Personal Finance

Clean Vehicle Tax Credits 2023: Guide for New & Used EVs and FCVs Tax Credits

Eligibility for Clean Vehicle Tax Credit in 2023 and Beyond

If you purchase a new plug-in electric vehicle (EV) or fuel cell vehicle (FCV) in 2023 or later, you could qualify for a clean vehicle tax credit. The following summary does not address every situation and the limitations described below are complex so please consult your tax advisor to see if you qualify.

Who Qualifies for the New Vehicle Credit

To be eligible for a credit of up to $7,500 under Internal Revenue Code Section 30D for a new, qualified plug-in EV or FCV, you must:

Purchase the vehicle for personal use, not resale
Primarily use it within the U.S.

Moreover, your modified adjusted gross income (AGI) must not exceed:

$300,000 for married couples filing jointly
$225,000 for heads of households
$150,000 for all other filers

The Inflation Reduction Act of 2022 has amended the eligibility for this credit for vehicles bought from 2023 to 2032.

Credit Amount for New Vehicles

The credit amount for new vehicles is based on when you took delivery of the vehicle, regardless of purchase date.

For vehicles in service from January 1 to April 17, 2023, the credit consists of:

A base amount of $2,500
An additional $417 for vehicles with at least 7 kWh of battery capacity
A further $417 for each kilowatt-hour of battery capacity over 5 kWh
The total credit can reach up to $7,500

Vehicles placed in service from April 18, 2023, must meet new critical mineral and battery component requirements. The credit for these vehicles can be:

$3,750 if the vehicle meets only the critical minerals requirement
$3,750 if the vehicle meets only the battery components requirement
$7,500 if the vehicle meets both requirements

Eligibility for Used Clean Vehicle Tax Credit in 2023 and Beyond

From January 1, 2023, if you purchase a qualified used electric vehicle (EV) or fuel cell vehicle (FCV) from a licensed dealer for $25,000 or less, you could be eligible for a used clean vehicle tax credit. This credit amounts to 30% of the sale price, up to a maximum credit of $4,000.

Who Qualifies for the Used Vehicle Credit

To qualify for a credit for purchasing a used, qualified plug-in EV or FCV under Internal Revenue Code Section 25E, you must:

Be an individual who bought the vehicle for personal use, not for resale
Not be the original owner
Not be claimed as a dependent on another person’s tax return
Not have claimed another used clean vehicle tax credit within the three years prior to the purchase date

Moreover, your modified adjusted gross income (AGI) for the used vehicle credit must not exceed:

$150,000 for married couples filing jointly or a surviving spouse
$112,500 for heads of households
$75,000 for all other filers

Qualified Vehicles and Sales

A qualifying vehicle for either credit must:

Have a battery capacity of at least 7 kWh
Have a gross vehicle weight rating under 14,000 pounds
Be manufactured by a qualified company

For the used vehicle credit, the vehicle must also:

Have a sale price of $25,000 or less
Be a model that is at least two years older than the year of purchase
Not have been transferred to a qualified buyer after August 16, 2022
Be purchased from a dealer

How to Claim the Credit

To claim either the new or used clean vehicle credit, complete Form 8936, Qualified Plug-in Electric Drive Motor Vehicle Credit, and file it with your tax return for the year you took possession of the vehicle. You will need to include the vehicle identification number (VIN) on the form.

Contact CMR Associates today for more information on income tax credits and for tax preparation services or visit IRS.gov for additional information on these specific credits.

Tax Benefits of Real Estate Investing

This blog post was written by Charles Renwick and published by Quicken.

Everyone knows that planning for retirement and investing go hand-in-hand. However, as I’ve written previously, smart planning also considers both the current and long-term tax implications of your investment decisions.

We often talk about 401(k) and Roth IRA tax strategies (and these are great strategies) — however, we must be careful not to overlook the long-term investment prospects and tax benefits associated with real estate investing.

Real estate investing not only offers the potential for appreciation, regular income through rent, and the ability to multiply gains through financial leverage, but of course, it also offers compelling tax benefits!

First, a few caveats about real estate investing

Real estate investing is not necessarily easy, and economic returns are never a sure thing. Also, navigating the intricacies of tax codes and regulations can be intimidating, especially when you’re first getting started. However, compared to most other tax strategies, the majority of the tax benefits associated with real estate investing are not overwhelmingly complex.

While I always recommend you seek individual professional advice, I’ll outline a few of the basic real estate investing tax benefits here in the hope that you can use them to maximize your returns.

