26 USC 21 - Expenses for household and dependent care services necessary for gainful employment

Collapse to view only § 21. Expenses for household and dependent care services necessary for gainful employment

§ 21. Expenses for household and dependent care services necessary for gainful employment
§ 22. Credit for the elderly and the permanently and totally disabled
§ 23. Adoption expenses
§ 24. Child tax credit
§ 25. Interest on certain home mortgages
§ 25A. American Opportunity and Lifetime Learning credits
§ 25B. Elective deferrals and IRA contributions by certain individuals
§ 25C. Energy efficient home improvement credit
§ 25D. Residential clean energy credit
§ 25E. Previously-owned clean vehicles
§ 26. Limitation based on tax liability; definition of tax liability

§ 21. Expenses for household and dependent care services necessary for gainful employment

(a) Allowance of credit

(1) In general

(2) Applicable percentage defined

(b) Definitions of qualifying individual and employment-related expensesFor purposes of this section—

(1) Qualifying individualThe term “qualifying individual” means—

(A) a dependent of the taxpayer (as defined in section 152(a)(1)) who has not attained age 13,

(B) a dependent of the taxpayer (as defined in section 152, determined without regard to subsections (b)(1), (b)(2), and (d)(1)(B)) who is physically or mentally incapable of caring for himself or herself and who has the same principal place of abode as the taxpayer for more than one-half of such taxable year, or

(C) the spouse of the taxpayer, if the spouse is physically or mentally incapable of caring for himself or herself and who has the same principal place of abode as the taxpayer for more than one-half of such taxable year.

(2) Employment-related expenses

(A) In generalThe term “employment-related expenses” means amounts paid for the following expenses, but only if such expenses are incurred to enable the taxpayer to be gainfully employed for any period for which there are 1 or more qualifying individuals with respect to the taxpayer:

(i) expenses for household services, and

(ii) expenses for the care of a qualifying individual.

Such term shall not include any amount paid for services outside the taxpayer’s household at a camp where the qualifying individual stays overnight.

(B) ExceptionEmployment-related expenses described in subparagraph (A) which are incurred for services outside the taxpayer’s household shall be taken into account only if incurred for the care of—

(i) a qualifying individual described in paragraph (1)(A), or

(ii) a qualifying individual (not described in paragraph (1)(A)) who regularly spends at least 8 hours each day in the taxpayer’s household.

(C) Dependent care centersEmployment-related expenses described in subparagraph (A) which are incurred for services provided outside the taxpayer’s household by a dependent care center (as defined in subparagraph (D)) shall be taken into account only if—

(i) such center complies with all applicable laws and regulations of a State or unit of local government, and

(ii) the requirements of subparagraph (B) are met.

(D) Dependent care center definedFor purposes of this paragraph, the term “dependent care center” means any facility which—

(i) provides care for more than six individuals (other than individuals who reside at the facility), and

(ii) receives a fee, payment, or grant for providing services for any of the individuals (regardless of whether such facility is operated for profit).

(c) Dollar limit on amount creditableThe amount of the employment-related expenses incurred during any taxable year which may be taken into account under subsection (a) shall not exceed—

(1) $3,000 if there is 1 qualifying individual with respect to the taxpayer for such taxable year, or

(2) $6,000 if there are 2 or more qualifying individuals with respect to the taxpayer for such taxable year.

The amount determined under paragraph (1) or (2) (whichever is applicable) shall be reduced by the aggregate amount excludable from gross income under section 129 for the taxable year.

(d) Earned income limitation

(1) In generalExcept as otherwise provided in this subsection, the amount of the employment-related expenses incurred during any taxable year which may be taken into account under subsection (a) shall not exceed—

(A) in the case of an individual who is not married at the close of such year, such individual’s earned income for such year, or

(B) in the case of an individual who is married at the close of such year, the lesser of such individual’s earned income or the earned income of his spouse for such year.

(2) Special rule for spouse who is a student or incapable of caring for himselfIn the case of a spouse who is a student or a qualifying individual described in subsection (b)(1)(C), for purposes of paragraph (1), such spouse shall be deemed for each month during which such spouse is a full-time student at an educational institution, or is such a qualifying individual, to be gainfully employed and to have earned income of not less than—

(A) $250 if subsection (c)(1) applies for the taxable year, or

(B) $500 if subsection (c)(2) applies for the taxable year.

In the case of any husband and wife, this paragraph shall apply with respect to only one spouse for any one month.

(e) Special rulesFor purposes of this section—

(1) Place of abode

(2) Married couples must file joint return

(3) Marital status

(4) Certain married individuals living apartIf—

(A) an individual who is married and who files a separate return—

(i) maintains as his home a household which constitutes for more than one-half of the taxable year the principal place of abode of a qualifying individual, and

(ii) furnishes over half of the cost of maintaining such household during the taxable year, and

(B) during the last 6 months of such taxable year such individual’s spouse is not a member of such household,

such individual shall not be considered as married.

(5) Special dependency test in case of divorced parents, etc.If—

(A) section 152(e) applies to any child with respect to any calendar year, and

(B) such child is under the age of 13 or is physically or mentally incapable of caring for himself,

in the case of any taxable year beginning in such calendar year, such child shall be treated as a qualifying individual described in subparagraph (A) or (B) of subsection (b)(1) (whichever is appropriate) with respect to the custodial parent (as defined in section 152(e)(4)(A)), and shall not be treated as a qualifying individual with respect to the noncustodial parent.

(6) Payments to related individualsNo credit shall be allowed under subsection (a) for any amount paid by the taxpayer to an individual—

(A) with respect to whom, for the taxable year, a deduction under section 151(c) (relating to deduction for personal exemptions for dependents) is allowable either to the taxpayer or his spouse, or

(B) who is a child of the taxpayer (within the meaning of section 152(f)(1)) who has not attained the age of 19 at the close of the taxable year.

For purposes of this paragraph, the term “taxable year” means the taxable year of the taxpayer in which the service is performed.

(7) Student

(8) Educational organization

(9) Identifying information required with respect to service providerNo credit shall be allowed under subsection (a) for any amount paid to any person unless—

(A) the name, address, and taxpayer identification number of such person are included on the return claiming the credit, or

(B) if such person is an organization described in section 501(c)(3) and exempt from tax under section 501(a), the name and address of such person are included on the return claiming the credit.

In the case of a failure to provide the information required under the preceding sentence, the preceding sentence shall not apply if it is shown that the taxpayer exercised due diligence in attempting to provide the information so required.

(10) Identifying information required with respect to qualifying individuals

(f) Regulations

(g) Special rules for 2021In the case of any taxable year beginning after December 31, 2020, and before January 1, 2022—

(1) Credit made refundable

(2) Increase in dollar limit on amount creditableSubsection (c) shall be applied—

(A) by substituting “$8,000” for “$3,000” in paragraph (1) thereof, and

(B) by substituting “$16,000” for “$6,000” in paragraph (2) thereof.

(3) Increase in applicable percentageSubsection (a)(2) shall be applied—

(A) by substituting “50 percent” for “35 percent”, and

(B) by substituting “$125,000” for “$15,000”.

(4) Application of phaseout to high income individuals

(A) In general

(B) Phaseout percentage

(h) Application of credit in possessions

(1) Payment to possessions with mirror code tax systems

(2) Payments to other possessions

(3) Coordination with credit allowed against United States income taxesIn the case of any taxable year beginning in or with 2021, no credit shall be allowed under this section to any individual—

(A) to whom a credit is allowable against taxes imposed by a possession with a mirror code tax system by reason of this section, or

(B) who is eligible for a payment under a plan described in paragraph (2).

(4) Mirror code tax system

(5) Treatment of payments

(Added Pub. L. 94–455, title V, § 504(a)(1), Oct. 4, 1976, 90 Stat. 1563, § 44A; amended Pub. L. 95–600, title I, § 121(a), Nov. 6, 1978, 92 Stat. 2779; Pub. L. 97–34, title I § 124 (a)–(d), Aug. 13, 1981, 95 Stat. 197, 198; Pub. L. 98–21, title I, § 122(c)(1), Apr. 20, 1983, 97 Stat. 87; renumbered § 21 and amended Pub. L. 98–369, div. A, title IV, §§ 423(c)(4), 471(c), 474(c), July 18, 1984, 98 Stat. 801, 826, 830; Pub. L. 99–514, title I, § 104(b)(1), Oct. 22, 1986, 100 Stat. 2104; Pub. L. 100–203, title X, § 10101(a), Dec. 22, 1987, 101 Stat. 1330–384; Pub. L. 100–485, title VII, § 703(a)–(c)(1), Oct. 13, 1988, 102 Stat. 2426, 2427; Pub. L. 104–188, title I, § 1615(b), Aug. 20, 1996, 110 Stat. 1853; Pub. L. 107–16, title II, § 204(a), (b), June 7, 2001, 115 Stat. 49; Pub. L. 107–147, title IV, § 418(b), Mar. 9, 2002, 116 Stat. 57; Pub. L. 108–311, title II, §§ 203, 207(2), (3), Oct. 4, 2004, 118 Stat. 1175, 1177; Pub. L. 109–135, title IV, § 404(b), Dec. 21, 2005, 119 Stat. 2634; Pub. L. 110–172, § 11(a)(1), Dec. 29, 2007, 121 Stat. 2484; Pub. L. 117–2, title IX, § 9631(a), (b), Mar. 11, 2021, 135 Stat. 159.)

