Physicians! Don’t Miss Out on the $7,500 EV Credit – Here’s How to Qualify.
Two Smart Strategies to Claim the $7,500 EV Credit—Even With a High Income
Are you thinking about buying a Tesla and claiming the $7,500 federal EV tax credit?
Unfortunately, many full-time physicians won’t qualify for the credit because their income is too high.
If you earn more than $300,000, you likely won’t qualify for the EV credit. But don’t worry—I’ll share two strategies that may help you claim it.
Understanding the EV Credit
The EV tax credit for individuals is found in Internal Revenue Code (IRC) §30D. Here’s a quick summary of the key eligibility requirements:
If your modified AGI is below $300,000 (for married filing jointly), you may qualify for the full $7,500 EV credit.
But, if your modified AGI is $300,000 or higher, you do not qualify for any credit due to the cliff provision. So, if your MAGI is $300,001, you get zero EV credit, no matter what.
If you file as a single taxpayer, your modified AGI limit is $150,000. That’s way too low, I know. For single physicians, see Strategy 2 below.
How is modified AGI calculated?
Modified AGI (MAGI) is a variation of Adjusted Gross Income (AGI), and its definition varies depending on the tax code section to which it applies.
MAGI for the EV credit = Adjusted Gross Income (AGI) + foreign earned income exclusion + foreign housing exclusion/deduction.
For most U.S. physicians, MAGI would be the same as AGI since foreign-related exclusions and deductions typically won’t apply.
See my article for more details on AGI.
Strategy 1: Lower Your Modified AGI
If your current year’s mAGI is expected to exceed $300,000 (for married filing jointly physicians), you may still qualify using last year’s MAGI, as long as it was below $300,000.
If both last year’s and this year’s mAGI exceed $300,000, you still have options:
For Business Owners:
Use various strategies to create business deductions or lower taxable income:
Prepay next year’s expenses this year.
Use accelerated depreciation strategies, such as Bonus Depreciation or Section 179 deduction.
Delay sending out invoices (if possible) to push income into the following year.
Spend on necessary repairs or maintenance to create deductible expenses and reduce mAGI.
For W-2 Earners:
Since W-2 earners have limited ways to lower mAGI, one option is investing in tax-advantaged vehicles, such as oil and gas investments, where intangible drilling costs (IDC) provide above-the-line deductions that reduce mAGI.
Example: Lowering MAGI With Oil & Gas Investment
Scenario: A W-2 physician (married filing jointly with two kids) earns $440,000 and wants to qualify for the $7,500 EV credit.
Since W-2 employees have no business deductions and limited options for adjustment deductions, their mAGI equals their AGI, which is $440,000.
Solution: The physician invests $200,000 in oil and gas. Assume that 85% ($170000) of this investment is allocated to IDC (intangible drilling costs), and 90% of IDC is deductible, creating an adjustment deduction that lowers MAGI.
Calculation:
Intangible Drilling Costs deduction: $170000 × 90% = $153,000.
New mAGI: $440,000 – $153,000 = $287,000
Now eligible for the $7,500 EV tax credit!
Bonus: Since MAGI is now below $400,000, they also qualify for an additional $4,000 in child tax credits ($2000 per child) —all thanks to their investment in oil and gas!
Proper tax planning not only generates the $7,500 EV credit but also provides additional tax benefits like child tax credits!
Strategy 2: Buy the EV Through a Business
If your mAGI exceeds $300,000 (Married Filing Joint) or $150,000 (single) for both this year and last year, there is still another option - but it applies only to business owners.
Instead of claiming the EV credit under Internal Revenue Code §30D, business owners can purchase the vehicle through their business and claim the credit under Internal Revenue Code §45W (Commercial Clean Vehicle Credit).
Key Advantages of the Business EV Credit (IRC §45W)
No income limitation – Even if your business makes $100 billion (cue Dr. Evil’s voice), you still qualify for the $7,500 EV credit!
Bonus: some heavy vehicles (over 14000 lb) may qualify for a $40,000 EV credit under the Commercial Clean Vehicle Credit!
Caution: Business Use Requirement and more
To qualify for the full $7,500 credit, the vehicle must be used 100% for business purposes.
If there is any personal use, the personal use portion of the credit must be added back as taxable income.
After claiming the credit, the vehicle’s basis (purchase price for depreciation) must be reduced accordingly.
Final Thought
If you want to buy a Tesla (or any other eligible EV) and claim the $7,500 EV tax credit, you have two main strategies:
Lower your modified AGI below $300,000 by creating adjustment deductions, such as investments in oil and gas. This may also qualify you for other tax credits, like the Child Tax Credit.
Purchase the EV through your business and claim the IRC §45W commercial vehicle credit, which has no income limits.
Big companies like Amazon use tax planning strategies every day - especially complex research tax credits - to legally minimize their tax bills.
Take advantage of smart tax planning and keep more of your money—just like Amazon!
Disclaimers: click here