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

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.

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7 Replies

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

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. 

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

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. 

 

 

rjs
Level 15
Level 15

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

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.

 

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

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.

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

What is on line 19 of your pro-forma tax return? 

Is CTC $4000 (line 19) and ACTC (line 28) zero? 

 

the child tax credit is non-refundable . The additional CTC is refundable.  

 

CTC is the lessor of $4000 (2 children) or your tax liability

 

ACTC is the lesser of 

 

1) 15% of income that exceeds $2500

2) $1600 (2023) times number of children under 17 

3) $2000 per child less the non-refundable tax credit. 

Ise this calculator to estimate 2023 

 

https://www.dinkytown.net/java/1040-tax-calculator.html

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

X

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

Expected Refund : $7036 - $7036 (EVC) +  $3000 (ACTC) = $3000  *** PLUS any withholdings ***

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