Ask the Tax Editor: Questions on Income Tax Credits

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Each week in our Ask the Editor series, Joy Taylor, The Kiplinger Tax Letter editor, answers questions on topics submitted by readers. This week, she's looking at four tax questions from readers pertaining to federal income tax credits, including the difference between refundable and nonrefundable tax credits. (Get a free issue of The Kiplinger Tax Letter or subscribe.)

1. Refundable v. nonrefundable credits

Question: What is the difference between a refundable income tax credit and a nonrefundable income tax credit?

Joy Taylor: The federal tax code generally has two types of income tax credits for individuals — refundable credits and nonrefundable credits. Refundable credits allow taxpayers with zero to little income tax liability to benefit from the credit because the credit can exceed the amount of tax liability and result in a refund. A nonrefundable credit can only offset a taxpayer's tax liability and cannot create a refund.

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2. Expired electric vehicle credit

Question: I bought a used Tesla earlier this year for personal use. Can I claim a federal income tax credit on my 2026 Form 1040 for this purchase?

Joy Taylor: No. Unfortunately, the clean-vehicle credit for buying a new or used electric vehicle (EV) has expired. The up-to-$7,500 credit for buying new EVs and the up-to-$4,000 credit for buying used EVs ended after September 30, 2025. So you can't claim a credit for your 2026 used EV purchase. Congress chose to eliminate this credit in the "One Big Beautiful Bill" legislation that it enacted in July 2025.

3. Adoption credit

Question: I have clients who adopted a baby last year. I am now filling out their 2025 Form 1040, which they received a filing extension for, and I see that part of the adoption tax credit is now refundable. When was this change enacted?

Joy Taylor: The adoption tax credit can be taken on up to $17,670 of qualified expenses per eligible child in 2026. The 2025 amount was $17,280. Qualified expenses include adoption fees, court costs, legal expenses, travel, meals and other expenses directly related to a legal adoption. The full credit is available for the adoption of a special-needs child, even if it costs less. The credit starts phasing out for filers with 2026 modified adjusted gross incomes (AGI) over $265,080 and ends at $305,080. The 2025 figures are $259,190 and $299,190. The credit amount and the modified AGI amounts are adjusted annually to account for inflation. Parents claim the adoption credit on IRS Form 8839.

Up to $5,120 of the adoption credit is fully refundable in 2026. This new rule, which was included in the "One Big Beautiful Bill," gives adopting parents $5,120 of the credit as a refund, even if they have no income tax liability. The refundable amount is adjusted annually to account for inflation. It was $5,000 for 2025 tax returns. (The remaining portion of the credit is a nonrefundable tax credit that can be carried forward for five years).

4. Dependent care credit

Question: I work and also take care of my elderly father. I pay for his care when I am at work. Can I take the dependent care credit for him?

Joy Taylor: To claim the dependent care credit for your dad, he needs to have lived with you for at least six months during the year and be unable to care for himself. Additionally, you must provide over half of his support.

Other rules for the dependent credit must also be met. For example, expenses for the care must be incurred so you can work, and you must report the provider’s tax ID number on IRS Form 2441.

If your dad qualifies as a dependent for this purpose, you can claim a maximum dependent care credit of $1,500 for him on your 2026 Form 1040 that you file next year, depending on the amount of your income.

About Ask the Editor, Tax Edition

Subscribers of The Kiplinger Tax Letter, The Kiplinger Letter and The Kiplinger Retirement Report can ask Joy questions about tax topics. You'll find full details of how to submit questions in each publication. Subscribe to The Kiplinger Tax Letter, The Kiplinger Letter or The Kiplinger Retirement Report.

We have already received many questions from readers on topics related to tax changes in the One Big Beautiful Bill, retirement accounts and more. We will continue to answer these in future Ask the Editor roundups. So keep those questions coming!

Disclaimer

Not all questions submitted will be published, and some may be condensed and/or combined with other similar questions and answers, as required editorially. The answers provided by our editors and experts, in this Q&A series, are for general informational purposes only. While we take reasonable precautions to ensure we provide accurate answers to your questions, this information does not, and is not intended to, constitute independent financial, legal, or tax advice. You should not act, or refrain from acting, based on any information provided in this feature. You should consult with a financial or tax advisor regarding any questions you may have in relation to the matters discussed in this article.