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December 15, 2024

Minute Read


This month’s individual tax update includes the following: 

  • If you’re in the market for a new car, the federal government would like you to purchase an electric vehicle (EV) or plug-in hybrid EV (PHEV)
  • There are several strategies you can employ before year-end to reduce your 2024 crypto taxes
  • For 2025, the Tax Cuts and Jobs Act (TCJA) is set to usher in significant changes for individual taxpayers


Electric Vehicle (EV) or Plug-In Hybrid EV (PHEV)

In 2022, Congress enacted the Inflation Reduction Act, which revamped and expanded tax credits for EVs purchased during 2023 and later.

As a result of the new law, there are four ways you can benefit from a federal EV tax credit:

  1. Purchase an EV and claim the clean vehicle credit.
  2. Purchase a used EV that qualifies for the previously owned clean vehicle credit.
  3. Purchase an EV for business use and claim the commercial clean vehicle credit.
  4. Lease an EV and benefit from a discount from the dealer.

To the surprise of many, leasing an EV is the most popular way to benefit from an EV credit. Almost two-thirds of all EVs are being leased instead of purchased. 

Why aren’t more people purchasing an EV and claiming an EV credit for themselves? It’s likely due to the many restrictions imposed on the credits.

Clean Vehicle Credit

The clean vehicle credit is a maximum $7,500 tax credit and was designed to be the workhorse EV credit. You can claim it for EVs used for personal or business driving and claim it at the point of sale by transferring it to the dealer. Thus, you don’t have to wait until you file your tax return to get the credit. 

The clean vehicle credit is subject to income caps, price caps, and domestic sourcing requirements that greatly limit availability.

Currently, only 24 EV models qualify for the full $7,500 credit

Previously Owned Clean Vehicle Credit

The previously owned clean vehicle credit is a maximum of $4,000 and is subject to even lower income caps than the clean vehicle credit. There is also a $25,000 vehicle price cap on the credit.

Commercial Clean Vehicle Credit

The commercial clean vehicle credit is also a maximum of $7,500 but is NOT subject to income caps, price caps, or domestic sourcing requirements. The vehicle’s depreciable tax basis (price and business use percentage) can determine the credit.

Leasing

With a lease, the dealer claims the $7,500 commercial clean vehicle credit for the EV and passes the savings on to you, the customer, in the form of lower monthly lease payments, lower down payments, or rebates. You do not apply for any tax credit.

Cryptocurrency Taxes

2024 has been a great year for investors in cryptocurrency, with Bitcoin reaching all-time highs.

With high profits can come high taxes. Fortunately, there are several strategies you can employ before year-end to reduce your 2024 crypto taxes.

Losses

If you invested only in Bitcoin, you may not have any crypto losses.

But you could have losses if you invested in other forms of crypto. If so, you should consider selling your losers before the end of the year. You may fully deduct your losses from any capital gains you realize during the year, such as gains from selling other crypto or stocks at a profit.

If your losses exceed your capital gains for the year, you can use your remaining losses to offset up to $3,000 in personal income. You can carry any unused losses over to future years to offset future gains or income.

Donating Appreciated Crypto To Charity

Donating appreciated crypto to charity is a great tax strategy if you’re charitably inclined. You’ll not only help a charity, but you’ll also get two terrific tax benefits:

  • You avoid long-term capital gains taxes on your appreciated crypto
  • You can get a charitable contribution deduction equal to the appreciated value

To obtain the benefits above, you (a) must itemize your deductions on Schedule A and (b) have held the crypto for more than a year.

Gifting Crypto

You should also consider giving crypto to a child, grandchild, or other loved one. For 2024, you may gift up to $18,000 to an unlimited number of people without triggering any tax or reporting obligation for you or the recipients. If you’re married, you and your spouse may gift $36,000.

Self-Directed IRA or a Self-Directed Solo 401(k)

Another strategy is establishing a self-directed IRA or a self-directed solo 401(k) to purchase crypto. You can use a self-directed regular or Roth IRA or 401(k).

 Tax Cuts And Jobs Act (TCJA) 2025 Changes

For 2025, the Tax Cuts and Jobs Act (TCJA) is set to usher in significant changes for individual taxpayers. Below is an overview of key provisions and insights into what lies ahead.

Expiring Provisions: Potential Opportunities and Challenges

Many of the TCJA’s tax benefits affecting individuals are scheduled to sunset, potentially leading to higher taxes unless Congress intervenes. Key provisions include:

  • State and local tax (SALT) deductions. The current $10,000 cap on SALT deductions is set to expire, returning to pre-TCJA rules that allow unlimited deductions. This is good news for taxpayers in high-tax states.
  • Child and dependent tax credits. The $2,000 per child credit (with higher income phase-out thresholds) will revert to $1,000 per child. The $500 credit for non-child dependents will expire.
  • Standard deduction and personal exemptions. The generous standard deduction amounts will decrease, and personal exemptions will return, potentially creating mixed results depending on your tax profile.
  • Home mortgage interest. Debt limits for mortgage interest deductions will increase to $1 million from the current $750,000, and interest on home equity loans will become deductible again.
  • Miscellaneous itemized deductions. Deductions for expenses like investment fees and unreimbursed employee expenses will return, providing more opportunities for itemizing.

Permanent Changes: Long-Term Adjustments

While some provisions are expiring, others introduced by the TCJA are here to stay:

  • Limits on 1031 exchanges. Tax-deferred exchanges are now limited to real property, permanently excluding personal property exchanges.
  • Alimony taxation. Alimony payments required by post-2018 divorce agreements remain non-deductible for payors and non-taxable for recipients.
  • Roth conversion reversal ban. The elimination of Roth IRA conversion reversals is a permanent change, requiring more strategic planning before converting.

Key Areas of Mixed Impact

Charitable deductions. Limits for cash contributions to public charities will revert from 60 percent to 50 percent of adjusted gross income, but more taxpayers may benefit from itemizing if the standard deduction decreases.

Income tax rates. Lower tax rates under the TCJA are set to expire, bringing back higher rates for many taxpayers and shifting thresholds for higher brackets.

Contact your tax and financial advisors to determine the best moves for your situation.


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