I'm planning to buy a 2019 pacifica hybrid. I read I need to have a federal tax liability for the year of $7500 to have the hybrid credit offset it. I also have 2 children, married filing jointly. When i estimated the federal tax for the year on my $100,000 of income, it was around $8,500.
If i have a $7,500 credit for buying this van, and a $4,000 child tax credit for my two kids, will I end up getting a $3,000 check from the IRS, or do I need to have a tax liability of $11,500 to "enjoy" both the car and child tax credits?
With the new rules the max you can receive for the refundable portion of the CTC is $1400 per child or $2800 for 2.
I already have a What-IF 2018 set op for MFJ and two young kids (The CTC does depend on their ages)
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Closer to $8700 tax...assuming it's all W-2 income or ordinary income (no capital gains)
[Edited based on discussion below]
With the vehicle credits being used up first, and ordinary income right at 100,000, the 7500 credit matches your tax, with the refundable part of the child tax credits remains...thus a refund of ~2,800 (along with any other withholding you had done during the year).
This does assume you are using the 24,000 Standard deduction in 2018.
Just be aware that your state may not have a Hybrid and/or Child Tax Credit, but will still tax any Roth IRA conversion. But you are still likely to come out ahead in the aggregate,
I think if i had $8700 of tax, then the $7500 would leave $1200 to be used by the child tax credit, leaving $2800, or $1400 for each child as refundable part of the CTC. My children are 2 and 4. I figured if I did a $34,000 roth conversion and my $70,000 salary, that should put me at about $8700 for federal taxes owed.
also, my state might not have a hybrid credit (don't think wisconsin does), but i'm more concerned with reducing federal taxes owed.
Heck...that issue skipped thru my mind entirely. I hadn't thought about which credit is applied first....Looks like the Car credit is applied first...you're right. (at least the way the 2018 What-IF applies it).
Could convert more IRA--to-Roth if you want to get to zero
Yeah, I spent some time looking at the proposed 2018 irs forms to see how they will will be treating things. At first I was mad that i wouldn't get the whole 2x$2000 child tax credit, but i didn't realize ther was an "additional child tax credit" that the rest rolls to, provided you have enough earned income. I spoke with my CPA, he said I have the right thinking here. PLUS, i'll get the $5385 of federal witholding back too. neat!