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Our discovery journey through the six schedules which complement the new Form 1040 has now reached Schedule 3, Nonrefundable Credits.
As the name states, Schedule 3 is to be used if you have nonrefundable credits other than the child tax credit or the credit for other dependents. These generally include items that were in the "Tax and Credits" section of the 2017 Form 1040.
As of 2018, you are required to include the amount on Schedule 3, line 55, in the amount entered on Form 1040, line 12, and check the box to indicate Schedule 3 is attached to your return.
Before getting into any details regarding the schedule, let’s clarify a few facts about credits. Generally speaking, there are two types of federal tax credits available: refundable and nonrefundable. While all tax credits serve the purpose of helping you lower the amount of tax you owe, nonrefundable credits can at most reduce your tax liability to $0.
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Refundable tax credits, on the other hand, can reduce your tax liability below zero and allow you to receive a tax refund. If you qualify for a refundable credit and the amount of the credit is larger than the tax you owe, you will receive a refund for the difference. With some of the larger refundable credits, like the Earned Income Tax Credit, the amount of your refund can be substantial.
Because you can use a refundable tax credit that you qualify for, even if you have no tax liability, you need to calculate refundable tax credits after figuring in all nonrefundable credits, deductions and tax payments.
Schedule 3 contains only eight lines, including a reserved line and the last one for the final, added amounts to be included on Form 1040.
Line 48 - Foreign Tax Credit
If you paid income tax to a foreign country or U.S. possession, you may be able to take this credit. Generally, you must complete and attach Form 1116, Foreign Tax Credit (Individual, Estate, or Trust) to do so.
You don’t have to complete Form 1116 to take this credit if all of the following apply: |
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1.
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All of your foreign source gross income was from interest and dividends and all of that income and the foreign tax paid on it were reported to you on Form 1099- INT, Form 1099-DIV, or Schedule K-1 (or substitute statement). |
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2.
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The total of your foreign taxes wasn't more than $300 (not more than $600 if married filing jointly). |
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3.
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You held the stock or bonds on which the dividends or interest were paid for at least 16 days and weren’t obligated to pay these amounts to someone else. |
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4.
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You aren’t filing Form 4563 or excluding income from sources within Puerto Rico. |
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| 5. |
All of your foreign taxes were: |
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- Legally owed and not eligible for a refund or reduced tax rate under a tax treaty, and
- Paid to countries that are recognized by the United States and don’t support terrorism.
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For more details on these requirements, check the Instructions for Form 1116.
Line 49 - Credit for Child and Dependent Care Expenses
You may be able to take this credit if you paid someone to care for: |
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Your qualifying child under age 13 whom you claim as your dependent, |
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Your disabled spouse or any other disabled person who couldn't care for himself or herself, or |
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Your child whom you couldn't claim as a dependent. |
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| If you (or your spouse if filing jointly) received any dependent care benefits for 2018, you must use Form 2441, Child and Dependent Care Expenses, to figure the amount, if any, of the benefits you can exclude from your income. You must complete Part III of Form 2441 before you can figure the credit, if any, in Part II. |
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Line 50 - Education Credits
If you (or your dependent) paid qualified expenses in 2018 for yourself, your spouse, or your dependent to enroll in or attend an eligible educational institution, you may be able to take an education credit.
However, you can't take an education credit if any of the following applies: |
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You, or your spouse if filing jointly, are claimed as a dependent on someone else's (such as your parent's) 2018 tax return. |
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Your filing status is married filing separately. |
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The amount on Form 1040, line 7, is $90,000 or more ($180,000 or more if married filing jointly). |
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You, or your spouse, were a nonresident alien for any part of 2018 unless your filing status is married filing jointly. |
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| You should check Form 8863, Education Credits (American Opportunity and Lifetime Learning Credits) for more details. |
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Line 51 - Retirement Savings Contributions Credit (Saver's Credit)
You may be able to take this credit if you, or your spouse if filing jointly, made (a) contributions, other than rollover contributions, to a traditional or Roth IRA; (b) elective deferrals to a 401(k) or 403(b) plan (including designated Roth contributions) or to a governmental 457, SEP, or SIMPLE plan; (c) voluntary employee contributions to a qualified retirement plan (including the federal Thrift Savings Plan); (d) contributions to a 501(c)(18)(D) plan; or (e) contributions to an ABLE account by the designated beneficiary.
You cannot take the credit if either of the following applies:
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- The amount on Form 1040, line 7, is more than $31,500 ($47,250 if head of household; $63,000 if married filing jointly).
- The person(s) who made the qualified contribution or elective deferral (a) was born after January 1, 2001, (b) is claimed as a dependent on someone else's 2018 tax return, or (c) was a student.
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| You will have to attach Form 8880, Credit for Qualified Retirement Savings Contributions, to your Form 1040 to claim this credit. |
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Line 52 is reserved.
You will find such reserved lines on four of the six schedules and the reason is that, at the time the schedules were ready to be printed and/or published online, some formerly claimed deductions had expired. Lines shown as "Reserved" were kept in case Congress extended the deductions for 2018.
Line 53 - Residential Energy Credit
You may be able to take this credit if you made energy saving improvements to your home located in the United States in 2018.
Use Form 5695, Residential Energy Credit to figure and take the residential energy efficient property credit, to take any residential energy efficient property credit carryforward from 2017, or to carry the unused portion of the credit to 2019.
You can also find valuable info about this credit from our newsletter on this subject. |
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Line 54 - Other Credits
The following credits may be included in line 54. (To find out if you can take the credit, see the form or publication indicated.): |
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General business credit. This credit consists of a number of credits that usually apply only to individuals who are partners, shareholders in an S corporation, self- employed, or who have rental property. See Form 3800. |
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Credit for prior year minimum tax. If you paid alternative minimum tax in a prior year, see Form 8801. |
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Mortgage interest credit. If a state or local government gave you a mortgage credit certificate, see Form 8396. |
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Credit for the elderly or the disabled. This is a credit for taxpayers who are (a) aged 65 or older or retired on permanent and total disability and received taxable disability income for the tax year; and (b) have an adjusted gross income or the total of nontaxable Social Security, pensions annuities or disability income under specific limits. The credit ranges between $3,750 and $7,500. See Schedule R. |
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Adoption credit. You may be able to take this credit if you paid expenses to adopt a child or you adopted a child with special needs and the adoption became final in 2018. See the Instructions for Form 8839. |
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District of Columbia first-time homebuyer credit. You can't claim this credit for a home you bought after 2011. You can claim it only if you have a credit carryforward from 2017. See Form 8859. |
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Qualified plug-in electric drive motor vehicle credit. See Form 8936. |
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Qualified electric vehicle credit. You can't claim this credit for a vehicle placed in service after 2006. You can claim this credit only if you have an electric vehicle passive activity credit carried forward from a prior year. See Form 8834. |
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Alternative motor vehicle credit. See Form 8910 if you acquired a new fuel cell motor vehicle in 2017 but didn’t place it in service until 2018. |
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Credit to holders of tax credit bonds. Generally, in addition to receiving periodic interest payments from the issuer, the holder of the bond is allowed an income tax credit. The credit compensates the holder for lending money to the issuer and functions as interest paid on the bond. The credit to holders of tax credit bonds was repealed for bonds issued after December 31, 2017. See Form 8912. |
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| Form 1040 and its additional schedules may look simple and short, but the tax code is every bit just as dense, rich, and complex. So, to be in line with the items above, we advise that you “see” a tax professional to make sure you take advantage of all the tax credits and deductions you may be entitled to and stay on top of all your dealings with the IRS. |
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