taxmap/pub17/p17-187.htm#en_us_publink1000174964The credits discussed in this part of the chapter are treated as payments of tax. If the total of these credits, withheld federal income tax, and estimated tax payments is more than your total tax, the excess can be refunded to you.
taxmap/pub17/p17-187.htm#en_us_publink1000246887You may be able to take a tax credit of up to $13,170 for qualified expenses paid to adopt an eligible child. The credit may be allowed for the adoption of a child with special needs even if you do not have any qualified expenses.
If your modified adjusted gross income (AGI) is more than $182,520, your credit is reduced. If your modified AGI is $222,520 or more, you cannot take the credit.
taxmap/pub17/p17-187.htm#en_us_publink1000246888Qualified adoption expenses are reasonable and necessary expenses directly related to, and whose principal purpose is for, the legal adoption of an eligible child. These expenses include:
- Adoption fees,
- Court costs,
- Attorney fees,
- Travel expenses (including amounts spent for meals and lodging) while away from home, and
- Re-adoption expenses to adopt a foreign child.
.
Qualified adoption expenses do not include expenses:
- That violate state or federal law,
- For carrying out any surrogate parenting arrangement,
- For the adoption of your spouse's child,
- For which you received funds under any federal, state, or local program,
- Allowed as a credit or deduction under any other federal income tax rule, or
- Paid or reimbursed by your employer or any other person or organization.
The term "eligible child" means any individual:
- Under 18 years old, or
- Physically or mentally incapable of caring for himself or herself.
An eligible child is a child with special needs if all three of the following apply.
- The child was a citizen or resident of the United States (including U.S. possessions) at the time the adoption process began.
- A state (including the District of Columbia) has determined that the child cannot or should not be returned to his or her parents' home.
- The state has determined that the child will not be adopted unless assistance is provided to the adoptive parents. Factors used by states to make this determination include:
- The child's ethnic background,
- The child's age,
- Whether the child is a member of a minority or sibling group, and
- Whether the child has a medical condition or a physical, mental, or emotional handicap.
Generally, until the adoption becomes final, you take the credit in the year after your qualified expenses were paid or incurred. If the adoption becomes final, you take the credit in the year your expenses were paid or incurred. See the instructions for Form 8839 for more specific information on when to take the credit.
taxmap/pub17/p17-187.htm#en_us_publink1000246893If the child is not a U.S. citizen or resident at the time the adoption process began, you cannot take the credit unless the adoption becomes final. You treat all adoption expenses paid or incurred in years before the adoption becomes final as paid or incurred in the year it becomes final.
taxmap/pub17/p17-187.htm#en_us_publink1000252285For 2010, you must include a copy of one or more adoption-related documents with your return to claim the credit.
taxmap/pub17/p17-187.htm#en_us_publink1000252286For a domestic or foreign adoption finalized in the United States, you must provide a copy of an adoption order or decree.
taxmap/pub17/p17-187.htm#en_us_publink1000252287For domestic adoptions that are not final, you must include an adoption taxpayer identification number, obtained for the child, on your tax return or provide a copy of one of the following documents.
- A home study completed by an authorized placement agency.
- A placement agreement with an authorized placement agency.
- A document signed by a hospital official authorizing the release of a newborn child from the hospital to you for legal adoption.
- A court document ordering or approving the placement of a child with you for legal adoption.
- An original affidavit or notarized statement, signed under penalties of perjury, from an adoption attorney, government official, or other person, stating that he or she (a) placed or is placing a child with you for legal adoption or (b) is facilitating the adoption process for you in an official capacity.
If you are adopting a special needs child, you also must attach a copy of the state determination of special needs to your tax return.
