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Editor: Paul L. Caron, Dean
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Tuesday, October 13, 2015

Tesla Model X Buyers Get $35,000 Tax Break

Model XLos Angeles Times, Tesla Model X Buyers Could Get $25,000 Tax Break:

Take heart, prospective Tesla buyers alarmed by the probable $100,000-plus price tag for the company's new Model X: You may qualify for a $25,000 tax break.

Tesla has confirmed reports that the falcon-winged all-electric SUV, because of its gross vehicular weight, may qualify for a federal tax break designed for heavy equipment. 

The tax break was originally intended to encourage farmers to invest in their businesses by spending more freely on equipment. A weight of 6,000 pounds was set as the limit. Vehicles weighing less, which includes most passenger cars and many light trucks, did not qualify.

As an apparently unintended consequence, though, Section 179 of the IRS code also applied to certain automobiles, most notably the enormous Hummer vehicles sold by General Motors.

The Hummer H1s and H2s weighed more than 6,000 pounds. A new Model X is said to weigh about 5,500 pounds, unladen. Its so-called "gross vehicular weight" would likely be over 6,000 pounds -- and qualify it for the tax break.

The $25,000 windfall, available only to buyers who own businesses and are making the automobile purchase as a business investment, would be in addition to other official incentives. Tesla's Model X, as a non-polluting, zero-emissions, battery-electric vehicle, also qualifies for a $7,500 federal tax deduction and a $2,500 California state rebate.

Tesla is particularly adept at using subsidies to market its cars, noting that the tax credits and state rebates help reduce the cost of ownership.

For a list of the first six owners of the Model X, see here.

Severin Borenstein (UC-Berkeley) & Lucas Davis (UC-Berkeley), The Distributional Effects of U.S. Clean Energy Tax Credits (NBER Working Paper No. 21437):

Since 2006, U.S. households have received more than $18 billion in federal income tax credits for weatherizing their homes, installing solar panels, buying hybrid and electric vehicles, and other "clean energy" investments. We use tax return data to examine the socioeconomic characteristics of program recipients. We find that these tax expenditures have gone predominantly to higher-income Americans. The bottom three income quintiles have received about 10% of all credits, while the top quintile has received about 60%. The most extreme is the program aimed at electric vehicles, where we find that the top income quintile has received about 90% of all credits. By comparing to previous work on the distributional consequences of pricing greenhouse gas emissions, we conclude that tax credits are likely to be much less attractive on distributional grounds than market mechanisms to reduce GHGs.

Figure C

Table 2B

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Comments

The article suggests that sec 179 is only available for vehicles that weigh more than 6,000 pounds. Can anyone point me to the authority that forms the basis for this suggestion?

Posted by: Theodore Seto | Oct 13, 2015 1:20:18 PM

Google is your friend, Ted. https://www.irs.gov/instructions/i4562/ch02.html#d0e3005, and then search for 6,000 at said link.

Posted by: Unemployed Northeastern | Oct 13, 2015 2:08:09 PM

The "sport utility vehicle" provision in sec. 179 is limited to "4-wheeled vehicles" that are "not subject to section 280F." Sec. 179(b)(5)(B)(i)(II). Section 280F applies to "any 4-wheeled vehicle" that is "rated at 6,000 pounds . . . or less." Sec. 280F(d)(5)(A)(ii). Thus, the SUV "tax break" applies only to vehicles weighing more than 6,000 pounds. BTW, the "tax break" this article touts is a deduction rather than a tax credit and is therefore worth much less than $25,000.

Posted by: Richard Kaplan | Oct 13, 2015 2:09:09 PM