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Unfortunately for some, fortunately for others, the child tax credit is fully refundable. I searched very hard, but couldn't find the order in which the two credits are applied, however.

Why do you say you can't move regular 401(k) or IRA to Roth? Are you saying that you don't have either, and only the federal pension? Or are you saying all your savings are already in Roth for some reason?
 

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Yes the $3K per child credit is fully refundable (as long as you qualify) but I read/heard it should be applied first. I still assume it still reduces you tax liability first and then the EV nonrefundable credit is applied. I could be wrong as I'm not a CPA. You could try to make the relevant changes on current/last tax return (via TurboTax etc) to see how it would theoretically would effect your taxes as well
 

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The federal savings plan is called the thrift savings plan or TSP. I don't have any other IRAs but that one. You can invest in it as a traditional or Roth style but that election must be done during "open season" and only applies to investment made after that point. So I can't say take $100,000 of the traditional in there and move it to Roth. I could have during open season switched the current year's deposits into the Roth style but that wouldn't have been more than about $8000 so maybe $1600 in increased tax liability.

As far as the child credit going first or last I can't believe I can't find a definitive answer with a google search. I must have tried 10 different wordings and nowhere is it clear. Just 100s of the same sights discussing different tax credits but not how they apply.

This is a huge downer if the child credits go first. It means I get some but I had a friend convinced to get one (a Pacifica hybrid) but he has 5 kids under 13. Perfect vehicle right? But no way he'd get to the point of being able to use a PHEV credit with that much child credits. In his case the Sienna hybrid is more attractive and probably why Toyota didn't bother with a plug in version as the normal customer for a minivan will never get the federal credit.

I also don't know if last years turbo tax or whoever's tax software will work yet for 2021 as the child tax credit being fully refundable is a new thing this year. We haven't even gotten all of the per-payments as more is scheduled to be given out monthly. This may have been the worst year possible to try and utilize the tax credit fully.

Next year or later this year they plan on going as high as $12,500 for made in the USA union shop built EVs, but if they don't change the refundability of the credit it sucks for the average Joe.
 

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Discussion Starter · #24 ·
Unfortunately for some, fortunately for others, the child tax credit is fully refundable. I searched very hard, but couldn't find the order in which the two credits are applied, however.

Scroll down to 21.6.3.4.1:

Nonrefundable Credits Procedures

Nonrefundable credits are applied in the order that they appear in this section, unless stated otherwise in the specific credit section, form instructions, or publication:

  • Form 1116, Foreign Tax Credit (Individual, Estate or Trust)
  • Form 2441, Child and Dependent Care Expenses
  • Schedule R, Credit for the Elderly or the Disabled
  • Form 8863, Education Credits (American Opportunity and Lifetime Learning Credits)
  • Form 8880, Credit for Qualified Retirement Savings Contributions
  • Form 5695, Residential Energy Credits (the line 30 amount from Part II)
  • Form 8910, Alternative Motor Vehicle Credit (personal part of the credit)
  • Form 8936, Qualified Plug-In Electric Motor Vehicle Credit
  • *Credit for Other Dependents
  • *Child Tax Credit
  • Form 8396, Mortgage Interest Credit
  • Form 8839, Qualified Adoption Expenses
  • Form 8859, Carryforward of the District of Columbia First-Time Homebuyer Credit
  • Form 5695, Residential Energy Credits (line 15 amount)
  • Form 8834, Qualified Electric Vehicle Credit
  • Form 3468, Investment Credit
  • Form 5884, Work Opportunity Credit
  • Form 6478, Biofuel Producer Credit
  • Form 6765, Credit for Increasing Research Activities
  • Form 8586, Low-Income Housing Credit
  • Form 8826, Disabled Access Credit
  • Form 8835, Renewable Electricity, Refined Coal, and Indian Coal Production Credit
  • Form 8845, Indian Employment Credit
  • Form 8846, Credit for Employer Social Security and Medicare Taxes Paid on Certain Employee Tips
  • Form 8820, Orphan Drug Credit
  • Form 8874, New Markets Credit
  • Form 8881, Credit for Small Employer Pension Plan Startup Costs
  • Form 8882, Credit for Employer-Provided Childcare Facilities and Services
  • Form 8900, Qualified Railroad Track Maintenance Credit
  • Form 8864, Biodiesel and Renewable Diesel Fuels Credit
  • Form 8896, Low Sulfur Diesel Fuel Production Credit
  • Form 8906, Distilled Spirits Credit
  • Form 8907, Nonconventional Source Fuel Credit
  • Form 8908, Energy Efficient Home Credit
  • Form 8910, Alternative Motor Vehicle Credit
  • Form 8911, Alternative Fuel Vehicle Refueling Property Credit
  • Form 5884-A, Credits for Affected Disaster Area Employers or Certain California Wildfires
  • Form 8844, Empowerment Zone Employment Credit
  • Form 8941, Credit for Small Employer Health Insurance Premiums
  • Form 8994, Employer Credit for Paid Family and Medical Leave
  • Form 8847, Credit for Contributions to Selected Community Development Corporations
  • Trans-Alaska Pipeline Liability Fund Credit, claimed on Form 3800, General Business Credit
  • Form 8912, Credit to Holders of Tax Credit Bonds
  • Form 8801, Credit for Prior Year Minimum Tax - Individuals, Estates, and Trusts

These nonrefundable credits are:

  1. Subtracted from the tax amount.
  2. Limited to the amount of the tax liability.
  3. Used before refundable credits.
Then there's 21.6.3.4.1.24 (10-09-2019):

Child Tax Credit (CTC)
  1. The Child Tax Credit is a nonrefundable credit which is used to reduce the taxpayer's tax liability...
  2. A portion of the Child Tax Credit may be refundable. See IRM 21.6.3.4.2.8, Additional Child Tax Credit (ACTC), for additional information.
 

