambling, uh, to make sure, you know, that their cars actually qualify.

Amy & Brandon: Well, I think, yeah, that's, let me, let me pivot a little bit. Uh, I didn't give you a heads up on this one, but since we're talking about tax credits, uh, last year, there was a tax credit for if you installed a level two charger in your home and is that. Does that carry forward to 2024? And what things do people need to be aware of if they are filing for 2023 to harvest that?

Uh, and maybe if they're gonna get it installed in 2024, what are, what are some things they need to look for?

Okay.

Terri: Yeah. And that's a good, and I, I also [00:19:00] think, you know, as we, as we kind of broaden out the lens too, is it, you know, we, we probably should talk a little bit about, you know, Hey, that credit for buying a used EV that's also, you know, that's also in place. So if you buy a used EV, so in 2022, that means you've got to look, use means used.

So that's not, you know, that's not a 2023 that didn't get sold. Right. It does mean used. It means a model year 2022 or earlier. The tax credits were 30 percent of the sales price up to 4, 000. So that's, that's a lucrative one. Um, the tax credit has a lower income, uh, cap, as we mentioned, 150, 000 for house, um, households falling joint 7, 500 for, or 75, 000, sorry, for a single person. And that's adjusted gross income. Just to keep in mind. Um, and then also the vehicles have to cost less than 25, 000. So that's an important one. And, um, you know, if you are a business owner, this is actually really important because it impacts [00:20:00] our leasing programs. But you get a hefty credit. Uh, for a business vehicle that's an electric vehicle.

So there's a separate commercial tax credit for EVs. It provides 7, 500 for light vehicles, 40, 000 for larger vehicles like delivery trucks, and there are fewer restrictions in place. So that's, that's something to kind of keep in mind, uh, for your particular question is when we think about, you know, the tax incentives, um, you know, tax incentives for, um, you know, charging equipment, you know, that still stays.

So, um, I was just, there was a. You know, I was taking a look at, um, and I, I recalled seeing this, there was one particular, like, I was like, I knew he's going to ask this particular question. So something, something you need to know. So, you know, a couple of things is that remember that, you know, the tax credit is 30 percent of the hardware or installation cost, a maximum of a thousand dollars. [00:21:00] Um, and so, you know, That's a really, really important. There's, you know, kind of qualifying to take advantage. Once again, that's under the Inflation Reduction Act as well. Um, So, but, you know, there's businesses that are doing this need to make that labor and construction requirement. That's, that's going to be important.

But yes, that's still eligible. So it's an important one. As we think about our EV chargers and home equipment, you know, that's, that's a good one to kind of think about. There are, um, You know, we used to be kind of capped on energy efficiency and the Inflation Reduction Act has really opened up. So folks that are installing, uh, energy efficient equipment, EV chargers at home, I really, really think go back, take a look because it's not a one time deal. We are really incentive in, in trying to incentivize, um, you know, more efficiency. So looking at your windows, your, your insulation, all of these, uh, are, are simply much better tax credits. [00:22:00] So I love that you opened the

Amy & Brandon: Well,

you know, I know that we're even looking at, uh, some chargers that, uh, we might actually qualify for some credits because even though we're not for profit, the chargers we're going to put in are,

uh, in a disadvantaged community as defined by DOE. So we're exploring some of that and how that works. So, but if you're a business and you're going to add fleet vehicles or you're going to add charging, and let's say you're a nonprofit.

Or maybe a city entity. What kind of tax benefits should they be aware of?

Terri: You know, guys, think of, remember when I said if you don't have the tax burden and that was an important distinction on those rebates, right? That's really, really important. Um, there's also, you know, I, I would also, Um, as I mentioned, so part of it is working with those qualified, uh, dealerships and, and looking at [00:23:00] transferability because you may not have to have that tax burden.

That's important. The other part is leasing, leasing, um, because there are simply less restrictions. I, you know, I thought leasing might have a problem because all of a sudden you've got this point of sale, you know, rebate. To be honest with you, there, there seems to be kind of a, an evolving area. We're seeing a lot more EV leases, and this looks like it's getting a second, you know, second wind, um, because there are simply less restrictions.

