Cost basis of sold vehicle with EV tax credit

[RickBoglehead]

Selling cars for profit, the new norm (in 2022) that's no longer the norm in 2023...

Question - does the EV tax credit reduce the cost basis of personal vehicle for computing taxable gain?

Question - in the lists of included and not included, any that are in the wrong section?

Facts:

Bought EV in 2021 (timing should not matter).
Took $7,500 tax credit on 2021 return.
Sold EV in 2022 (>1 year after purchase). Made a profit (first time in 40+ years of owning vehicles).

Included in cost of car for computing taxable gain:

Price paid
Sales Tax
Accessories added to car that could not be removed
Car damaged, out of pocket cost to repair it
Cost to advertise it for sale

Not included in cost of car for computing taxable gain:

Interest paid on loan payments
Title
Registration
License fee (EV fee)
Electronic registration fee
Cost of automobile insurance


Up in the air to include for computing taxable gain:

EV tax credit taken on tax return

Thinking that the tax credit does NOT reduce the cost basis, because recapture of the tax credit, which WAS part of the old rules, was repealed several years back. If the intent was to reduce the cost basis, it would be explicitly stated, which it isn't.

[toddthebod]

Thinking that the tax credit does NOT reduce the cost basis, because recapture of the tax credit, which WAS part of the old rules, was repealed several years back. If the intent was to reduce the cost basis, it would be explicitly stated, which it isn't.

From the Form 8936 instructions:

Basis Reduction

Unless you elect not to claim the credit, you may have to reduce the basis of each vehicle by the sum of the amounts entered on lines 11 and 18 for that vehicle.

[RickBoglehead]

Thinking that the tax credit does NOT reduce the cost basis, because recapture of the tax credit, which WAS part of the old rules, was repealed several years back. If the intent was to reduce the cost basis, it would be explicitly stated, which it isn't.

From the Form 8936 instructions:

Basis Reduction

Unless you elect not to claim the credit, you may have to reduce the basis of each vehicle by the sum of the amounts entered on lines 11 and 18 for that vehicle.

Says "MAY". Couldn't that be if you split use between business and personal? Wouldn't it spell out "if you sell the vehicle, reduce the cost basis by the amount of the tax credit"?

[toddthebod]

Thinking that the tax credit does NOT reduce the cost basis, because recapture of the tax credit, which WAS part of the old rules, was repealed several years back. If the intent was to reduce the cost basis, it would be explicitly stated, which it isn't.

From the Form 8936 instructions:

Basis Reduction

Unless you elect not to claim the credit, you may have to reduce the basis of each vehicle by the sum of the amounts entered on lines 11 and 18 for that vehicle.

Says "MAY". Couldn't that be if you split use between business and personal? Wouldn't it spell out "if you sell the vehicle, reduce the cost basis by the amount of the tax credit"?

I don't know!

[RickBoglehead]

I don't know!

Thanks. That's why I posted. Tax credit has existed for years, yet I can't find any definitive answer in what should be definitive.

Also want to see if any of the "not included" need to be included, i.e. I missed something.

[SlowMovingInvestor]

Thanks. That's why I posted. Tax credit has existed for years, yet I can't find any definitive answer in what should be definitive.

There might be an analogy with Federal tax credits for energy efficient upgrades to your home. Even prior to the iRA, there were residential credits, and these have been extended further. States offer credits/rebates for energy improvements (and EVs) too. The tax handling of the basis should be similar for EVs.

Here is what the IRS says about residential energy credits

https://www.irs.gov/instructions/i5695'

You must reduce the basis of your home by the amount of any credit allowed.