The IRS has announced Tesla, Inc. has sold more than 200,000 vehicles eligible for the plug-in electric drive motor vehicle credit under Code Sec.30D(a) during the third quarter of 2018. As a result, a phase out of the tax credit available for purchasers of new Tesla plug-in electric vehicles is triggered beginning Jan. 1, 2019.

Code Sec. 30D(a) provides for a credit for certain new qualified plug-in electric drive motor vehicles. This credit begins to phase out for a manufacturer’s vehicles in the second calendar quarter after the calendar quarter in which at least 200,000 of the manufacturer’s vehicles that qualify for the credit have been sold for use or lease in the U.S. (determined on a cumulative basis for sales after Dec. 31, 2009). Taxpayers purchasing the manufacturer’s vehicles during the first two calendar quarters of the phase-out period may claim 50% of the otherwise allowable credit. Taxpayers purchasing the manufacturer’s vehicles during the third and fourth calendar quarters of the phase-out period may claim 25% of the otherwise allowable credit. No credit is available for vehicles purchased after the last day of the fourth calendar quarter of the phase-out period.

In accordance with Notice 2009-89, 2009-48 IRB 714, Tesla, Inc. has submitted reports that indicate that its cumulative sales of qualified vehicles reached the 200,000-vehicle limit during the calendar quarter ending Sept. 30, 2018. Accordingly, the credit for all new qualified plug-in electric drive motor vehicles sold by Tesla, Inc. will begin to phase out Jan. 1, 2019.

Notice 2018-96 provides that qualifying vehicles from Tesla, Inc. purchased for use or lease are eligible for a $7,500 credit if acquired before Jan. 1, 2019. Beginning Jan. 1, 2019, the credit will be $3,750 for Tesla’s eligible vehicles. On July 1, 2019, the credit will be reduced to $1,875 for the remainder of the year. After Dec. 31, 2019, no credit will be available.

For any questions regarding this and other tax credits, contact your Somerset Advisor.