For more information, including what documents to include for adoptions finalized outside of the United States, see the instructions for Form 8839.
taxmap/pub17/p17-187.htm#en_us_publink1000246894To take the credit, you must complete Form 8839 and attach it and your adoption-related documents to your Form 1040. Include the credit in your total for Form 1040, line 71, and check box b on that line.
taxmap/pub17/p17-187.htm#en_us_publink1000174965You must include in your income any amounts that regulated investment companies (commonly called mutual funds) or real estate investment trusts (REITs) allocated to you as capital gain distributions, even if you did not actually receive them. If the mutual fund or REIT paid a tax on the capital gain, you are allowed a credit for the tax since it is considered paid by you. The mutual fund or REIT will send you Form 2439, Notice to Shareholder of Undistributed Long-Term Capital Gains, showing your share of the undistributed capital gains and the tax paid, if any. Take the credit for the tax paid by entering the amount on Form 1040, line 71, and checking box a. Attach Copy B of Form 2439 to your return. See
Capital Gain Distributions in chapter 8 for more information on undistributed capital gains.
In general, you can claim this credit if:
- You bought your main home in the United States before May 1, 2010 (before October 1, 2010, if you entered into a written binding contract before May 1, 2010, to buy the home before July 1, 2010), and
- You (and your spouse, if married) did not own any other main home during the 3-year period ending on the date of purchase.
No credit is allowed for a home bought after April 30, 2010 (after September 30, 2010, if you entered into a written binding contract before May 1, 2010, to buy the home before July 1, 2010).
Even if you are not a first-time homebuyer, you may be able to claim the credit if:
- You buy a main home in the United States before May 1, 2010 (before October 1, 2010, if you entered into a written binding contract before May 1, 2010, to buy the home before July 1, 2010), and
- You (and your spouse, if married) owned and used the same home as your main home for any period of 5 consecutive years during the 8-year period ending on the date of purchase of the home described in (1).
Your main home is the one you live in most of the time. It can be a house, houseboat, mobile home, cooperative apartment, or condominium.
taxmap/pub17/p17-187.htm#en_us_publink1000235724If you constructed your main home, you are treated as having bought it on the date you first occupied it.
taxmap/pub17/p17-187.htm#en_us_publink1000235725You cannot claim the credit if any of the following apply.
- You are a nonresident alien.
- Your home is located outside the United States.
- You sell the home, or it stops being your main home, before the end of 2010.
- You acquired your home by gift or inheritance.
- Your modified adjusted gross income (MAGI) is $145,000 or more ($245,000 or more if married filing jointly). See Modified adjusted gross income (MAGI), later.
- Your purchase price is more than $800,000.
- You can be claimed as a dependent on someone else's return.
- You (and your spouse, if married) were younger than 18 when you bought the home.
- You acquired your home from a related person. A related person includes:
- Your spouse, ancestors (parents, grandparents, etc.), or lineal descendants (children, grandchildren, etc.).
- Your spouse's ancestors or lineal descendants.
- A corporation in which you directly or indirectly own more than 50% in value of the outstanding stock of the corporation.
- A partnership in which you directly or indirectly own more than 50% of the capital interest or profits interest.
For more information about related persons, see
Nondeductible Loss in chapter 2 of Publication 544, Sales and Other Dispositions of Assets.
Generally, the credit is the smaller of:
- $8,000 ($4,000 if married filing separately), or
- 10% of the purchase price of the home.
However, if the
Special rule for long-time residents of same main home described earlier applies, the credit can be no more than $6,500 ($3,250 if married filing separately).
You are allowed the full amount of the credit if your MAGI is $125,000 or less ($225,000 or less if married filing jointly). The credit is reduced if MAGI is more than $125,000 ($225,000 if married filing jointly). The credit is completely eliminated if MAGI is $145,000 ($245,000 if married filing jointly) or more.
taxmap/pub17/p17-187.htm#en_us_publink1000174972Your MAGI is the amount from Form 1040, line 38, increased by the total of any:
- Exclusion of income from Puerto Rico, and
- Amount from Form 2555, line 45 and line 50; Form 2555-EZ, line 18; and Form 4563, line 15.
If you bought the home after 2008, you generally must repay the credit if you dispose of the home or the home stops being your main home within the 36-month period beginning on the purchase date. This includes situations where you sell the home, you convert it to business or rental property, the home is destroyed, condemned, or disposed of under threat of condemnation, or the lender forecloses on the mortgage. You repay the credit by including it as additional tax on the return for the year the home stops being your main home. If the home continues to be your main home for at least 36 months beginning on the purchase date, you do not have to repay any of the credit.
If you and your spouse claim the credit on a joint return, each spouse is treated as having been allowed half of the credit for purposes of repaying the credit.
taxmap/pub17/p17-187.htm#en_us_publink1000174976The following are exceptions to the repayment rule.
- If you sell the home to someone who is not related to you, the repayment in the year of sale is limited to the amount of gain on the sale. (See item 9 earlier under Who cannot claim the credit for the definition of a related person.) When figuring the gain, reduce the adjusted basis of the home by the amount of the credit.
- If the home is destroyed, condemned, or disposed of under threat of condemnation, and you acquire a new main home within 2 years of the event, you do not have to repay the credit.
- If, as part of a divorce settlement, the home is transferred to a spouse or former spouse, the spouse who receives the home is responsible for repaying the credit if required.
- If you die, repayment of the credit is not required. If you file a joint return and then you die, your surviving spouse must repay his or her half of the credit if required.
- In some cases, there is an exception for members of the uniformed services or Foreign Service and for intelligence community employees.
If you claimed the credit for a home you bought in 2008, you generally must begin repaying it on your 2010 return. In addition, you generally must repay any credit you claimed for a home you bought in 2008 if you sold the home in 2010 or the home stopped being your main home in 2010. However, you do not have to repay the credit if one of the exceptions to the repayment rule applies.
taxmap/pub17/p17-187.htm#en_us_publink1000174977To take the credit, complete Form 5405 and attach it to your Form 1040. Enter your credit on Form 1040, line 67.
taxmap/pub17/p17-187.htm#en_us_publink1000209392If you are required to repay the credit, complete Parts III and IV of Form 5405. Attach the form to your Form 1040. Include the repayment on Form 1040, line 59, and check box c.
taxmap/pub17/p17-187.htm#en_us_publink1000234811For more information, including special rules for members of the Armed Forces, see Form 5405 and its instructions.
taxmap/pub17/p17-187.htm#en_us_publink1000174978You may be able to take this credit for any month in which all the following statements were true on the first day of the month.
- You were an eligible trade adjustment assistance (TAA) recipient, alternative TAA (ATAA) recipient, reemployment TAA (RTAA) recipient, or Pension Benefit Guaranty Corporation (PBGC) pension recipient (defined later).
- You were covered by a qualified health insurance plan for which you paid the entire premiums, or your portion of the premiums, directly to your health plan (including months for which you paid premiums to "U.S. Treasury–HCTC").
- You were not entitled to Medicare Part A or enrolled in Medicare Part B.
- You were not enrolled in Medicaid or the Children's Health Insurance Program (CHIP).
- You were not enrolled in the Federal Employees Health Benefits program (FEHBP) or eligible to receive benefits under the U.S. military health system (TRICARE).
- You were not imprisoned under federal, state, or local authority.
- Your employer did not pay 50% or more of the cost of coverage.
- You did not receive a 65% COBRA premium reduction from your former employer or COBRA administrator.
But, you cannot take the credit if you can be claimed as a dependent on someone else's 2010 tax return. If you meet all of these conditions, you may be able to take a credit of up to 80% of the amount you paid for qualified health insurance coverage for you and any qualifying family members. You cannot take the credit for insurance premiums on coverage that was partially paid for with a National Emergency Grant. The amount you paid for qualified health insurance coverage must be reduced by any Archer MSA and health savings account distributions used to pay for the coverage.
You can take this credit on your tax return or have it paid on your behalf in advance to your insurance company. If the credit is paid on your behalf in advance, that amount will reduce the amount of the credit you can take on your tax return.
taxmap/pub17/p17-187.htm#en_us_publink1000234741You were an eligible TAA recipient on the first day of the month if, for any day in that month or the prior month, you:
- Received a trade readjustment allowance, or
- Would have been entitled to receive such an allowance except that you had not exhausted all rights to any unemployment insurance (except additional compensation that is funded by a state and is not reimbursed from any federal funds) to which you were entitled (or would be entitled if you applied).