§ 22. Credit for the elderly and the permanently and totally disabled

(a) General rule

(b) Qualified individualFor purposes of this section, the term “qualified individual” means any individual—

(1) who has attained age 65 before the close of the taxable year, or

(2) who retired on disability before the close of the taxable year and who, when he retired, was permanently and totally disabled.

(1) In general

(2) Initial amount

(A) In generalExcept as provided in subparagraph (B), the initial amount shall be—

(i) $5,000 in the case of a single individual, or a joint return where only one spouse is a qualified individual,

(ii) $7,500 in the case of a joint return where both spouses are qualified individuals, or

(iii) $3,750 in the case of a married individual filing a separate return.

(B) Limitation in case of individuals who have not attained age 65

(i) In general

(ii) Special rules in case of joint returnIn the case of a joint return where both spouses are qualified individuals and at least one spouse has not attained age 65 before the close of the taxable year—(I) if both spouses have not attained age 65 before the close of the taxable year, the initial amount shall not exceed the sum of such spouses’ disability income, or(II) if one spouse has attained age 65 before the close of the taxable year, the initial amount shall not exceed the sum of $5,000 plus the disability income for the taxable year of the spouse who has not attained age 65 before the close of the taxable year.

(iii) Disability income

(3) Reduction

(A) In generalThe reduction under this paragraph is an amount equal to the sum of the amounts received by the individual (or, in the case of a joint return, by either spouse) as a pension or annuity or as a disability benefit—

(i) which is excluded from gross income and payable under—(I) title II of the Social Security Act,(II) the Railroad Retirement Act of 1974, or(III) a law administered by the Department of Veterans Affairs, or

(ii) which is excluded from gross income under any provision of law not contained in this title.

No reduction shall be made under clause (i)(III) for any amount described in section 104(a)(4).

(B) Treatment of certain workmen’s compensation benefits

(d) Adjusted gross income limitationIf the adjusted gross income of the taxpayer exceeds—

(1) $7,500 in the case of a single individual,

(2) $10,000 in the case of a joint return, or

(3) $5,000 in the case of a married individual filing a separate return,

the section 22 amount shall be reduced by one-half of the excess of the adjusted gross income over $7,500, $10,000, or $5,000, as the case may be.

(e) Definitions and special rulesFor purposes of this section—

(1) Married couple must file joint return

(2) Marital status

(3) Permanent and total disability defined

(f) Nonresident alien ineligible for credit

(Aug. 16, 1954, ch. 736, 68A Stat. 15, § 37; Aug. 9, 1955, ch. 659, § 1, 69 Stat. 591; Jan. 28, 1956, ch. 17, § 1, 70 Stat. 8; Pub. L. 87–792, § 7(a), Oct. 10, 1962, 76 Stat. 828; Pub. L. 87–876, § 1, Oct. 24, 1962, 76 Stat. 1199; Pub. L. 88–272, title I, § 113(a), title II, §§ 201(d)(3), 202(a), Feb. 26, 1964, 78 Stat. 24, 32, 33; Pub. L. 93–406, title II, § 2002(g)(1), Sept. 2, 1974, 88 Stat. 968; Pub. L. 94–455, title V, § 503(a), title XIX, § 1901(c)(1), Oct. 4, 1976, 90 Stat. 1559, 1803; Pub. L. 95–600, title VII, §§ 701(a)(1)–(3), 703(j)(11), Nov. 6, 1978, 92 Stat. 2897, 2942; Pub. L. 96–222, title I, § 107(a)(1)(E)(i), Apr. 1, 1980, 94 Stat. 222; Pub. L. 97–34, title I, § 111(b)(4), Aug. 13, 1981, 95 Stat. 194; Pub. L. 98–21, title I, § 122(a), Apr. 20, 1983, 97 Stat. 85; renumbered § 22 and amended Pub. L. 98–369, div. A, title IV, §§ 471(c), 474(d), July 18, 1984, 98 Stat. 826, 830; Pub. L. 99–514, title XIII, § 1301(j)(8), Oct. 22, 1986, 100 Stat. 2658; Pub. L. 115–141, div. U, title IV, § 401(a)(2)(A), Mar. 23, 2018, 132 Stat. 1184.)

§ 23. Adoption expenses

(a) Allowance of credit

(1) In general

(2) Year credit allowed

The credit under paragraph (1) with respect to any expense shall be allowed—

(A) in the case of any expense paid or incurred before the taxable year in which such adoption becomes final, for the taxable year following the taxable year during which such expense is paid or incurred, and

(B) in the case of an expense paid or incurred during or after the taxable year in which such adoption becomes final, for the taxable year in which such expense is paid or incurred.

(3) $10,000 credit for adoption of child with special needs regardless of expenses

(b) Limitations

(1) Dollar limitation

(2) Income limitation

(A) In general

The amount allowable as a credit under subsection (a) for any taxable year (determined without regard to subsection (c)) shall be reduced (but not below zero) by an amount which bears the same ratio to the amount so allowable (determined without regard to this paragraph but with regard to paragraph (1)) as—

(i) the amount (if any) by which the taxpayer’s adjusted gross income exceeds $150,000, bears to

(ii) $40,000.

(B) Determination of adjusted gross income

(3) Denial of double benefit

(A) In general

(B) Grants

(1) In general

(2) Limitation

(d) Definitions

For purposes of this section—

(1) Qualified adoption expenses

The term “qualified adoption expenses” means reasonable and necessary adoption fees, court costs, attorney fees, and other expenses—

(A) which are directly related to, and the principal purpose of which is for, the legal adoption of an eligible child by the taxpayer,

(B) which are not incurred in violation of State or Federal law or in carrying out any surrogate parenting arrangement,

(C) which are not expenses in connection with the adoption by an individual of a child who is the child of such individual’s spouse, and

(D) which are not reimbursed under an employer program or otherwise.

(2) Eligible child

The term “eligible child” means any individual who—

(A) has not attained age 18, or

(B) is physically or mentally incapable of caring for himself.

(3) Child with special needs

The term “child with special needs” means any child if—

(A) a State has determined that the child cannot or should not be returned to the home of his parents,

(B) such State has determined that there exists with respect to the child a specific factor or condition (such as his ethnic background, age, or membership in a minority or sibling group, or the presence of factors such as medical conditions or physical, mental, or emotional handicaps) because of which it is reasonable to conclude that such child cannot be placed with adoptive parents without providing adoption assistance, and

(e) Special rules for foreign adoptions

In the case of an adoption of a child who is not a citizen or resident of the United States (as defined in section 217(h)(3))—

(1) subsection (a) shall not apply to any qualified adoption expense with respect to such adoption unless such adoption becomes final, and

(2) any such expense which is paid or incurred before the taxable year in which such adoption becomes final shall be taken into account under this section as if such expense were paid or incurred during such year.

(f) Filing requirements

(1) Married couples must file joint returns

(2) Taxpayer must include TIN

(A) In general

(B) Other methods

(g) Basis adjustments

(h) Adjustments for inflation

In the case of a taxable year beginning after December 31, 2002, each of the dollar amounts in subsection (a)(3) and paragraphs (1) and (2)(A)(i) of subsection (b) shall be increased by an amount equal to—

(1) such dollar amount, multiplied by

(2) the cost-of-living adjustment determined under section 1(f)(3) for the calendar year in which the taxable year begins, determined by substituting “calendar year 2001” for “calendar year 2016” in subparagraph (A)(ii) thereof.

If any amount as increased under the preceding sentence is not a multiple of $10, such amount shall be rounded to the nearest multiple of $10.

(i) Regulations

(Added Pub. L. 104–188, title I, § 1807(a), Aug. 20, 1996, 110 Stat. 1899, § 23; amended Pub. L. 105–34, title XVI, § 1601(h)(2)(A), (B), Aug. 5, 1997, 111 Stat. 1092; Pub. L. 105–206, title VI, §§ 6008(d)(6), 6018(f)(1), July 22, 1998, 112 Stat. 812, 823; Pub. L. 107–16, title II, §§ 201(b)(2)(E), 202(a)(1), (b)(1)(A), (2)(A), (c), (d)(1), (e)(1), (f)(1), (2)(A), June 7, 2001, 115 Stat. 46–49; Pub. L. 107–147, title IV, §§ 411(c)(1)(A)–(E), 418(a)(1), Mar. 9, 2002, 116 Stat. 45, 57; Pub. L. 109–58, title XIII, § 1335(b)(1), Aug. 8, 2005, 119 Stat. 1036; Pub. L. 109–135, title IV, § 402(i)(3)(A), (4), Dec. 21, 2005, 119 Stat. 2612, 2615; Pub. L. 110–343, div. B, title I, § 106(e)(2)(A), Oct. 3, 2008, 122 Stat. 3817; renumbered § 36C, amended, and renumbered § 23, Pub. L. 111–148, title X, § 10909(a)(1), (b)(1), (2)(I), (c), Mar. 23, 2010, 124 Stat. 1021, 1022, 1023; Pub. L. 111–312, title I, § 101(b)(1), Dec. 17, 2010, 124 Stat. 3298; Pub. L. 112–240, title I, § 104(c)(2)(A), Jan. 2, 2013, 126 Stat. 2321; Pub. L. 115–97, title I, § 11002(d)(1)(A), Dec. 22, 2017, 131 Stat. 2060; Pub. L. 115–141, div. U, title IV, § 401(d)(4)(B)(i), Mar. 23, 2018, 132 Stat. 1209.)