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Discussion Starter · #25 ·
I also don't know if last years turbo tax or whoever's tax software will work yet for 2021
The best you can do, if you have the TurboTax desktop software, is to open your 2020 return and use the What-If tool.

It's way cool regardless. It will try to use what it knows of current tax law.
 

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So clarify this for me, which tax credits go first? Say after deductions I have exactly $7500 in federal tax liability, bought a Pacifica, and have one child. Does the Pacifica $7500 credit go first reducing my liability to zero then the refundable child credit go next reducing my liability to -$3000 ( or whatever it is now for a 15yo)? Or does the $3000 child credit go first reducing my liability to $4500 and then the Pacifica credit just take it the rest of the way to zero as it is not refundable?

Big difference. That's probably about exactly where I will be and as a 30+ year federal employee I can't move previous retirement savings from traditional to Roth.
For 2021 (you will file tax in 2022), the child tax credit is refundable. That means it will apply after the EV tax credit. So if your tax liability is $7,500, the EV credit will bring it down to zero, and with one 15yo child, you'll get a $3000 refund. That $3000 refund will be split into 6 payments of $250 starting in July and the other half when you file your tax.
 

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Be careful, though, bc the 2021 instructions haven’t been published yet. For 2020, even if you qualified to have the child tax credit be fully refundable, only the portion that was in excess of your taxes was actually considered refundable. The portion that reduced your taxes to zero was considered non-refundable, and since the electric vehicle credit was after the child tax credit in the order of calculation it effectively made the EV credit worthless if your child tax credits were greater than your taxes.

So I wouldn’t assume anything about how the child tax credit will be treated in relation to the non-refundable credits until the actual instructions or something similar are published. And I would go through the exercise of following the instructions yourself to see exactly how the credit are applied.
 

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Be careful, though, bc the 2021 instructions haven’t been published yet. For 2020, even if you qualified to have the child tax credit be fully refundable, only the portion that was in excess of your taxes was actually considered refundable. The portion that reduced your taxes to zero was considered non-refundable, and since the electric vehicle credit was after the child tax credit in the order of calculation it effectively made the EV credit worthless if your child tax credits were greater than your taxes.

So I wouldn’t assume anything about how the child tax credit will be treated in relation to the non-refundable credits until the actual instructions or something similar are published. And I would go through the exercise of following the instructions yourself to see exactly how the credit are applied.
It's published already, see here:
 

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It's published already, see here:
That doesn’t speak to how the refundability is being handled for 2021, though. For 2020, the Child Tax Credit was broken up into a non-refundable “Child Tax Credit” (CTC) and a refundable “Additional Child Tax Credit” (ACTC). See here and here. The fact that the non-refundable portion was applied before the EV tax credit means that you could reduce your taxes to zero with the CTC and then not have any tax left to be applied against the EV credit. The ACTC is then calculated and refundable. So for 2021 we need to see the updated Pub 972 instructions to see whether the Child Tax Credit is treated as one fully refundable credit or if it is still broken up into a non-refundable CTC and refundable ACTC.
 

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That doesn’t speak to how the refundability is being handled for 2021, though. For 2020, the Child Tax Credit was broken up into a non-refundable “Child Tax Credit” (CTC) and a refundable “Additional Child Tax Credit” (ACTC). See here and here. The fact that the non-refundable portion was applied before the EV tax credit means that you could reduce your taxes to zero with the CTC and then not have any tax left to be applied against the EV credit. The ACTC is then calculated and refundable. So for 2021 we need to see the updated Pub 972 instructions to see whether the Child Tax Credit is treated as one fully refundable credit or if it is still broken up into a non-refundable CTC and refundable ACTC.
It says it's fully refundable for 2021. That means it will get applied last. For 2020, it was nonrefundable but a portion was partial refundable so it was applied before the EV tax credit.
 

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It says it's fully refundable for 2021. That means it will get applied last. For 2020, it was nonrefundable but a portion was partial refundable so it was applied before the EV tax credit.
True, and I understand that. Anyone comfortable trusting that 0% of the Child Tax Credit will impact the non-refundable credits can plan that way, but I would 100% want to make sure exactly how it is handled does before finalizing my tax planning. So until Pub 972 and the 1040 instructions are updated, I’m not fully comfortable in treating it like the recovery credits. That’s just how I’d approach it personally.
 
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There are "wash sale" rules about harvesting losses, ie selling investments at a loss to offset other gains, and then rebuying those same investments. I don't think those same rules apply to harvesting gains, but I'm not a tax professional.
Correct, "tax gain harvesting" is a well established tax optimization strategy, eg to take advantage of the ridiculously large 0% bracket for capital gains. See here for more https://www.bogleheads.org/wiki/Tax_gain_harvesting
 

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The federal savings plan is called the thrift savings plan or TSP.
The TSP allows in-service rollovers, so while it might be a hassle, you could theoretically roll your Traditional TSP balance into a Traditional IRA and then perform a Roth conversion on the Traditional IRA. Might not be worth it if it only increases your tax burden by 1600. Then again, 1600 is better than nothing.
 
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