You received a trade adjustment allowance for January 2010. You were an eligible TAA recipient on the first day of January and February.
taxmap/pub17/p17-187.htm#en_us_publink1000234743You were an eligible alternative TAA recipient on the first day of the month if, for that month or the prior month, you received benefits under an alternative trade adjustment assistance program for older workers established by the Department of Labor.
taxmap/pub17/p17-187.htm#en_us_publink1000234744You received benefits under an alternative trade adjustment assistance program for older workers for October 2010. The program was established by the Department of Labor. You were an eligible alternative TAA recipient on the first day of October and November.
taxmap/pub17/p17-187.htm#en_us_publink1000234745You were an eligible RTAA recipient on the first day of the month if, for that month or the prior month, you received benefits under a reemployment trade adjustment assistance program for older workers established by the Department of Labor.
taxmap/pub17/p17-187.htm#en_us_publink1000234746You were an eligible PBGC pension recipient on the first day of the month, if both of the following apply.
- You were age 55 or older on the first day of the month.
- You received a benefit for that month that was paid by the PBGC under title IV of the Employee Retirement Income Security Act of 1974 (ERISA).
If you received a lump-sum payment from the PBGC after August 5, 2002, you meet item (2) above for any month that you would have received a PBGC benefit if you had not received the lump-sum payment.
To take the credit, complete Form 8885 and attach it to your Form 1040. Include your credit in the total for Form 1040, line 71, and check box d.
You must attach invoices and proof of payment for any amounts you include on Form 8885, line 2. For details, see Publication 502 or Form 8885.
taxmap/pub17/p17-187.htm#en_us_publink1000253453For definitions and special rules, including those relating to qualified health insurance plans, qualifying family members, the effect of certain life events, and employer-sponsored health insurance plans, see Publication 502 and the instructions for Form 8885.
taxmap/pub17/p17-187.htm#en_us_publink1000209395You may be able to take this credit if you have earned income from work. You cannot take the credit if your modified adjusted gross income (AGI) is $95,000 ($190,000 if married fiing jointly) or more, you are a nonresident alien, or you can be claimed as a dependent on someone else's return.
The credit is 6.2% of your earned income but cannot be more than $400 ($800 if married filing jointly).
The credit is reduced if:
- Your modified AGI is more than $75,000 ($150,000 if married filing jointly), or
- You received a $250 economic recovery payment in 2010. You may have received an economic recovery payment in 2010 if:
- You received social security benefits, supplemental security income, railroad retirement benefits, or veterans disability compensation or pension benefits in November 2008, December 2008, or January 2009, and
- You did not receive an economic recovery payment in 2009.
To take the credit, complete Schedule M (Form 1040A or 1040) and attach it to your Form 1040 or 1040A. Enter your credit on Form 1040, line 63, or Form 1040A, line 40. If you are filing Form 1040-EZ, you can take the credit on line 8 of that form and do not have to file Schedule M.
taxmap/pub17/p17-187.htm#en_us_publink1000174988If you paid the alternative minimum tax for 2009 or you had a minimum tax credit carryforward to 2010, you may be able to take a credit for prior year minimum tax. For information about the nonrefundable credit for prior year minimum tax you may be able to take, see
Nonrefundable Credit for Prior Year Minimum Tax, earlier. However, for 2010, you may qualify for a refundable credit for prior year minimum tax if you had a minimum tax credit carryforward to 2008 (on your 2007 Form 8801, line 28) and you have not used all of that carryforward, even if the total amount of your current year credit is more than your total tax liability. To figure the amount of any 2010 refundable credit, complete Part IV of Form 8801. Include any refundable credit on Form 1040, line 71, and check box c.