§ 24. Child tax credit

(a) Allowance of credit

(b) Limitations

(1) Limitation based on adjusted gross income

(2) Threshold amountFor purposes of paragraph (1), the term “threshold amount” means—

(A) $110,000 in the case of a joint return,

(B) $75,000 in the case of an individual who is not married, and

For purposes of this paragraph, marital status shall be determined under section 7703.

(1) In general

(2) Exception for certain noncitizens

(d) Portion of credit refundable

(1) In generalThe aggregate credits allowed to a taxpayer under subpart C shall be increased by the lesser of—

(A) the credit which would be allowed under this section without regard to this subsection and the limitation under section 26(a) or

(B) the amount by which the aggregate amount of credits allowed by this subpart (determined without regard to this subsection) would increase if the limitation imposed by section 26(a) were increased by the greater of—

(i) 15 percent of so much of the taxpayer’s earned income (within the meaning of section 32) which is taken into account in computing taxable income for the taxable year as exceeds $3,000, or

(ii) in the case of a taxpayer with 3 or more qualifying children, the excess (if any) of—(I) the taxpayer’s social security taxes for the taxable year, over(II) the credit allowed under section 32 for the taxable year.

The amount of the credit allowed under this subsection shall not be treated as a credit allowed under this subpart and shall reduce the amount of credit otherwise allowable under subsection (a) without regard to section 26(a). For purposes of subparagraph (B), any amount excluded from gross income by reason of section 112 shall be treated as earned income which is taken into account in computing taxable income for the taxable year.

(2) Social security taxesFor purposes of paragraph (1)—

(A) In generalThe term “social security taxes” means, with respect to any taxpayer for any taxable year—

(i) the amount of the taxes imposed by sections 3101 and 3201(a) on amounts received by the taxpayer during the calendar year in which the taxable year begins,

(ii) 50 percent of the taxes imposed by section 1401 on the self-employment income of the taxpayer for the taxable year, and

(iii) 50 percent of the taxes imposed by section 3211(a) on amounts received by the taxpayer during the calendar year in which the taxable year begins.

(B) Coordination with special refund of social security taxes

(3) Exception for taxpayers excluding foreign earned income

(e) Identification requirements

(1) Qualifying child identification requirement

(2) Taxpayer identification requirement

(f) Taxable year must be full taxable year

(g) Restrictions on taxpayers who improperly claimed credit in prior year

(1) Taxpayers making prior fraudulent or reckless claims

(A) In general

(B) Disallowance periodFor purposes of subparagraph (A), the disallowance period is—

(i) the period of 10 taxable years after the most recent taxable year for which there was a final determination that the taxpayer’s claim of credit under this section was due to fraud, and

(ii) the period of 2 taxable years after the most recent taxable year for which there was a final determination that the taxpayer’s claim of credit under this section was due to reckless or intentional disregard of rules and regulations (but not due to fraud).

(2) Taxpayers making improper prior claims

(h) Special rules for taxable years 2018 through 2025

(1) In general

(2) Credit amount

(3) Limitation

(4) Partial credit allowed for certain other dependents

(A) In general

(B) Exception for certain noncitizens

(5) Maximum amount of refundable credit

(A) In general

(B) Adjustment for inflationIn the case of a taxable year beginning after 2018, the $1,400 amount in subparagraph (A) shall be increased by an amount equal to—

(i) such dollar amount, multiplied by

(ii) the cost-of-living adjustment determined under section 1(f)(3) for the calendar year in which the taxable year begins, determined by substituting “2017” for “2016” in subparagraph (A)(ii) thereof.

If any increase under this clause is not a multiple of $100, such increase shall be rounded to the next lowest multiple of $100.

(6) Earned income threshold for refundable credit

(7) Social security number requiredNo credit shall be allowed under this section to a taxpayer with respect to any qualifying child unless the taxpayer includes the social security number of such child on the return of tax for the taxable year. For purposes of the preceding sentence, the term “social security number” means a social security number issued to an individual by the Social Security Administration, but only if the social security number is issued—

(A) to a citizen of the United States or pursuant to subclause (I) (or that portion of subclause (III) that relates to subclause (I)) of section 205(c)(2)(B)(i) of the Social Security Act, and

(B) before the due date for such return.

(i) Special rules for 2021In the case of any taxable year beginning after December 31, 2020, and before January 1, 2022—

(1) Refundable creditIf the taxpayer (in the case of a joint return, either spouse) has a principal place of abode in the United States (determined as provided in section 32) for more than one-half of the taxable year or is a bona fide resident of Puerto Rico (within the meaning of section 937(a)) for such taxable year—

(A) subsection (d) shall not apply, and

so much of the credit determined under subsection (a) (after application of subparagraph (A)) as does not exceed the amount of such credit which would be so determined without regard to subsection (h)(4) shall be allowed under subpart C (and not allowed under this subpart).

(2) 17-year-olds eligible for treatment as qualifying childrenThis section shall be applied—

(A) by substituting “age 18” for “age 17” in subsection (c)(1), and

(B) by substituting “described in subsection (c) (determined after the application of subsection (i)(2)(A))” for “described in subsection (c)” in subsection (h)(4)(A).

(3) Credit amount

(4) Reduction of increased credit amount based on modified adjusted gross income

(A) In general

(B) Applicable threshold amountFor purposes of this paragraph, the term “applicable threshold amount” means—

(i) $150,000, in the case of a joint return or surviving spouse (as defined in section 2(a)) ,1

1 So in original.

(ii) $112,500, in the case of a head of household (as defined in section 2(b)), and

(iii) $75,000, in any other case.

(i) In generalThe amount of the reduction under subparagraph (A) shall not exceed the lesser of—(I) the applicable credit increase amount, or(II) 5 percent of the applicable phaseout threshold range.

(ii) Applicable credit increase amountFor purposes of this subparagraph, the term “applicable credit increase amount” means the excess (if any) of—(I) the amount of the credit allowable under this section for the taxable year determined without regard to this paragraph and subsection (b), over(II) the amount of such credit as so determined and without regard to paragraph (3).

(iii) Applicable phaseout threshold rangeFor purposes of this subparagraph, the term “applicable phaseout threshold range” means the excess of—(I) the threshold amount applicable to the taxpayer under subsection (b) (determined after the application of subsection (h)(3)), over(II) the applicable threshold amount applicable to the taxpayer under this paragraph.

(D) Coordination with limitation on overall credit

(j) Reconciliation of credit and advance credit

(1) In general

(2) Excess advance payments

(A) In general

(B) Safe harbor based on modified adjusted gross income

(i) In general

(ii) Phase out of safe harbor amount

(iii) Applicable income thresholdFor purposes of this subparagraph, the term “applicable income threshold” means—(I) $60,000 in the case of a joint return or surviving spouse (as defined in section 2(a)),(II) $50,000 in the case of a head of household, and(III) $40,000 in any other case.

(iv) Safe harbor amountFor purposes of this subparagraph, the term “safe harbor amount” means, with respect to any taxable year, the product of—(I) $2,000, multiplied by(II) the excess (if any) of the number of qualified children taken into account in determining the annual advance amount with respect to the taxpayer under section 7527A with respect to months beginning in such taxable year, over the number of qualified children taken into account in determining the credit allowed under this section for such taxable year.

(k) Application of credit in possessions

(1) Mirror code possessions

(A) In general

(B) Coordination with credit allowed against United States income taxes

(2) Puerto Rico

(A) Application to taxable years in 2021

(i) For application of refundable credit to residents of Puerto Rico, see subsection (i)(1).

(ii) For nonapplication of advance payment to residents of Puerto Rico, see section 7527A(e)(4)(A).

(B) Application to taxable years after 2021In the case of any bona fide resident of Puerto Rico (within the meaning of section 937(a)) for any taxable year beginning after December 31, 2021—

(i) the credit determined under this section shall be allowable to such resident, and

(ii) subsection (d)(1)(B)(ii) shall be applied without regard to the phrase “in the case of a taxpayer with 3 or more qualifying children”.

(3) American Samoa

(A) In general

(B) Distribution requirement

(i) In general

(ii) Application of section in event of absence of approved planIn the case of a taxable year with respect to which a plan is not approved under subparagraph (B)—(I) if such taxable year begins in 2021, subsection (i)(1) shall be applied by substituting “bona fide resident of Puerto Rico or American Samoa” for “bona fide resident of Puerto Rico”, and(II) if such taxable year begins after December 31, 2021, rules similar to the rules of paragraph (2)(B) shall apply with respect to bona fide residents of American Samoa (within the meaning of section 937(a)).