Uh, and the nice part too, is it, uh, for the folks that are leasing you the, the equipment, the, the vehicles, you know, um, some of the burden will be on them in terms of making sure, uh, that. You know, that you qualify under these, you know, the evolving qualifications that we

have from the U. S. Treasury.

Amy & Brandon: So in in general, um, I think I think we've covered is there any more tax? Questions we have ,

I'm gonna have to just play this on repeat too.

I know, I know. It's always [00:24:00] so much information when we talk with you. Um, but is there anything, um, down the pike, any new EV information in general? It maybe about taxes, maybe just about the industry as a whole that you think, uh, our list, our listeners would wanna know about?

Yeah,

Terri: You know, absolutely. So I, I think, um, one of the biggest issues is that, you know, at least from, you know, from the sense of, you know, you're hearing a lot of headlines, um, that all of a sudden electric vehicles are on this sort of rocky ground and we're, oh, right, you're, you're hearing this. And what's, what's reality? And I think round is really, really important. Uh, there were a million electric vehicles sold in the U. S. last year. On average, we sell about 15 million new car, new cars. So the number of a, you know, the rate of adoption. Has accelerated past any expectations. So if you look at my own work at CoBank, [00:25:00] you know, I try to put a number on how many new vehicles are going to be electric.

And I try to keep that number. And, and every time I'm surprised by the numbers, but you are having a moment, um, which is, um. You know, I think in terms of electric vehicles, there are simply there's there is more inventory at the dealerships and that is actually good news for the buyer compared to internal combustion engines. And a lot of that was just because we had this point that we just could not keep up. With the EV buying, manufacturers do what manufacturers do, right? Which is respond to the market signals. And in this case, we might've had an over response to the market signals. Um, so you're hearing this, you're also hearing news about Hertz, for example, selling about a third of its electric vehicle fleet, but you know, that's not about the car experience.

That's about charging. And there is discussion around the fact that, hey, you know, this is an industry, so California is looking very [00:26:00] seriously at these public chargers and saying, you know, this is an area that we might need regulation to step in. We've got to have, you know, we've got to have that, um, I have to be assured that when I pull up to a charger, it is, is going to be working, right, and I can recharge my car.

I can't afford to get stranded. And if you're renting a car, you know, those concerns kind of pile on. So I, I don't think it's a pause. I actually do think that a lot of, uh, you know, a lot of folks, I think there's a greater amount of the population that's actually thinking about electric vehicles, but I do think you're going to have this, you know, the, the market, uh, manufacturers try to respond, they over respond.

That's what you're sealing, seeing in terms of the inventory at dealerships at the moment. That's good news for buyers. Um, and I also think that, you know, we are now taking a very sharp look at recharging. So I love when you talked about, you know, Brandon, you mentioned taking a look at your community rechargers and how important that is to make sure as a trusted advisor, you [00:27:00] know, trusted resource that they work, they're there and your community can take advantage.

So these are all issues we're kind of thinking about.

Amy & Brandon: well, thank you so much, Teri. As always, um, you just know so much like how you can just say all that and you don't have to have your notes in front of you. I'm always so amazed when when we interview you. I was like, how do you know all of that stuff in your head? But it's always great to talk with you.

And thank you so much for being with us today. And I'm quite sure we will circle back around with you. This time next year. I think this needs to be an annual thing because you, you are the one in the know, so we really appreciate you taking the time to be with us today.

Terri: That sounds great. Hey, I appreciate it. And, uh, I know Brendan, you've got some early spring fever. I know with the allergies there. So, you know, I appreciate you, uh, you both and for your listeners, you know, I, I think there's a lot to be excited about with the tax [00:28:00] season. So don't, you know, don't, don't fear the, don't fear the tax reaper.

We're, we're

Amy & Brandon: Good advice.

Good advice. Well, thanks to everyone for listening today. If you have any questions about MTE's EV Ready program, night flex rate, or anything EV related, email us. At ev car club@mte.com. For more information on MTS Drive, EV programs, or the EV car club, please visit drive ev.com or email us at ev car club@mt.com.

Until next time, plug in Power up and drive safe.