Question

2023 buying EV, how to ensure max refund with refundable and non-refundable tax credits

Forum|Forum|2 years ago
June 11, 2023
2 replies
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Situation is MFJ w/ 2 children under 17 with $4000 refundable tax credits. Tax liability is ~$6500 last few years now.

If we were to purchase a qualifying EV for the $7500 EV credits in 2023, can I ensure that the non-refundable EV credits is applied first to the $6500 tax liability while getting a refund of $4000 from the CTC?

Apologies as the internet and IRS publications does not address our current situation.

I hope it is legal to apply first the non-refundable credits prior to applying the refundable tax credits.

Thank you.

B

Bsch4477

Employee

If you look at your 1040 you will see that the child tax credit is first deducted from your tax owed (line 19 on the 2022 form). Then the other credits are applied.

Critter-3

Of the $4000 CTC possible only $3000 is refundable as the ACTC. Thus your tax liability needs to be at least $7500 + $1000 = $8500 to be fully used.

You need to find a way to increase your tax liability ... sell some stock, work more, convert some retirement assets to a ROTH, etc. Plan well to make full use of the credit since it cannot be carried forward... it is a use it or lose it situation.

O

Orion4000Author

Thank you all for your quick reply.

I've plugged the scenario into my 2022 Turbo Tax and got similar results.

Would someone kindly confirm my numbers for 2023 if these were the numbers based on my < 3% raise for a FL family?

MFJ / 2 kids under 17

AGI $ 90,000

Std Ded : $27,700

Taxable Income : $62,300

Tax Liability: $7036 (roughly)

ACTC : $3000

EV Non-Refundable Credit : $7500

--------------------

Expected Refund : $7036 - $7036 (EVC) + $3000 (ACTC) = $3000

Thanks.

rjs

Employee

You have no choice about the order in which the credits are applied. The calculations have to be done as specified on Form 1040. The nonrefundable credits, including the nonrefundable portion of the Child Tax Credit, are added together on Form 1040 line 21. The total nonrefundable credits on line 21 are subtracted from the tax on line 18, but cannot reduce the tax to less than zero. So line 18 would have to be at least $8,500 in order to use the full amount of your nonrefundable credits. The nonrefundable credits are not applied in any particular order. The total nonrefundable credits are applied to the total tax.

Refundable credits, including the Additional Child Tax Credit, are applied later on, on line 32. The refundable credits have no effect on how much of the nonrefundable credits can be used.