(4) Treatment of payments

(Added Pub. L. 105–34, title I, § 101(a), Aug. 5, 1997, 111 Stat. 796; amended Pub. L. 105–206, title VI, § 6003(a), July 22, 1998, 112 Stat. 790; Pub. L. 105–277, div. J, title II, § 2001(b), Oct. 21, 1998, 112 Stat. 2681–901; Pub. L. 106–170, title V, § 501(b)(1), Dec. 17, 1999, 113 Stat. 1919; Pub. L. 107–16, title II, §§ 201(a)–(b)(2)(C), (c)(1), (2), (d), 202(f)(2)(B), title VI, § 618(b)(2)(A), June 7, 2001, 115 Stat. 45–47, 49, 108; Pub. L. 107–90, title II, § 204(e)(1), Dec. 21, 2001, 115 Stat. 893; Pub. L. 107–147, title IV, §§ 411(b), 417(23)(A), Mar. 9, 2002, 116 Stat. 45, 57; Pub. L. 108–27, title I, § 101(a), May 28, 2003, 117 Stat. 753; Pub. L. 108–311, title I, §§ 101(a), 102(a), 104(a), title II, § 204, title IV, § 408(b)(4), Oct. 4, 2004, 118 Stat. 1167, 1168, 1176, 1192; Pub. L. 109–135, title IV, § 402(i)(3)(B), Dec. 21, 2005, 119 Stat. 2613; Pub. L. 110–172, § 11(c)(1), Dec. 29, 2007, 121 Stat. 2488; Pub. L. 110–343, div. B, title I, § 106(e)(2)(B), title II, § 205(d)(1)(A), div. C, title V, § 501(a), Oct. 3, 2008, 122 Stat. 3817, 3838, 3876; Pub. L. 110–351, title V, § 501(c)(1), Oct. 7, 2008, 122 Stat. 3979; Pub. L. 111–5, div. B, title I, §§ 1003(a), 1004(b)(1), 1142(b)(1)(A), 1144(b)(1)(A), Feb. 17, 2009, 123 Stat. 313, 314, 330, 332; Pub. L. 111–148, title X, § 10909(b)(2)(A), (c), Mar. 23, 2010, 124 Stat. 1023; Pub. L. 111–312, title I, §§ 101(b)(1), 103(b), Dec. 17, 2010, 124 Stat. 3298, 3299; Pub. L. 112–240, title I, §§ 103(b), 104(c)(2)(B), Jan. 2, 2013, 126 Stat. 2319, 2321; Pub. L. 113–295, div. A, title II, § 209(a), Dec. 19, 2014, 128 Stat. 4028; Pub. L. 114–27, title VIII, § 807(a), June 29, 2015, 129 Stat. 418; Pub. L. 114–113, div. Q, title I, § 101(a), (b), title II, §§ 205(a), (b), 208(a)(1), Dec. 18, 2015, 129 Stat. 3044, 3081, 3083; Pub. L. 115–97, title I, § 11022(a), Dec. 22, 2017, 131 Stat. 2073; Pub. L. 115–141, div. U, title I, § 101(i)(1), title IV, § 401(a)(3), Mar. 23, 2018, 132 Stat. 1162, 1184; Pub. L. 117–2, title IX, §§ 9611(a), (b)(2), 9612(a), Mar. 11, 2021, 135 Stat. 144, 148, 150.)

§ 25. Interest on certain home mortgages

(a) Allowance of credit

(1) In generalThere shall be allowed as a credit against the tax imposed by this chapter for the taxable year an amount equal to the product of—

(A) the certificate credit rate, and

(B) the interest paid or accrued by the taxpayer during the taxable year on the remaining principal of the certified indebtedness amount.

(2) Limitation where credit rate exceeds 20 percent

(A) In general

(B) Special rule where 2 or more persons hold interests in residence

(b) Certificate credit rate; certified indebtedness amountFor purposes of this section—

(1) Certificate credit rate

(2) Certified indebtedness amountThe term “certified indebtedness amount” means the amount of indebtedness which is—

(A) incurred by the taxpayer—

(i) to acquire the principal residence of the taxpayer,

(ii) as a qualified home improvement loan (as defined in section 143(k)(4)) with respect to such residence, or

(iii) as a qualified rehabilitation loan (as defined in section 143(k)(5)) with respect to such residence, and

(B) specified in the mortgage credit certificate.

(1) Mortgage credit certificateThe term “mortgage credit certificate” means any certificate which—

(A) is issued under a qualified mortgage credit certificate program by the State or political subdivision having the authority to issue a qualified mortgage bond to provide financing on the principal residence of the taxpayer,

(B) is issued to the taxpayer in connection with the acquisition, qualified rehabilitation, or qualified home improvement of the taxpayer’s principal residence,

(i) the certificate credit rate, and

(ii) the certified indebtedness amount, and

(D) is in such form as the Secretary may prescribe.

(2) Qualified mortgage credit certificate program

(A) In generalThe term “qualified mortgage credit certificate program” means any program—

(i) which is established by a State or political subdivision thereof for any calendar year for which it is authorized to issue qualified mortgage bonds,

(ii) under which the issuing authority elects (in such manner and form as the Secretary may prescribe) not to issue an amount of private activity bonds which it may otherwise issue during such calendar year under section 146,

(iii) under which the indebtedness certified by mortgage credit certificates meets the requirements of the following subsections of section 143 (as modified by subparagraph (B) of this paragraph):(I) subsection (c) (relating to residence requirements),(II) subsection (d) (relating to 3-year requirement),(III) subsection (e) (relating to purchase price requirement),(IV) subsection (f) (relating to income requirements),(V) subsection (h) (relating to portion of loans required to be placed in targeted areas), and(VI) paragraph (1) of subsection (i) (relating to other requirements),

(iv) under which no mortgage credit certificate may be issued with respect to any residence any of the financing of which is provided from the proceeds of a qualified mortgage bond or a qualified veterans’ mortgage bond,

(v) except to the extent provided in regulations, which is not limited to indebtedness incurred from particular lenders,

(vi) except to the extent provided in regulations, which provides that a mortgage credit certificate is not transferrable, and

(vii) if the issuing authority allocates a block of mortgage credit certificates for use in connection with a particular development, which requires the developer to furnish to the issuing authority and the homebuyer a certificate that the price for the residence is no higher than it would be without the use of a mortgage credit certificate.

Under regulations, rules similar to the rules of subparagraphs (B) and (C) of section 143(a)(2) shall apply to the requirements of this subparagraph.

(B) Modifications of section 143Under regulations prescribed by the Secretary, in applying section 143 for purposes of subclauses (II), (IV), and (V) of subparagraph (A)(iii)—

(i) each qualified mortgage certificate credit program shall be treated as a separate issue,

(ii) the product determined by multiplying—(I) the certified indebtedness amount of each mortgage credit certificate issued under such program, by(II) the certificate credit rate specified in such certificate,

shall be treated as proceeds of such issue and the sum of such products shall be treated as the total proceeds of such issue, and

(iii) paragraph (1) of section 143(d) shall be applied by substituting “100 percent” for “95 percent or more”.

Clause (iii) shall not apply if the issuing authority submits a plan to the Secretary for administering the 95-percent requirement of section 143(d)(1) and the Secretary is satisfied that such requirement will be met under such plan.

(d) Determination of certificate credit rateFor purposes of this section—

(1) In general

(2) Aggregate limit on certificate credit rates

(A) In generalIn the case of each qualified mortgage credit certificate program, the sum of the products determined by multiplying—

(i) the certified indebtedness amount of each mortgage credit certificate issued under such program, by

(ii) the certificate credit rate with respect to such certificate,

shall not exceed 25 percent of the nonissued bond amount.

(B) Nonissued bond amount

(e) Special rules and definitionsFor purposes of this section—

(1) Carryforward of unused credit

(A) In general

(B) LimitationThe amount of the unused credit which may be taken into account under subparagraph (A) for any taxable year shall not exceed the amount (if any) by which the applicable tax limit for such taxable year exceeds the sum of—

(i) the credit allowable under subsection (a) for such taxable year determined without regard to this paragraph, and

(ii) the amounts which, by reason of this paragraph, are carried to such taxable year and are attributable to taxable years before the unused credit year.

(2) Indebtedness not treated as certified where certain requirements not in fact met

(3) Period for which certificate in effect

(A) In generalExcept as provided in subparagraph (B), a mortgage credit certificate shall be treated as in effect with respect to interest attributable to the period—

(i) beginning on the date such certificate is issued, and

(ii) ending on the earlier of the date on which—(I) the certificate is revoked by the issuing authority, or(II) the residence to which such certificate relates ceases to be the principal residence of the individual to whom the certificate relates.

(B) Certificate invalid unless indebtedness incurred within certain period

(4) Reissuance of mortgage credit certificates

(5) Public notice that certificates will be issuedAt least 90 days before any mortgage credit certificate is to be issued after a qualified mortgage credit certificate program, the issuing authority shall provide reasonable public notice of—

(A) the eligibility requirements for such certificate,

(B) the methods by which such certificates are to be issued, and

(6) Interest paid or accrued to related persons

(7) Principal residence

(8) Qualified rehabilitation and home improvement

(A) Qualified rehabilitation

(B) Qualified home improvement

(9) Qualified mortgage bond

(10) Manufactured housing

(f) Reduction in aggregate amount of qualified mortgage bonds which may be issued where certain requirements not met

(1) In general

(2) Correction amount

(A) In general

(B) Excess credit amount

(i) In generalFor purposes of subparagraph (A)(ii), the term “excess credit amount” means the excess of—(I) the credit amount for any mortgage credit certificate program, over(II) the amount which would have been the credit amount for such program had such program met the requirements of paragraph (2) of subsection (d).

