The first part of this chapter, Nonrefundable Credits, covers six credits that you subtract directly from your tax. These credits may reduce your tax to zero. If these credits are more than your tax, the excess is not refunded to you.

The second part of this chapter, Refundable Credits, covers three credits that are treated as payments and are refundable to you. These credits are added to the federal income tax withheld and any estimated tax payments you made. If this total is more than your total tax, the excess will be refunded to you.

Qualifying adoption expenses are reasonable and necessary adoption fees, court costs, attorney fees, traveling expenses (including amounts spent for meals and lodging) while away from home, and other expenses directly related to, and whose principal purpose is for, the legal adoption of an eligible child.

Qualifying adoption expenses do not include expenses:

The term “eligible child” means any individual:

An eligible child is a child with special needs if:

Factors used by states to determine if a child has special needs could include:

If the child is not a U.S. citizen or resident, you cannot take the credit unless the adoption becomes final.

Generally, for any year before the adoption becomes final, you take the credit in the year after your qualified expenses are paid or incurred. See Publication 968 for more specific information on when to claim the credit.

To claim the credit, you must complete Form 8839 and attach it to your Form 1040 or Form 1040A. Enter the credit on line 50, Form 1040, or line 34, Form 1040A.

Your foreign tax credit cannot be more than your U.S. tax liability (line 41, Form 1040) multiplied by a fraction. The numerator of the fraction is your taxable income from sources outside the United States. The denominator is your total taxable income from U.S. and foreign sources. See Publication 514 for more information.

Complete Form 1116 and attach it to your Form 1040. Enter the credit on line 44, Form 1040.

You will not be subject to the limit and may be able to claim the credit without using Form 1116 if all the following requirements are met.

If you qualify and elect not to file Form 1116, enter the amount of your foreign taxes paid on line 44, Form 1040.

You may be eligible for the credit if you were issued a mortgage credit certificate (MCC) from your state or local government. Generally, an MCC is issued only in connection with a new mortgage for the purchase of your main home.

If your mortgage is equal to (or smaller than) the certified indebtedness amount (loan) shown on your MCC, you multiply the certified credit rate, shown on your MCC, by all the interest you paid on your mortgage during the year.

If your mortgage is larger than the certified indebtedness amount shown on your MCC, you multiply the certified credit rate (shown on your MCC) by only the interest allocated to the certified indebtedness amount shown on your MCC.

If two or more persons (other than a married couple filing a joint return) hold an interest in the home to which the MCC relates, the credit must be divided based on the interest held by each person. See Publication 530 for further information.

If your allowable credit is reduced because of the limit based on your tax, you can carry forward the unused portion of the credit to the next 3 years or until used, whichever comes first.

If you are subject to the $2,000 limit because your certificate credit rate is more than 20%, you cannot carry forward any amount more than $2,000 (or your share of the $2,000 if you must divide the credit).

Figure your 2003 credit and any carryforward to 2004 on Form 8396, and attach it to your Form 1040. Be sure to include any credit carryforward from 2000, 2001, and 2002.

Include the credit in your total for line 51, Form 1040, and check box a.

If you itemize your deductions on Schedule A (Form 1040), you must reduce your home mortgage interest deduction by the amount of the mortgage interest credit shown on line 3 of Form 8396. You must do this even if part of that amount is to be carried forward to 2004. For more information about the home mortgage interest deduction, see chapter 25.

If you received an MCC with your mortgage loan, you may have to recapture (pay back) all or part of the benefit you received from that program. The recapture may be required if you sell or dispose of your home at a gain during the first 9 years after the date you closed your mortgage loan. See Publication 523, Selling Your Home, for more information.

This is generally the amount on Form 1040, line 35, or Form 1040A, line 22. However, you must add to that amount any exclusion or deduction claimed for the year for:

These include contributions to a traditional or Roth IRA and salary reduction contributions (elective deferrals) to most employer-sponsored retirement plans. They also include certain voluntary after-tax employee contributions.

Your eligible contributions must be reduced by certain taxable and nontaxable distributions made after 2000 and before the due date (including extensions) of your 2003 tax return.

See Publication 590, chapter 4, for more specific information on eligible contributions and the reductions you must make.

After your contributions are reduced, the maximum annual contributions on which you can base the credit is $2,000 per person. This makes the maximum possible credit $1,000 per return ($2,000 if married filing jointly).

To claim the credit, complete Form 8880 and attach it to your Form 1040 or 1040A. Enter the credit on line 48, Form 1040, or line 32, Form 1040A.

The credit you compute on Form 8880 will take into account any nonrefundable credits that have already reduced your tax (such as the credit for child and dependent care expenses). If your tax liability is reduced to zero because of other nonrefundable credits, you will not be entitled to the credit for retirement savings contributions.

Figure your 2003 credit and any carryforward to 2004 on Form 8801, and attach it to your Form 1040. Include the credit in your total for line 52, Form 1040, and check box b. You can carry forward any unused credit for prior year minimum tax to later years until it is completely used.

For additional information about the credit, see the instructions for Form 8801.

This is a motor vehicle that:

If you placed a qualified electric vehicle in service during 2003, the credit is generally 10% of the cost of the vehicle. However, if the vehicle is a depreciable business asset, you must reduce the cost of the vehicle by any section 179 deduction before figuring the credit. See Publication 463, Travel, Entertainment, Gift, and Car Expenses, for information on the section 179 deduction.

The credit is limited to $4,000 for each vehicle placed in service in 2003.

The credit will be subject to recapture if, within 3 years after the date you place the vehicle in service, the vehicle is used predominately outside the United States or is modified (or its use is modified) so that it is no longer eligible for the credit. You recapture the credit by adding part or all of it to your income tax for the year in which the recapture event occurs. See chapter 12 of Publication 535 for more information.

To claim the credit, complete Form 8834 and attach it to your Form 1040. Include the credit in your total for line 52, Form 1040. Check box c, and print “8834” on the line next to box c.

Do not confuse this credit with the deduction for clean-fuel vehicles that is reported on Form 1040, line 33.

If any one employer withheld social security or RRTA tax that exceeded the amounts in the preceding table, you cannot claim the extra amount withheld by that employer as a credit against your income tax. Your employer must adjust this for you.

If you are filing a joint return, you cannot add the social security or RRTA tax withheld from your spouse's wages to the amount withheld from your wages. Figure the credit separately for you and your spouse to determine if either of you has excess withholding.

If you file Form 1040, enter the credit on line 64. If you file Form 1040A, include the credit in the total on line 43 and put “Excess SST” and the amount of the credit in the space to the left of the line.

If you did not work for a railroad during 2003, figure the credit as follows:

If you were a railroad employee during 2003, figure the credit as follows:

Beginning in August, 2003, if you are eligible for the Alternative Trade Adjustment Assistance (ATAA) program, you are eligible for this credit for a period not to exceed two years if you: