Is this first-year convention the same for all amortizable expenses or just for Section 174 specifically? I've never heard of this before and we've been doing R&D work for years.

This applies specifically to Section 174 expenses under the current rules. It's similar to the half-year convention used for depreciation of certain assets, but in this case it's specifically part of the Section 174 amortization requirements. It's spelled out in the regulations, but many tax preparers missed this detail when the law changed because they weren't used to dealing with Section 174 amortization before (when most R&D could be expensed immediately). That's why so many businesses had to make corrections to their estimates or returns.

There's been talk about it for 2 years now, but nothing concrete has happened. Several bills have been introduced that would restore immediate expensing for domestic R&D, but they haven't moved forward. I wouldn't count on a change anytime soon, unfortunately.

Did you file any special forms besides the regular business tax forms? My accountant seems confused about this.

Yes, you need to file Form 8936 (Qualified Plug-in Electric Drive Motor Vehicle Credit) with your business tax return. This is where you actually claim the credit. Make sure your accountant is familiar with business vehicle credits specifically. Some accountants primarily handle individual returns and aren't as familiar with the business-specific credits like 45W. I had to switch accountants last year because mine wasn't confident about handling specialized business credits.

The 45W clean vehicle credit is only for new vehicles purchased for business use, not used ones. There's a separate credit (IRC 25E) for used clean vehicles, but that's for individuals, not businesses. If you buy used, you won't qualify for the 45W. You might be better off leasing new if budget is a concern, though as others mentioned, the leasing company typically gets the credit in that case.

Thanks for the clarification! So if I'm in graduate school now, I'm completely ineligible for the AOTC regardless of whether I've claimed it before, right? I should only be looking at the Lifetime Learning Credit?

Correct. If you're in graduate school, you're generally ineligible for the AOTC regardless of whether you've used it before. Graduate-level education is considered beyond the first 4 years of post-secondary education, so you'll want to claim the Lifetime Learning Credit instead. The only possible exception would be if you're in a graduate program but technically haven't completed your first 4 years of undergraduate education (unusual but possible in some accelerated programs). In most normal situations though, graduate students should be claiming the Lifetime Learning Credit.

It doesn't matter which school you attend or if you transfer - it's the total number of years you've claimed the AOTC that counts, not the number of schools. So if you claimed AOTC for 2 years at community college, you'd have 2 years of eligibility left, regardless of where you continue your education.

I didn't even know about Publication 514 having examples for this! Thank you for the tip - I'll definitely look into that. Do you happen to know if there's any time limit on claiming these credits? Like if I missed claiming them a few years ago, can I still go back and get them?

Generally, you can file an amended return to claim missed credits for up to 3 years from the original filing deadline or 2 years from when you paid the tax, whichever is later. For AMT credits specifically, they can carry forward indefinitely until used up, but you need to be tracking them correctly each year. If you never claimed your AMT on Form 8801 in subsequent years, you might need to file amended returns for those years to establish the credit carryforward properly.

This makes sense to me now! I was wondering why I couldn't use my full credit amount even though I had a large carryover from last year. My tentative minimum tax was limiting me.

Exactly! It's frustrating but makes sense from a policy perspective. The AMT was designed to ensure everyone pays at least some minimum amount of tax, so they won't let your credit reduce your tax below that minimum threshold in the current year. The good news is that any unused credit continues to carry forward until you can use it in a future year when your regular tax exceeds your tentative minimum tax by a larger margin.

That's a really good point! In my case though, I checked and don't qualify for any refundable credits. My income was too low and it was all from 1099 gig work. Do you think that strengthens my case for trying to get the money back?

Yes, that definitely strengthens your case! Since you don't qualify for any refundable credits, you have a clearer argument that you wouldn't have owed anything if you hadn't filed. I still think you'll need to file that 1040X with a very detailed explanation letter. Make sure to specifically state that you're requesting a refund because your income was below the filing threshold and you don't qualify for any refundable credits that would have made filing beneficial. Be prepared for a long wait though - amendments can take 6+ months to process.

Did she use a tax professional or do it herself? I'm wondering if I need to hire someone for this.