(ii) Credit amount

(3) Special rule for States having constitutional home rule cities

(4) Exception where certification program

(5) Waiver

(g) Reporting requirementsEach person who makes a loan which is a certified indebtedness amount under any mortgage credit certificate shall file a report with the Secretary containing—

(1) the name, address, and social security account number of the individual to which the certificate was issued,

(2) the certificate’s issuer, date of issue, certified indebtedness amount, and certificate credit rate, and

(3) such other information as the Secretary may require by regulations.

Each person who issues a mortgage credit certificate shall file a report showing such information as the Secretary shall by regulations prescribe. Any such report shall be filed at such time and in such manner as the Secretary may require by regulations.

(h) Regulations; contracts

(1) Regulations

(2) Contracts

(i) Recapture of portion of Federal subsidy from use of mortgage credit certificates

(Added Pub. L. 98–369, div. A, title VI, § 612(a), July 18, 1984, 98 Stat. 905; amended Pub. L. 99–514, title XIII, § 1301(f), title XVIII, §§ 1862(a)–(d)(1), 1899A(1), Oct. 22, 1986, 100 Stat. 2655, 2883, 2884, 2958; Pub. L. 100–647, title I, § 1013(a)(25), (26), title IV, § 4005(a)(2), (g)(7), Nov. 10, 1988, 102 Stat. 3543, 3645, 3651; Pub. L. 101–239, title VII, § 7104(b), Dec. 19, 1989, 103 Stat. 2305; Pub. L. 101–508, title XI, § 11408(b), Nov. 5, 1990, 104 Stat. 1388–477; Pub. L. 102–227, title I, § 108(b), Dec. 11, 1991, 105 Stat. 1688; Pub. L. 103–66, title XIII, § 13141(b), Aug. 10, 1993, 107 Stat. 436; Pub. L. 104–188, title I, § 1807(c)(1), Aug. 20, 1996, 110 Stat. 1902; Pub. L. 105–34, title III, § 312(d)(1), Aug. 5, 1997, 111 Stat. 839; Pub. L. 105–206, title VI, § 6008(d)(7), July 22, 1998, 112 Stat. 812; Pub. L. 107–16, title II, § 201(b)(2)(F), title VI, § 618(b)(2)(B), June 7, 2001, 115 Stat. 46, 108; Pub. L. 109–58, title XIII, § 1335(b)(2), Aug. 8, 2005, 119 Stat. 1036; Pub. L. 109–135, title IV, § 402(i)(3)(C), (4), Dec. 21, 2005, 119 Stat. 2613, 2615; Pub. L. 110–343, div. B, title II, § 205(d)(1)(B), Oct. 3, 2008, 122 Stat. 3838; Pub. L. 111–5, div. B, title I, §§ 1004(b)(2), 1142(b)(1)(B), 1144(b)(1)(B), Feb. 17, 2009, 123 Stat. 314, 330, 332; Pub. L. 111–148, title X, § 10909(b)(2)(B), (c), Mar. 23, 2010, 124 Stat. 1023; Pub. L. 111–312, title I, § 101(b)(1), Dec. 17, 2010, 124 Stat. 3298; Pub. L. 112–240, title I, § 104(c)(2)(C), Jan. 2, 2013, 126 Stat. 2322; Pub. L. 115–141, div. U, title IV, § 401(d)(4)(B)(ii), Mar. 23, 2018, 132 Stat. 1209.)

§ 25A. American Opportunity and Lifetime Learning credits

(a) Allowance of creditIn the case of an individual, there shall be allowed as a credit against the tax imposed by this chapter for the taxable year the amount equal to the sum of—

(1) the American Opportunity Tax Credit, plus

(2) the Lifetime Learning Credit.

(b) American Opportunity Tax Credit

(1) Per student creditIn the case of any eligible student for whom an election is in effect under this section for any taxable year, the American Opportunity Tax Credit is an amount equal to the sum of—

(A) 100 percent of so much of the qualified tuition and related expenses paid by the taxpayer during the taxable year (for education furnished to the eligible student during any academic period beginning in such taxable year) as does not exceed $2,000, plus

(B) 25 percent of such expenses so paid as exceeds $2,000 but does not exceed $4,000.

(2) Limitations applicable to American Opportunity Tax Credit

(A) Credit allowed only for 4 taxable years

(B) Credit allowed for year only if individual is at least ½ time student for portion of year

(D) Denial of credit if student convicted of a felony drug offense

(3) Eligible studentFor purposes of this subsection, the term “eligible student” means, with respect to any academic period, a student who—

(A) meets the requirements of section 484(a)(1) of the Higher Education Act of 1965 (20 U.S.C. 1091(a)(1)), as in effect on the date of the enactment of this section, and

(B) is carrying at least ½ the normal full-time work load for the course of study the student is pursuing.

(4) Restrictions on taxpayers who improperly claimed American Opportunity Tax Credit in prior years

(A) Taxpayers making prior fraudulent or reckless claims

(i) In general

(ii) Disallowance periodFor purposes of subparagraph (A), the disallowance period is—(I) the period of 10 taxable years after the most recent taxable year for which there was a final determination that the taxpayer’s claim of the American Opportunity Tax Credit under this section was due to fraud, and(II) the period of 2 taxable years after the most recent taxable year for which there was a final determination that the taxpayer’s claim of the American Opportunity Tax Credit under this section was due to reckless or intentional disregard of rules and regulations (but not due to fraud).

(B) Taxpayers making improper prior claims

(1) Per taxpayer credit

(2) Special rules for determining expenses

(A) Coordination with American Opportunity Tax Credit

(B) Expenses eligible for Lifetime Learning Credit

(d) Limitations based on modified adjusted gross income

(1) In generalThe American Opportunity Tax Credit and the Lifetime Learning Credit shall each (determined without regard to this paragraph) be reduced (but not below zero) by the amount which bears the same ratio to each such credit (as so determined) as—

(A) the excess of—

(i) the taxpayer’s modified adjusted gross income for such taxable year, over

(ii) $80,000 ($160,000 in the case of a joint return), bears to

(B) $10,000 ($20,000 in the case of a joint return).

(2) Modified adjusted gross income

(e) Election not to have section apply

(f) DefinitionsFor purposes of this section—

(1) Qualified tuition and related expenses

(A) In generalThe term “qualified tuition and related expenses” means tuition and fees required for the enrollment or attendance of—

(i) the taxpayer,

(ii) the taxpayer’s spouse, or

(iii) any dependent of the taxpayer with respect to whom the taxpayer is allowed a deduction under section 151,

at an eligible educational institution for courses of instruction of such individual at such institution.

(B) Exception for education involving sports, etc.

(D) Required course materials taken into account for American Opportunity Tax Credit

(2) Eligible educational institutionThe term “eligible educational institution” means an institution—

(A) which is described in section 481 of the Higher Education Act of 1965 (20 U.S.C. 1088), as in effect on the date of the enactment of this section, and

(B) which is eligible to participate in a program under title IV of such Act.

(g) Special rules

(1) Identification requirement

(A) In general

(B) Additional identification requirements with respect to American Opportunity Tax Credit

(i) Student

(ii) Taxpayer

(iii) Institution

(2) Adjustment for certain scholarships, etc.The amount of qualified tuition and related expenses otherwise taken into account under subsection (a) with respect to an individual for an academic period shall be reduced (before the application of subsections (b), (c), and (d)) by the sum of any amounts paid for the benefit of such individual which are allocable to such period as—

(A) a qualified scholarship which is excludable from gross income under section 117,

(B) an educational assistance allowance under chapter 30, 31, 32, 34, or 35 of title 38, United States Code, or under chapter 1606 of title 10, United States Code, and

(C) a payment (other than a gift, bequest, devise, or inheritance within the meaning of section 102(a)) for such individual’s educational expenses, or attributable to such individual’s enrollment at an eligible educational institution, which is excludable from gross income under any law of the United States.