Most employers must withhold social security tax from your wages. If you work for a railroad employer, that employer must withhold tier 1 railroad retirement (RRTA) tax and tier 2 RRTA tax.
If you worked for two or more employers in 2010, you may have had too much social security or tier 1 RRTA tax withheld from your pay. You can claim the excess social security or tier 1 RRTA tax as a credit against your income tax. The following table shows the maximum amount of wages subject to tax and the maximum amount of tax that should have been withheld for 2010.
| Type of tax | Maximum
wages
subject to tax | Maximum tax
that should
have been
withheld |
Social security or
RRTA tier 1 | $106,800 | $6,621.60 |
| RRTA tier 2 | $79,200 | $3,088.80 |
 | All wages are subject to Medicare tax withholding.
|
 | Use Form 843, Claim for Refund and Request for Abatement, to claim a refund of excess tier 2 RRTA tax. Be sure to attach a copy of all of your W-2 forms. See the worksheet in Publication 505, Tax Withholding and Estimated Tax, to help you figure the excess amount. |
taxmap/pub17/p17-187.htm#en_us_publink1000174994If any one employer withheld too much social security or tier 1 RRTA tax, you cannot take the excess as a credit against your income tax. The employer should adjust the tax for you. If the employer does not adjust the overcollection, you can file a claim for refund using Form 843.
taxmap/pub17/p17-187.htm#en_us_publink1000174995If you are filing a joint return, you cannot add the social security or tier 1 RRTA tax withheld from your spouse's wages to the amount withheld from your wages. Figure the withholding separately for you and your spouse to determine if either of you has excess withholding.
taxmap/pub17/p17-187.htm#en_us_publink1000174996If you did not work for a railroad during 2010, figure the credit as follows:
| 1. | Add all social security tax withheld (but not more than $6,621.60 for each employer). Enter the total
here | |
| 2. | Enter any uncollected social security tax on tips or group-term life insurance included in the total on Form 1040, line 60 | |
| 3. | Add lines 1 and 2. If $6,621.60 or less, stop here. You cannot take
the credit | |
| 4. | Social security tax limit | 6,621.60 |
| 5. | Credit. Subtract line 4 from line 3. Enter the result here and on Form 1040, line 69 (or Form 1040A, line 44) | |
You are married and file a joint return with your spouse who had no gross income in 2010. During 2010, you worked for the Brown Technology Company and earned $60,000 in wages. Social security tax of $3,720 was withheld. You also worked for another employer in 2010 and earned $55,000 in wages. $3,410 of social security tax was withheld from these wages. Because you worked for more than one employer and your total wages were more than $106,800, you can take a credit of $508.40 for the excess social security tax withheld.
| 1. | Add all social security tax withheld (but not more than $6,621.60 for each employer). Enter the total
here | $7,130.00 |
| 2. | Enter any uncollected social security tax on tips or group-term life insurance included in the total on Form 1040, line 60 | -0- |
| 3. | Add lines 1 and 2. If $6,621.60 or less, stop here. You cannot take the credit | 7,130.00 |
| 4. | Social security tax limit | 6,621.60 |
| 5. | Credit. Subtract line 4 from line 3. Enter the result here and on Form 1040, line 69 (or Form 1040A, line 44) | $508.40 |
If you were a railroad employee at any time during 2010, figure the credit as follows:
| 1. | Add all social security and tier 1 RRTA tax withheld (but not more than $6,621.60 for each employer). Enter the total here | |
| 2. | Enter any uncollected social security and tier 1 RRTA tax on tips or group-term life insurance included in the total on Form 1040, line 60 | |
| 3. | Add lines 1 and 2. If $6,621.60 or less, stop here. You cannot take
the credit | |
| 4. | Social security and tier 1 RRTA
tax limit | 6,621.60 |
| 5. | Credit. Subtract line 4 from line 3. Enter the result here and on Form 1040, line 69 (or Form 1040A, line 44) | |
Enter the credit on Form 1040, line 69, or include it in the total for Form 1040A, line 44.
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