You may be able to take a tax credit of up to $10,390 for qualifying expenses paid to adopt an eligible child. A credit of up to $10,390 may be allowed for the adoption of a child with special needs even if you do not have any qualifying expenses.

If your modified adjusted gross income (AGI) is more than $155,860, your credit is reduced. If your modified AGI is $195,860 or more, you cannot claim the credit.

You generally can choose to claim income taxes you paid or accrued during the year to a foreign country or U.S. possession as a credit against your U.S. income tax. Or, you can deduct them as an itemized deduction (see chapter 24).

You cannot take a credit (or deduction) for foreign income taxes paid on income that you exclude from U.S. tax under any of the following.

The mortgage interest credit is intended to help lower-income individuals afford home ownership. If you qualify, you can claim the credit each year for part of the home mortgage interest you pay.

You may be able to take a tax credit of up to $1,000 ($2,000 if married filing jointly) for making eligible contributions to an employer-sponsored retirement plan or to an individual retirement arrangement (IRA). The credit is a percentage of the qualifying contributions, with the highest rate for taxpayers with the least income.

You cannot claim this credit if any of the following apply.

The amount of credit you can take depends on your filing status, your adjusted gross income (AGI), and your eligible contributions.

The tax laws give special treatment to some kinds of income and allow special deductions and credits for some kinds of expenses. If you benefit from these laws, you may have to pay at least a minimum amount of tax in addition to any other tax on these items. This is called the alternative minimum tax.

The special treatment of some items of income and expenses only allows you to postpone paying tax until a later year. If in prior years you paid alternative minimum tax because of these tax postponement items, you may be able to claim a credit for prior year minimum tax against your current year's regular tax. The amount of the credit cannot reduce your current year's tax below your current year's tentative alternative minimum tax.

You may be able to take a credit against your regular tax if for 2003 you had:

You may be allowed a tax credit if you placed a qualified electric vehicle in service during the year.

How to claim the credit.   To claim the credit, complete Form 8834 and attach it to your Form 1040. Include the credit in your total for Form 1040, line 54. Check box c, and print “8834” on the line next to box c.

  

Do not confuse this credit with the deduction for clean-fuel vehicles.

Most employers must withhold social security tax from your wages. If you work for a railroad employer, that employer must withhold tier 1 railroad retirement (RRTA) tax and tier 2 RRTA tax.

If you worked for two or more employers in 2004, you may have had too much social security or RRTA tax withheld from your pay. You can claim the excess social security or RRTA tier 1 tax as a credit against your income tax. The following table shows the maximum amount of wages subject to tax and the maximum amount of tax that should have been withheld in 2004.

You must include in your income any amounts that regulated investment companies (commonly called mutual funds) or real estate investment trusts (REITs) allocated to you as capital gain distributions, even if you did not actually receive them. If the mutual fund or REIT paid a tax on the capital gain, you are allowed a credit for the tax since it is considered paid by you. The mutual fund or REIT will send you Form 2439, Notice to Shareholder of Undistributed Long-Term Capital Gains, showing the undistributed capital gains and the tax paid, if any. Claim the credit for the tax paid by entering the amount on line 69, Form 1040, and checking box a. Attach Copy B of Form 2439 to your return. See Capital Gain Distributions in chapter 9 for more information on undistributed capital gains.

There is a health coverage tax credit available to certain individuals who receive a pension benefit from the Pension Benefit Guaranty Corporation (PBGC) or are eligible to receive certain Trade Adjustment Assistance (TAA) or who are eligible for the Alternate Trade Adjustment Assistance (ATAA) program. You qualify for this credit if you:

You qualify for this credit on a month-by-month basis. If you qualify, you can claim a credit equal to 65% of the premiums you pay for qualified health insurance.

You can either take this credit on your tax return or have it paid on your behalf in advance to your insurance company. Your payments and any payments paid on your behalf in advance are treated as having been made on the first day of the month for which they are made. If the credit is paid on your behalf in advance, that amount will reduce the amount of the credit you can claim on your tax return. If you received National Emergency Grant (NEG) payments during 2004 for qualified health insurance, that amount will also reduce the amount of the credit you can claim.

For a definition of an eligible individual, see the following discussion. For definitions of the terms in (2) and (3) earlier, including qualified health insurance and other specified coverage, see Publication 502.