(3) Treatment of expenses paid by dependentIf a deduction under section 151 with respect to an individual is allowed to another taxpayer for a taxable year beginning in the calendar year in which such individual’s taxable year begins—

(A) no credit shall be allowed under subsection (a) to such individual for such individual’s taxable year,

(B) qualified tuition and related expenses paid by such individual during such individual’s taxable year shall be treated for purposes of this section as paid by such other taxpayer, and

(4) Treatment of certain prepayments

(5) Denial of double benefit

(6) No credit for married individuals filing separate returns

(7) Nonresident aliens

(8) Payee statement requirement

[(h) Repealed. Pub. L. 116–260, div. EE, title I, § 104(a)(2), Dec. 27, 2020, 134 Stat. 3041]

(i) Portion of American Opportunity Tax Credit made refundable

(j) Regulations

(Added Pub. L. 105–34, title II, § 201(a), Aug. 5, 1997, 111 Stat. 799; amended Pub. L. 107–16, title IV, § 401(g)(2)(A), June 7, 2001, 115 Stat. 59; Pub. L. 111–5, div. B, title I, § 1004(a), Feb. 17, 2009, 123 Stat. 313; Pub. L. 111–148, title X, § 10909(b)(2)(C), (c), Mar. 23, 2010, 124 Stat. 1023; Pub. L. 111–312, title I, §§ 101(b)(1), 103(a)(1), Dec. 17, 2010, 124 Stat. 3298, 3299; Pub. L. 112–240, title I, §§ 103(a)(1), 104(c)(2)(D), Jan. 2, 2013, 126 Stat. 2319, 2322; Pub. L. 113–295, div. A, title II, § 209(b), Dec. 19, 2014, 128 Stat. 4028; Pub. L. 114–27, title VIII, § 804(a), June 29, 2015, 129 Stat. 415; Pub. L. 114–113, div. Q, title I, § 102(a), title II, §§ 206(a), 208(a)(2), 211(a), Dec. 18, 2015, 129 Stat. 3044, 3082, 3083, 3085; Pub. L. 115–97, title I, § 11002(d)(1)(B), Dec. 22, 2017, 131 Stat. 2060; Pub. L. 115–141, div. U, title I, § 101(l)(1)–(9), (11)–(14), title IV, § 401(b)(1), Mar. 23, 2018, 132 Stat. 1162–1165, 1201; Pub. L. 116–260, div. EE, title I, § 104(a), Dec. 27, 2020, 134 Stat. 3040.)

§ 25B. Elective deferrals and IRA contributions by certain individuals

(a) Allowance of credit

(b) Applicable percentageFor purposes of this section—

(1) Joint returnsIn the case of a joint return, the applicable percentage is—

(A) if the adjusted gross income of the taxpayer is not over $30,000, 50 percent,

(B) if the adjusted gross income of the taxpayer is over $30,000 but not over $32,500, 20 percent,

(D) if the adjusted gross income of the taxpayer is over $50,000, zero percent.

(2) Other returnsIn the case of—

(A) a head of household, the applicable percentage shall be determined under paragraph (1) except that such paragraph shall be applied by substituting for each dollar amount therein (as adjusted under paragraph (3)) a dollar amount equal to 75 percent of such dollar amount, and

(B) any taxpayer not described in paragraph (1) or subparagraph (A), the applicable percentage shall be determined under paragraph (1) except that such paragraph shall be applied by substituting for each dollar amount therein (as adjusted under paragraph (3)) a dollar amount equal to 50 percent of such dollar amount.

(3) Inflation adjustmentIn the case of any taxable year beginning in a calendar year after 2006, each of the dollar amounts in paragraph (1) shall be increased by an amount equal to—

(A) such dollar amount, multiplied by

(B) the cost-of-living adjustment determined under section 1(f)(3) for the calendar year in which the taxable year begins, determined by substituting “calendar year 2005” for “calendar year 2016” in subparagraph (A)(ii) thereof.

Any increase determined under the preceding sentence shall be rounded to the nearest multiple of $500.

(1) In general

(2) Dependents and full-time students not eligibleThe term “eligible individual” shall not include—

(A) any individual with respect to whom a deduction under section 151 is allowed to another taxpayer for a taxable year beginning in the calendar year in which such individual’s taxable year begins, and

(B) any individual who is a student (as defined in section 152(f)(2)).

(d) Qualified retirement savings contributionsFor purposes of this section—

(1) In generalThe term “qualified retirement savings contributions” means, with respect to any taxable year, the sum of—

(A) the amount of the qualified retirement contributions (as defined in section 219(e)) made by the eligible individual,

(B) the amount of—

(i) any elective deferrals (as defined in section 402(g)(3)) of such individual, and

(ii) any elective deferral of compensation by such individual under an eligible deferred compensation plan (as defined in section 457(b)) of an eligible employer described in section 457(e)(1)(A),

(C) the amount of voluntary employee contributions by such individual to any qualified retirement plan (as defined in section 4974(c)), and

(D) the amount of contributions made before January 1, 2026, by such individual to the ABLE account (within the meaning of section 529A) of which such individual is the designated beneficiary.

(2) Reduction for certain distributions

(A) In general

(B) Testing periodFor purposes of subparagraph (A), the testing period, with respect to a taxable year, is the period which includes—

(i) such taxable year,

(ii) the 2 preceding taxable years, and

(iii) the period after such taxable year and before the due date (including extensions) for filing the return of tax for such taxable year.

(i) any distribution referred to in section 72(p), 401(k)(8), 401(m)(6), 402(g)(2), 404(k), or 408(d)(4), and

(ii) any distribution to which section 408A(d)(3) applies.

(D) Treatment of distributions received by spouse of individual

(e) Adjusted gross income

(f) Investment in the contract

(Added and amended Pub. L. 107–16, title VI, § 618(a), (b)(1), June 7, 2001, 115 Stat. 106, 108; Pub. L. 107–147, title IV, §§ 411(m), 417(1), Mar. 9, 2002, 116 Stat. 48, 56; Pub. L. 108–311, title II, § 207(4), Oct. 4, 2004, 118 Stat. 1177; Pub. L. 109–135, title IV, § 402(i)(3)(D), Dec. 21, 2005, 119 Stat. 2614; Pub. L. 109–280, title VIII, §§ 812, 833(a), Aug. 17, 2006, 120 Stat. 997, 1003; Pub. L. 110–343, div. B, title I, § 106(e)(2)(C), title II, § 205(d)(1)(C), Oct. 3, 2008, 122 Stat. 3817, 3838; Pub. L. 111–5, div. B, title I, §§ 1004(b)(4), 1142(b)(1)(C), 1144(b)(1)(C), Feb. 17, 2009, 123 Stat. 314, 330, 332; Pub. L. 111–148, title X, § 10909(b)(2)(D), (c), Mar. 23, 2010, 124 Stat. 1023; Pub. L. 111–312, title I, § 101(b)(1), Dec. 17, 2010, 124 Stat. 3298; Pub. L. 112–240, title I, § 104(c)(2)(E), Jan. 2, 2013, 126 Stat. 2322; Pub. L. 115–97, title I, §§ 11002(d)(1)(C), 11024(b), Dec. 22, 2017, 131 Stat. 2060, 2076; Pub. L. 117–328, div. T, title I, § 103(e)(1), Dec. 29, 2022, 136 Stat. 5286.)

§ 25C. Energy efficient home improvement credit

(a) Allowance of creditIn the case of an individual, there shall be allowed as a credit against the tax imposed by this chapter for the taxable year an amount equal to 30 percent of the sum of—

(1) the amount paid or incurred by the taxpayer for qualified energy efficiency improvements installed during such taxable year,

(2) the amount of the residential energy property expenditures paid or incurred by the taxpayer during such taxable year, and

(3) the amount paid or incurred by the taxpayer during the taxable year for home energy audits.

(b) Limitations

(1) In general

(2) Energy property

(3) Windows

(4) DoorsThe credit allowed under this section by reason of subsection (a)(1) with respect to any taxpayer for any taxable year shall not exceed—

(A) $250 in the case of any exterior door, and

(B) $500 in the aggregate with respect to all exterior doors.

(5) Heat pump and heat pump water heaters; biomass stoves and boilers

(6) Home energy audits

(A) Dollar limitation

(B) Substantiation requirement

(1) In generalThe term “qualified energy efficiency improvements” means any energy efficient building envelope component, if—

(A) such component is installed in or on a dwelling unit located in the United States and owned and used by the taxpayer as the taxpayer’s principal residence (within the meaning of section 121),

(B) the original use of such component commences with the taxpayer, and

(2) Energy efficient building envelope componentThe term “energy efficient building envelope component” means a building envelope component which meets—

(A) in the case of an exterior window or skylight, Energy Star most efficient certification requirements,

(B) in the case of an exterior door, applicable Energy Star requirements, and

(C) in the case of any other component, the prescriptive criteria for such component established by the most recent International Energy Conservation Code standard in effect as of the beginning of the calendar year which is 2 years prior to the calendar year in which such component is placed in service.

(3) Building envelope componentThe term “building envelope component” means—

(A) any insulation material or system, including air sealing material or system, which is specifically and primarily designed to reduce the heat loss or gain of a dwelling unit when installed in or on such dwelling unit,

(B) exterior windows (including skylights), and

(4) Manufactured homes included

(d) Residential energy property expendituresFor purposes of this section—

(1) In generalThe term “residential energy property expenditures” means expenditures made by the taxpayer for qualified energy property which is—

(A) installed on or in connection with a dwelling unit located in the United States and used as a residence by the taxpayer, and

(B) originally placed in service by the taxpayer.

Such term includes expenditures for labor costs properly allocable to the onsite preparation, assembly, or original installation of the property.

(2) Qualified energy propertyThe term “qualified energy property” means any of the following:

(A) Any of the following which meet or exceed the highest efficiency tier (not including any advanced tier) established by the Consortium for Energy Efficiency which is in effect as of the beginning of the calendar year in which the property is placed in service:

(i) An electric or natural gas heat pump water heater.

(ii) An electric or natural gas heat pump.

(iii) A central air conditioner.

(iv) A natural gas, propane, or oil water heater.

(v) A natural gas, propane, or oil furnace or hot water boiler.

(B) A biomass stove or boiler which—

(i) uses the burning of biomass fuel to heat a dwelling unit located in the United States and used as a residence by the taxpayer, or to heat water for use in such a dwelling unit, and

(ii) has a thermal efficiency rating of at least 75 percent (measured by the higher heating value of the fuel).

