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Pre-pay loan using tax credit?

Discussion in 'Reserving, Ordering, Production, Delivery' started by umdirector, Aug 7, 2017.

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  1. umdirector

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    Has anyone used their S tax credit in conjunction with a loan from Tesla? I know some lenders do not want you to pre-pay your principal. Has that been anyones experience with Tesla? I would ideally like to use the $7500 to reduce my payment, but would accept it shortening my loan length, but that doesn't work either if I can't apply it to the principal.

    Anyone have any better strategies? I could loan myself the money and replace it with the tax refund but that's a lot of money to commit to a year plus waiting on the tax credit (i.e. buy the car in Jan but wouldn't get tax credit until probably April of the following year once taxes are filed)

    Thoughts?
     
  2. SoFlaModel3

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    I am not a financial planner, but with interest rates running from .99% - 1.99% why would you prepay it? Use the money to make higher yielding returns. It's so close to free money at this point...
     
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    • Model34mePlease

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      Because it is a non-refundable tax credit, I don't know how that would work. It is not a rebate that you could assign to Tesla.
       
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      • MelindaV

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        I could be wrong, but think what @umdirector is asking is if the Tesla auto loan has an early payment penalty or if one could drop the $7500 tax credit, once refunded from the Feds, back into the auto loan to reduce the outstanding principal thats accumulating interest. correct me if I'm wrong umdirector.
         
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        • JWardell

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          You can always pay extra on your loan. It will not change your monthly payments or total amount paid, but will knock several months off the end of your payments.
           
        • Badback

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          A prepayment will reduce the total interest paid, so the total payed will be less.
          Interest each month is based on the remaining balance.
           
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          • Lean69

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            #7 Lean69, Aug 8, 2017
            Last edited: Aug 8, 2017
            Since as far as I know there is no "Tesla Financial Services" and they outsource mainly with Allied Credit and USBank, your best bet is to find out at signing if there is early payoff fee and so on...

            As far as your Tax refund question, your second paragraph pretty much answers it. There for my advise would be to not count on that money at all as far as making any decisions. That way once you get it, it'll be a nice lil bonus and THEN you'll decide what to do with it.

            BUT DO NOT make moves and plan your life around the Tax Credit...
             
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            • SoFlaModel3

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              I have a better answer for you after rereading your post and getting a better understanding for your question.

              1. If you get your car in January 2018, you do not get the $7,500 as a tax refund in April 2018 as your return filed in 2018 is for your 2017 tax year (so be mindful of that)
              2. You cannot use the tax credit up front to reduce your loan amount (in other words it cannot be your down payment) because you cannot collect the money until you have registered the car
              3. A strategy -- say you get the car in January and that qualifies you for the $7,500 credit. Say you get paid bi-weekly. Just divide $7,500 by the remaining paychecks you will receive in 2018 and adjust your withholdings to take home extra money. You can then reduce your monthly payment by making extra principal payments throughout 2018. Now when 2019 rolls around though you're back to the original monthly payment amount and the only difference it's that you've knocked off a good chunk of the remaining term on the loan
               
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              • Watts4me

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                So I could adjust my withholding to qualify for the 7500. Can I, let's say add 4 kids my W-2 get the extra income and at the end of the year claim none. I then would most likely owe and then use my tax credit?
                 
              • SoFlaModel3

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                Talk to your HR where you work. We use ADP and it gives me the ability to go and set a specific amount to withhold on each paycheck, so it's not a guess... $7,500 / 26 = $288.46

                If my car doesn't arrive in November or December of this year, I will adjust my withholding starting with the first paycheck in January.

                When you file your taxes at the end of the year you will still "claim the credit", but you've paid less in taxes through each paycheck so now you've effectively collected the credit through equal disbursements throughout the year.
                 
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                • MelindaV

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                  And before you do that, be damn sure you know you qualify for the full $7500 and don’t just assume you do and come up short/surprised when you go to file taxes a year later.
                   
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                  • Keydiver

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                    No, that's not they way it works. Adding more withholding does not increase your tax burden. It only increases your refund. To get the full $7500 tax credit, you need to have a tax liability (line 44 or 63 on my 2016 1040) that is greater than $7500. This item comes before you deduct withheld payments on the 1040 (line 74). Look at your 1040 from last year to see if your tax liability after deductions, line 63, was greater than $7500. If your income and deductions haven't changed much from last year, you should get it.
                     
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                    • SoFlaModel3

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                      That's not what I was instructing and I don't believe that's how @Watts4me took it.

                      My point was that if you have the tax liability to achieve the $7,500 then you can take it evenly throughout the year by adjusting your withholdings.
                       
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                      • Keydiver

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                        That's not what Watts4me said, "So I could adjust my withholding to qualify for the 7500." You can't adjust your withholding to QUALIFY. But, yes, you can adjust your withholding so you don't have to wait until the next April 15 to get your refund. When I bought my S70D in September 2015, I just subtracted $7500 from my quarterly estimated payment.
                         
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                        • SoFlaModel3

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                          Hey good point and good catch. I hope no one else took what I said that way.
                           
                        • Watts4me

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                          What qualifies as a tax liability?
                           
                        • SoFlaModel3

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                          Disclaimer: I am not a tax professional, but this simplified example should help make sense of it for you.

                          Let's say you're single and you make $60,000/year salary and have $10,000 worth of deductions.

                          You're in the 25% tax bracket. You owe $5,226.25 plus 25% of the excess over $37,950, which is...

                          5,226.25 + (60,000 - 37,950 - 10,000) x 25% = $8,238.75

                          So you have a tax liability of $8,238.75 and will get the full $7,500 credit.

                          Let's say you're married filing jointly and have a combined income of $75,000 and have $14,000 in deductions.

                          You're in the 15% tax bracket. You owe $1,865 plus 15% of the excess over $18,650, which is...

                          1,865 + (75,000 - 18,650 - 14,000) x 15% = $8,217.50

                          So you have a tax liability of $8,217.50 and will get the full $7,500 credit.

                          Essentially your tax liability is what you owe after all deductions. It must be greater than $7,500 otherwise the credit maxes out at your tax liability. In other words if your tax liability was $6,000, then your federal tax credit maxes out at $6,000 and the lost $1,500 cannot be carried over to the next tax year. Adjusting your withholdings will NOT change your tax liability, but rather simply allows you to take home more money and have less paid out in taxes. This is a good strategy when you have something like a credit coming as you're not giving me government an interest free loan.
                           
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                          • garsh

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                            Here's another way to think of it.

                            Take a look at your paycheck statements for the year.
                            Each one should have a line titled "Federal Income Tax".
                            Add all of those up. That's how much you give to the government out of each paycheck.

                            Most people end up paying too much out of their paychecks. So when you "do your taxes", you get a "refund". Your tax liability is:

                            (everything you paid) - (the refund you received).​
                             
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                            • Watts4me

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                              I like to get a refund at the end of the year. So I give an additional amount out of my check to taxes. But the tax person also tells me I don't have enough tax liability to use my home interest deducted. I'm I doing something wrong?
                               
                            • Matthew Morgan

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                              You have to hit a certain level of deductions before you can itemize your taxes and factor in your home interest. In your case, your tax person is saying the standard deduction gets you more than the itemized deduction.

                              I would double check with another tax person though. Once I got a house, I always qualified for itemized deductions but that's my personal situation.

                              "Everybody has to pay taxes, but that doesn't mean you gotta leave the government a tip"
                               
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