Tax benefits of real estate investing

1. Real estate depreciation

As you may have heard, depreciation is a significant tax benefit for real estate investors. But how does depreciation work exactly?

The IRS acknowledges that properties degrade over time and allows investors to deduct a portion of the cost of the property over its “useful life.” For real estate investors, these deductions can really add up.

This might seem obvious, but consider the implications and the benefits.

Primarily, consider the fact that depreciation is a non-cash deduction. This means that you can use the deduction to offset cash income, effectively resulting in tax-free cash income. This is almost as good as it gets in the world of tax benefits.

The deduction becomes even more compelling when you consider that there is no parallel for it in stock market investments. With those investments, you must wait until you sell the investment to take a deduction for the investment cost.

While it is true that maximizing depreciation can be a complex process, the basic concept and the general deduction are not complicated, and you can use this strategy to significantly increase your return on investment.

2. Real estate capital gains tax treatment

Our current tax code is designed not only to fund our national government but also to incentivize behavior. For example, the government wants to encourage long-term investing and has created a system that allows long-term investors to pay less tax!

For real estate investing, understanding this two pronged approach can pay real dividends, especially when it comes to gains on the sale of your investment.

Again, this is not complicated. The profit from selling a property at a higher price than you paid for it is considered capital gains, and if you hold the property for more than a year, these gains are generally either not taxed or taxed at lower long-term capital gains rates. This tax benefit is known as the “Long-Term Capital Gains Tax Benefit.”

Although this benefit is also available for other types of investments (for example, the stock market), this is considerably different than the tax consequences of a 401(k) investment, for example. While all gains on a 401(k) investment are deferred until retirement, the tax rate at retirement is the higher ordinary income tax rate — no matter how long you held those investments.

Best of all, real estate is a natural fit for the long-term capital gains tax benefit, especially if you intend to hold the property and rent it out for a number of years.

3. Business tax deductions for owners of real estate

Owning rental real estate is not only an investment but also a business. This seems obvious, but this concept has real tax-saving implications.

Specifically, because your investment is also a business, you are allowed to deduct ordinary and necessary business expenses associated with your real estatement investment. This means that lots of expenses you might otherwise pay anyway are now tax deductions!

For example, because you need a cell phone to manage your real estate investment, you are entitled to a tax deduction for a portion of the expenses associated with your cell phone — it is an ordinary and necessary business expense.

While there are hundreds of other expenses real estate investors can validly deduct, property taxes and mortgage insurance are the most obvious. These business deductions add up and can result in big tax savings for real estate investors. This is especially compelling because there is no similar concept or deductions available with stock market and 401(k) investing.

Conclusion:

The tax advantages of real estate investing are plentiful and can significantly enhance the profitability of your investments, helping you meet your retirement savings goals.

As with all things related to money, investing, and tax, it is critical to keep good records. Quicken is a great way to keep all of your records clean and organized.

This is especially important when it comes to real estate investing because the extra deductions available to those who keep good records are truly compelling.

As always, I recommend professional advise and assistance because tax laws are complex and frequently change. However, many of the overall tax benefits are obvious and easily accessible to all, so do not be afraid to ask questions and take the next step.

Remember, every investor’s situation is different, so the benefits you enjoy may vary. Nonetheless, understanding the tax benefits associated with real estate investing is an essential first step toward maximizing your investment returns and reaching your retirement goals through real estate investing.

Thriving in the Remote Work Era: Harnessing the Benefits and Managing Staff Productivity

In our increasingly digitized world, the concept of work has evolved. The traditional image of workers seated at their desks in an office from nine to five has been shaken to its core. The rise of remote work, catalyzed by various factors such as technological advances and recent global events, has brought about a revolution in how we perceive and perform work.

However, remote work is not just a temporary shift; it’s an enduring trend. It comes with a host of benefits for both employees and employers but requires unique strategies to effectively manage staff productivity. Let’s delve into these aspects further.

Benefits of Remote Work

Increased Flexibility: One of the most prominent benefits of remote work is the flexibility it offers. Workers have the freedom to set their own schedules, allowing for a better work-life balance.
Improved Productivity: With fewer office distractions and the convenience of designing their own work environment, many remote workers report higher productivity levels.
Expanded Talent Pool: Companies are no longer limited by geographic boundaries. They can hire the best talent regardless of where they are located, leading to more diverse and skilled teams.
Cost Savings: With no need for office space, companies can save on rent, utilities, and maintenance. Employees also save on commuting costs and time.
Reduced Carbon Footprint: Without daily commutes, carbon emissions are significantly reduced, contributing to environmental sustainability.