(i) is placed in service after December 31, 2022, and before January 1, 2027, and—(I) meets or exceeds 2021 Energy Star efficiency criteria, and(II) is rated by the manufacturer for use with fuel blends at least 20 percent of the volume of which consists of an eligible fuel, or

(ii) is placed in service after December 31, 2026, and—(I) achieves an annual fuel utilization efficiency rate of not less than 90, and(II) is rated by the manufacturer for use with fuel blends at least 50 percent of the volume of which consists of an eligible fuel.

(D) Any improvement to, or replacement of, a panelboard, sub-panelboard, branch circuits, or feeders which—

(i) is installed in a manner consistent with the National Electric Code,

(ii) has a load capacity of not less than 200 amps,

(iii) is installed in conjunction with—(I) any qualified energy efficiency improvements, or(II) any qualified energy property described in subparagraphs (A) through (C) for which a credit is allowed under this section for expenditures with respect to such property, and

(iv) enables the installation and use of any property described in subclause (I) or (II) of clause (iii).

(3) Eligible fuelFor purposes of paragraph (2), the term “eligible fuel” means—

(A) biodiesel and renewable diesel (within the meaning of section 40A), and

(B) second generation biofuel (within the meaning of section 40).

(e) Home energy auditsFor purposes of this section, the term “home energy audit” means an inspection and written report with respect to a dwelling unit located in the United States and owned or used by the taxpayer as the taxpayer’s principal residence (within the meaning of section 121) which—

(1) identifies the most significant and cost-effective energy efficiency improvements with respect to such dwelling unit, including an estimate of the energy and cost savings with respect to each such improvement, and

(2) is conducted and prepared by a home energy auditor that meets the certification or other requirements specified by the Secretary in regulations or other guidance (as prescribed by the Secretary not later than 365 days after the date of the enactment of this subsection).

(f) Special rulesFor purposes of this section—

(1) Application of rules

(2) Joint ownership of energy items

(A) In general

(B) Limits applied separately

(3) Property financed by subsidized energy financing

(g) Basis adjustments

(h) TerminationThis section shall not apply with respect to any property placed in service—

(1) after December 31, 2007, and before January 1, 2009, or

(2) after December 31, 2032.

(Added Pub. L. 109–58, title XIII, § 1333(a), Aug. 8, 2005, 119 Stat. 1026; amended Pub. L. 109–135, title IV, § 412(b), Dec. 21, 2005, 119 Stat. 2636; Pub. L. 110–172, § 11(a)(2), Dec. 29, 2007, 121 Stat. 2484; Pub. L. 110–343, div. B, title III, § 302(a)–(e), Oct. 3, 2008, 122 Stat. 3844, 3845; Pub. L. 111–5, div. B, title I, §§ 1103(b)(2)(A), 1121(a)–(e), Feb. 17, 2009, 123 Stat. 320, 322–324; Pub. L. 111–312, title VII, § 710(a), (b), Dec. 17, 2010, 124 Stat. 3314; Pub. L. 112–240, title IV, § 401(a), Jan. 2, 2013, 126 Stat. 2337; Pub. L. 113–295, div. A, title I, § 151(a), Dec. 19, 2014, 128 Stat. 4021; Pub. L. 114–113, div. Q, title I, § 181(a), (b), Dec. 18, 2015, 129 Stat. 3072; Pub. L. 115–123, div. D, title I, § 40401(a), Feb. 9, 2018, 132 Stat. 148; Pub. L. 115–141, div. U, title IV, § 401(a)(4)–(6), Mar. 23, 2018, 132 Stat. 1184; Pub. L. 116–94, div. Q, title I, § 123(a), (b), Dec. 20, 2019, 133 Stat. 3231; Pub. L. 116–260, div. EE, title I, §§ 141(a), 148(b)(3), Dec. 27, 2020, 134 Stat. 3054, 3055; Pub. L. 117–169, title I, §§ 13301(a)–(f)(3)(A), (g)(1), (h)(1), 13704(b)(1), Aug. 16, 2022, 136 Stat. 1941–1946, 2002.)

§ 25D. Residential clean energy credit

(a) Allowance of credit

(1) the qualified solar electric property expenditures,

(2) the qualified solar water heating property expenditures,

(3) the qualified fuel cell property expenditures,

(4) the qualified small wind energy property expenditures,

(5) the qualified geothermal heat pump property expenditures, and

(6) the qualified battery storage technology expenditures,

made by the taxpayer during such year.

(b) Limitations

(1) Maximum credit for fuel cells

(2) Certification of solar water heating property

(d) DefinitionsFor purposes of this section—

(1) Qualified solar water heating property expenditure

(2) Qualified solar electric property expenditure

(3) Qualified fuel cell property expenditure

(4) Qualified small wind energy property expenditure

(5) Qualified geothermal heat pump property expenditure

(A) In general

(B) Qualified geothermal heat pump propertyThe term “qualified geothermal heat pump property” means any equipment which—

(i) uses the ground or ground water as a thermal energy source to heat the dwelling unit referred to in subparagraph (A) or as a thermal energy sink to cool such dwelling unit, and

(ii) meets the requirements of the Energy Star program which are in effect at the time that the expenditure for such equipment is made.

(6) Qualified battery storage technology expenditureThe term “qualified battery storage technology expenditure” means an expenditure for battery storage technology which—

(A) is installed in connection with a dwelling unit located in the United States and used as a residence by the taxpayer, and

(B) has a capacity of not less than 3 kilowatt hours.

(e) Special rulesFor purposes of this section—

(1) Labor costs

(2) Solar panels

(3) Swimming pools, etc., used as storage medium

(4) Fuel cell expenditure limitations in case of joint occupancyIn the case of any dwelling unit with respect to which qualified fuel cell property expenditures are made and which is jointly occupied and used during any calendar year as a residence by two or more individuals, the following rules shall apply:

(A) Maximum expenditures for fuel cells

(B) Allocation of expendituresThe expenditures allocated to any individual for the taxable year in which such calendar year ends shall be an amount equal to the lesser of—

(i) the amount of expenditures made by such individual with respect to such dwelling during such calendar year, or

(ii) the maximum amount of such expenditures set forth in subparagraph (A) multiplied by a fraction—(I) the numerator of which is the amount of such expenditures with respect to such dwelling made by such individual during such calendar year, and(II) the denominator of which is the total expenditures made by all such individuals with respect to such dwelling during such calendar year.

(5) Tenant-stockholder in cooperative housing corporation

(6) Condominiums

(A) In general

(B) Condominium management association

(7) Allocation in certain cases

(8) When expenditure made; amount of expenditure

(A) In general

(B) Expenditures part of building construction

(f) Basis adjustments

(g) Applicable percentageFor purposes of subsection (a), the applicable percentage shall be—

(1) in the case of property placed in service after December 31, 2016, and before January 1, 2020, 30 percent,

(2) in the case of property placed in service after December 31, 2019, and before January 1, 2022, 26 percent,

(3) in the case of property placed in service after December 31, 2021, and before January 1, 2033, 30 percent,

(4) in the case of property placed in service after December 31, 2032, and before January 1, 2034, 26 percent, and

(5) in the case of property placed in service after December 31, 2033, and before January 1, 2035, 22 percent.

(h) Termination

(Added Pub. L. 109–58, title XIII, § 1335(a), Aug. 8, 2005, 119 Stat. 1033; amended Pub. L. 109–135, title IV, § 402(i)(1), (2), (3)(E), Dec. 21, 2005, 119 Stat. 2612, 2614; Pub. L. 109–432, div. A, title II, § 206, Dec. 20, 2006, 120 Stat. 2945; Pub. L. 110–343, div. B, title I, § 106(a)–(c)(3)(A), (c)(4)–(e)(1), Oct. 3, 2008, 122 Stat. 3814–3816; Pub. L. 111–5, div. B, title I, §§ 1103(b)(2)(B), 1122(a), Feb. 17, 2009, 123 Stat. 320, 324; Pub. L. 112–240, title I, § 104(c)(2)(F), Jan. 2, 2013, 126 Stat. 2322; Pub. L. 114–113, div. P, title III, § 304(a), Dec. 18, 2015, 129 Stat. 3039; Pub. L. 115–123, div. D, title I, § 40402(a), (b), Feb. 9, 2018, 132 Stat. 148; Pub. L. 116–260, div. EE, title I, § 148(a)–(b)(2), Dec. 27, 2020, 134 Stat. 3055; Pub. L. 117–169, title I, § 13302(a)–(c)(2), Aug. 16, 2022, 136 Stat. 1946, 1947.)

§ 25E. Previously-owned clean vehicles

(a) Allowance of creditIn the case of a qualified buyer who during a taxable year places in service a previously-owned clean vehicle, there shall be allowed as a credit against the tax imposed by this chapter for the taxable year an amount equal to the lesser of—

(1) $4,000, or

(2) the amount equal to 30 percent of the sale price with respect to such vehicle.

(b) Limitation based on modified adjusted gross income

(1) In generalNo credit shall be allowed under subsection (a) for any taxable year if—

(A) the lesser of—

(i) the modified adjusted gross income of the taxpayer for such taxable year, or

(ii) the modified adjusted gross income of the taxpayer for the preceding taxable year, exceeds

(B) the threshold amount.