Managing Staff Productivity in a Remote Setting

While remote work offers immense benefits, it requires effective strategies to ensure productivity and maintain team cohesiveness. Here are some best practices:

Establish Clear Communication Channels: Effective communication is vital in a remote setup. Use collaboration tools and establish protocols for daily check-ins and regular team meetings.
Set Expectations: Clearly outline job responsibilities, project deadlines, and expectations. This helps employees understand what’s expected and helps them manage their workload.
Promote a Results-Oriented Work Environment: Instead of focusing on hours worked, focus on output. This approach not only respects the flexible nature of remote work but also promotes accountability.
Invest in Technology: Provide employees with the necessary tools and technologies to carry out their work effectively. This includes reliable internet access, collaboration tools, and cybersecurity measures.
Support Employee Well-being: Remote work can blur the line between personal and professional life, leading to potential burnout. Encourage employees to take breaks, establish a regular work schedule, and provide mental health resources if needed.
Provide Regular Feedback: A system for regular feedback and recognition helps to keep remote employees motivated and engaged.
Foster a Strong Company Culture: Even without a physical office, it’s crucial to maintain a strong company culture. Regular team-building activities, virtual meetups, and creating a sense of shared purpose can help in building a cohesive remote team.

The shift to remote work is not without its challenges, but with the right strategies and an openness to evolving work dynamics, it can lead to significant advantages. As we move forward, companies embracing remote work will likely find themselves at the forefront of innovation, employee satisfaction, and overall productivity.

What Silicon Valley Bank’s Failure Can Teach Us about Personal Financial Planning

On March 10, 2023, Silicon Valley Bank (SVB) failed. This was the second largest bank failure in American history. SVB primarily served tech industry start-ups and they were widely considered an important part of our nation’s banking sector. The failure of SVB is likely due to many causes and events but the underlying cause is simple: They did not have money when they needed it.

Cash flow and personal financial planning

This is intriguingly simple but also confusing. To help explain, I like to provide an analogy between prudent bank management and prudent individual financial planning. The analogy is instructive for both understanding bank failures and also understanding what you can do to improve your personal financial security.

When most people think of bank failure, they usually think of unqualified borrows or risky derivatives. This is certainly one way a bank fails, but there is another, more basic threat to any bank’s operations. Specifically, investment timelines must match needed-use timelines. Banks should not invest in long-term assets if they need or might need the money in the near term. This is called liquidity planning or asset-liability management.

In other words, it comes down to cash flow and timing. Cash needs to be available when you need it.

The importance of asset-liability management

The same holds true for individuals. We need to plan and adjust our use of money and our investment decisions based not only on how much we are going to spend but also on when we plan to spend it.

If we know we need money in six months because we plan on buying a house and a house purchase requires a down payment, it would be unwise to put the down payment money into risky long-term investments, like the stock market. While the stock market is a great long-term investment, it might lose value in the near term.

Most people understand that even if an investment is a good investment over the long term, the short term is very volatile and a prudent person would not risk the down payment for their house on a long-term stock investment. Similarly, as it relates to retirement planning, the closer you get to retirement, the less risk you can afford to take with your retirement nest egg and the less you should have invested in long-term investments like the stock market.

Long-term investments vs short-term needs

While there were other factors at play and there is still a lot we do not know, unfortunately, lack of liquidity planning and poor asset-liability management appear to be the main causes of the SVB bank failure. SVB needed money but the money they needed was invested in long-term investments.

For the same reasons you do not invest your new home down payment in long-term investments, banks should also not invest liquidity needed to cover deposit withdrawals in long-term investments, but this is what SVB appears to have done. Then, when SVB needed the money, they were forced to sell their long-term investments at a loss and they did not have the money needed to survive.

The problem of risk in liquidity planning

Some people might argue that these situations are not analogous because no one can predict a “run on the bank,” and banks should invest for the long-term. However, not all banks are created equal, just like not all individuals have the same financial situation or job security.

SVB had a concentration of deposits from risky tech-sector start-ups. They should have known that these deposits were less stable than traditional banks. Therefore, they should have been more conservative with their liquidity planning. Similarly, as individuals, prudent financial planning includes exercising financial discipline and saving an emergency reserve of cash that is sufficient to weather a storm, especially if you have a risky job.