(2) Threshold amountFor purposes of paragraph (1)(B), the threshold amount shall be—

(A) in the case of a joint return or a surviving spouse (as defined in section 2(a)), $150,000,

(B) in the case of a head of household (as defined in section 2(b)), $112,500, and

(3) Modified adjusted gross income

(1) Previously-owned clean vehicleThe term “previously-owned clean vehicle” means, with respect to a taxpayer, a motor vehicle—

(A) the model year of which is at least 2 years earlier than the calendar year in which the taxpayer acquires such vehicle,

(B) the original use of which commences with a person other than the taxpayer,

(D) which—

(i) meets the requirements of subparagraphs (C), (D), (E), (F), and (H) (except for clause (iv) thereof) of section 30D(d)(1), or

(ii) is a motor vehicle which—(I) satisfies the requirements under subparagraphs (A) and (B) of section 30B(b)(3), and(II) has a gross vehicle weight rating of less than 14,000 pounds.

(2) Qualified saleThe term “qualified sale” means a sale of a motor vehicle—

(A) by a dealer (as defined in section 30D(g)(8)),

(B) for a sale price which does not exceed $25,000, and

(C) which is the first transfer since the date of the enactment of this section to a qualified buyer other than the person with whom the original use of such vehicle commenced.

(3) Qualified buyerThe term “qualified buyer” means, with respect to a sale of a motor vehicle, a taxpayer—

(A) who is an individual,

(B) who purchases such vehicle for use and not for resale,

(D) who has not been allowed a credit under this section for any sale during the 3-year period ending on the date of the sale of such vehicle.

(4) Motor vehicle; capacity

(d) VIN number requirement

(e) Application of certain rules

(f) Transfer of credit

(g) Termination

(Added and amended Pub. L. 117–169, title I, § 13402(a), (b), Aug. 16, 2022, 136 Stat. 1962, 1963.)

§ 26. Limitation based on tax liability; definition of tax liability

(a) Limitation based on amount of tax

The aggregate amount of credits allowed by this subpart for the taxable year shall not exceed the sum of—

(1) the taxpayer’s regular tax liability for the taxable year reduced by the foreign tax credit allowable under section 27, and

(2) the tax imposed by section 55(a) for the taxable year.

(b) Regular tax liability

For purposes of this part—

(1) In general

(2) Exception for certain taxes

For purposes of paragraph (1), any tax imposed by any of the following provisions shall not be treated as tax imposed by this chapter:

(A) section 55 (relating to minimum tax),

(B) section 59A (relating to base erosion and anti-abuse tax),

(D) section 143(m) (relating to recapture of proration of Federal subsidy from use of mortgage bonds and mortgage credit certificates),

(E) section 530(d)(4) (relating to additional tax on certain distributions from Coverdell education savings accounts),

(F) section 531 (relating to accumulated earnings tax),

(G) section 541 (relating to personal holding company tax),

(H) section 1351(d)(1) (relating to recoveries of foreign expropriation losses),

(I) section 1374 (relating to tax on certain built-in gains of S corporations),

(J) section 1375 (relating to tax imposed when passive investment income of corporation having subchapter C earnings and profits exceeds 25 percent of gross receipts),

(K) subparagraph (A) of section 7518(g)(6) (relating to nonqualified withdrawals from capital construction funds taxed at highest marginal rate),

(L) sections 871(a) and 881 (relating to certain income of nonresident aliens and foreign corporations),

(M) section 860E(e) (relating to taxes with respect to certain residual interests),

(N) section 884 (relating to branch profits tax),

(O) sections 453(l)(3) and 453A(c) (relating to interest on certain deferred tax liabilities),

[(P) Repealed. Pub. L. 115–141, div. U, title IV, § 401(b)(2), Mar. 23, 2018, 132 Stat. 1201.]

(Q) section 220(f)(4) (relating to additional tax on Archer MSA distributions not used for qualified medical expenses),

(R) section 138(c)(2) (relating to penalty for distributions from Medicare Advantage MSA not used for qualified medical expenses if minimum balance not maintained),

(S) sections 106(e)(3)(A)(ii), 223(b)(8)(B)(i)(II), and 408(d)(9)(D)(i)(II) (relating to certain failures to maintain high deductible health plan coverage),

(T) section 170(o)(3)(B) (relating to recapture of certain deductions for fractional gifts),

(U) section 223(f)(4) (relating to additional tax on health savings account distributions not used for qualified medical expenses),

(V) subsections (a)(1)(B)(i) and (b)(4)(A) of section 409A (relating to interest and additional tax with respect to certain deferred compensation),

(W) section 36(f) (relating to recapture of homebuyer credit),

(X) section 457A(c)(1)(B) (relating to determinability of amounts of compensation),

(Y) section 529A(c)(3)(A) (relating to additional tax on ABLE account distributions not used for qualified disability expenses), and

(Z) section 24(j)(2) (relating to excess advance payments).

(Added § 25, renumbered § 26, Pub. L. 98–369, div. A, title IV, § 472, title VI, § 612(a), July 18, 1984, 98 Stat. 827, 905; amended Pub. L. 99–499, title V, § 516(b)(1)(A), Oct. 17, 1986, 100 Stat. 1770; Pub. L. 99–514, title II, § 261(c), title VI, § 632(c)(1), title VII, § 701(c)(1), Oct. 22, 1986, 100 Stat. 2214, 2277, 2340; Pub. L. 100–647, title I, §§ 1006(t)(16)(C), 1007(g)(1), 1011A(c)(10), 1012(q)(8), title IV, § 4005(g)(4), title V, § 5012(b)(2), Nov. 10, 1988, 102 Stat. 3425, 3434, 3476, 3524, 3650, 3662; Pub. L. 101–239, title VII, §§ 7811(c)(1), (2), 7821(a)(4)(A), Dec. 19, 1989, 103 Stat. 2406, 2407, 2424; Pub. L. 104–188, title I, § 1621(b)(1), Aug. 20, 1996, 110 Stat. 1866; Pub. L. 105–34, title II, § 213(e)(1), title XVI, § 1602(a)(1), Aug. 5, 1997, 111 Stat. 817, 1093; Pub. L. 105–277, div. J, title II, § 2001(a), Oct. 21, 1998, 112 Stat. 2681–901; Pub. L. 106–170, title V, § 501(a), Dec. 17, 1999, 113 Stat. 1918; Pub. L. 106–554, § 1(a)(7) [title II, § 202(a)(1)], Dec. 21, 2000, 114 Stat. 2763, 2763A–628; Pub. L. 107–16, title II, §§ 201(b)(2)(D), 202(f)(2)(C), title VI, § 618(b)(2)(C), June 7, 2001, 115 Stat. 46, 49, 108; Pub. L. 107–22, § 1(b)(2)(A), July 26, 2001, 115 Stat. 197; Pub. L. 107–147, title IV, §§ 415(a), 417(23)(B), title VI, § 601(a), Mar. 9, 2002, 116 Stat. 54, 57, 59; Pub. L. 108–311, title III, § 312(a), title IV, §§ 401(a)(1), 408(a)(5)(A), Oct. 4, 2004, 118 Stat. 1181, 1183, 1191; Pub. L. 109–135, title IV, §§ 403(hh)(1), 412(c), Dec. 21, 2005, 119 Stat. 2631, 2636; Pub. L. 109–222, title III, § 302(a), May 17, 2006, 120 Stat. 353; Pub. L. 110–166, § 3(a), Dec. 26, 2007, 121 Stat. 2461; Pub. L. 110–172, § 11(a)(3), Dec. 29, 2007, 121 Stat. 2484; Pub. L. 110–289, div. C, title I, § 3011(b)(1), July 30, 2008, 122 Stat. 2891; Pub. L. 110–343, div. B, title I, § 106(e)(2)(D), title II, § 205(d)(1)(D), div. C, title I, § 101(a), title VIII, § 801(b), Oct. 3, 2008, 122 Stat. 3817, 3839, 3863, 3931; Pub. L. 111–5, div. B, title I, §§ 1004(b)(3), 1011(a), 1142(b)(1)(D), 1144(b)(1)(D), Feb. 17, 2009, 123 Stat. 314, 319, 330, 332; Pub. L. 111–148, title X, § 10909(b)(2)(E), (c), Mar. 23, 2010, 124 Stat. 1023; Pub. L. 111–312, title I, § 101(b)(1), title II, § 202(a), Dec. 17, 2010, 124 Stat. 3298, 3299; Pub. L. 112–240, title I, § 104(c)(1), Jan. 2, 2013, 126 Stat. 2321; Pub. L. 113–295, div. A, title II, § 221(a)(12)(B), div. B, title I, § 102(e)(1), Dec. 19, 2014, 128 Stat. 4038, 4062; Pub. L. 115–97, title I, § 14401(c), Dec. 22, 2017, 131 Stat. 2233; Pub. L. 115–141, div. U, title IV, § 401(b)(2), (d)(1)(D)(ii), Mar. 23, 2018, 132 Stat. 1201, 1206; Pub. L. 117–2, title IX, § 9611(b)(4)(A), Mar. 11, 2021, 135 Stat. 150.)