- Which of the following individuals is eligible to claim the credit for qualified retirement savings contributions (Saver's Credit) on a 2025 return?
Answer: A 24-year-old who was a full-time student from January through April 2025, cannot be claimed as a dependent, is single, had 2025 AGI of $33,000, and made a $1,000 contribution to a Roth IRA for 2025 from wages.
IRC § 25B allows the Saver's Credit to eligible individuals who make qualified retirement savings contributions. An eligible individual must be at least 18 by the end of the year, cannot be claimed as a dependent, and cannot have been a full-time student for any part of five calendar months. For 2025, the AGI ceiling for single filers is $39,500. Choice D is correct because four months of full-time study is not enough to trigger the student disqualification, the taxpayer cannot be claimed as a dependent and has AGI below the ceiling, and a Roth IRA contribution is a qualified retirement savings contribution. Choice A is ineligible because a person who was a full-time student for at least five months does not qualify. Choice B is ineligible because the taxpayer is under age 18 at the end of 2025. Choice C is ineligible because AGI exceeds the $39,500 single-filer ceiling.
- What amount will she report as additional tax on her 2025 return as a result of the premium tax credit?
Answer: $975
IRC § 36B(f)(2)(B); 2025 Form 8962 instructions. If advance premium tax credit payments exceed the allowed premium tax credit, the excess is reported as additional tax, but the amount is limited by the statutory repayment cap. Here, the excess is $4,800 - $3,000 = $1,800. For a single taxpayer with household income of 250% of the Federal poverty line, the 2025 cap is $975. Because the cap is smaller than the excess, the additional tax is $975. Choice A is correct. Choice B ($1,800) ignores the repayment cap. Choice C ($1,950) applies the 2025 cap for taxpayers other than single taxpayers in the 200%-300% FPL range. Choice D ($4,800) would require repayment of all advance payments and ignores both the $3,000 allowed credit and the cap.
- Which taxpayer is eligible to claim the retirement savings contribution credit on a 2025 return?
Answer: A 35-year-old married taxpayer filing separately with AGI of $39,000, not a dependent and not a full-time student, who contributed $1,000 to a traditional IRA.
IRC § 25B; 2025 Form 8880 instructions. The saver's credit is available to a taxpayer who is at least 18, is not a dependent, is not a full-time student, and has AGI within the ceiling for the filing status. Contributions to traditional IRAs and Roth IRAs both count. For 2025, the ceiling for married taxpayers filing separately is $39,500, so Choice D satisfies all conditions. Choice A fails because a 17-year-old taxpayer has not reached age 18. Choice B fails because the head-of-household AGI ceiling for 2025 is $59,250, and AGI of $60,000 exceeds it. Choice C fails because the married-filing-jointly ceiling for 2025 is $79,000, and AGI of $80,000 exceeds it.
- What is the total amount of the adoption credit that Omar and Lena may claim on their 2025 return?
Answer: $8,000, which is the $5,000 refundable portion plus $3,000 of the credit used against tax.
Under IRC § 23(a), the 2025 adoption credit is the lesser of $22,000 and the $17,280 maximum, so the tentative credit is $17,280; it is not phased out because MAGI is below $259,190. As amended by OBBBA § 70402, up to $5,000 of the credit is refundable for tax years beginning after December 31, 2024. The remaining $12,280 is nonrefundable and limited by tax liability, so $3,000 is used against the tax and the unused balance carries forward. The total benefit for 2025 is $8,000. Choice A treats the entire credit as nonrefundable and ignores the refundable portion. Choice B ignores the nonrefundable portion, which offsets tax liability. Choice D ignores the tax-liability limit on the nonrefundable balance.
- Is Priya eligible to claim the retirement savings contributions credit (Saver's Credit) on her 2025 return?
Answer: Yes, because she was not a full-time student for at least five calendar months.
IRC § 25B(c) (the eligible-individual rule) denies the credit to a dependent, to an individual under age 18 at the close of the taxable year, and to a student as defined in IRC § 152(f)(2)—that is, a full-time student during each of at least five calendar months of the year. Priya is 19, is not a dependent, and was a full-time student for only four calendar months (September through December), so the student bar does not apply. Her AGI of $18,000 is below the $39,500 ceiling for single taxpayers, and Roth IRA contributions are qualified retirement savings contributions under IRC § 25B(d). Choice A misstates the rule for Roth IRAs. Choice B applies an incorrect age threshold; the statutory minimum age is 18, not 21. Choice D also incorrectly requires a traditional IRA instead of a Roth IRA.
- On which return may Rita claim the adoption credit for the $13,000?
Answer: On her 2026 return, because the expenses were paid before the adoption was final and the credit is not lost when a domestic adoption fails.
Under IRC § 23(a)(2), an expense paid before the year the adoption becomes final is claimed in the year after it is paid; an expense paid in or after the year of finality is claimed in that year. The same year-after-payment rule applies to a domestic adoption of a U.S. citizen or resident child that never becomes final. Because Rita paid the $13,000 in 2025 and the adoption was never finalized, she may claim the credit on her 2026 return. Choice A misapplies the pay-year rule and treats placement as finalization. Choice C adds a dependency requirement; the adoption credit requires only that the child be under age 18 or incapable of self-care, not that the child be a dependent. Choice D reflects the foreign-adoption rule requiring finality and does not apply because the child is a U.S. citizen.
- What amount will reduce their 2025 tax or be refunded to them as a result of the adoption credit for 2025?
Answer: $7,000
IRC § 23, as amended by OBBBA § 70402; 2025 Form 8839 instructions. For a U.S. citizen child with special needs, the taxpayer is treated as having paid qualified adoption expenses up to the maximum credit, $17,280 for 2025. The credit is phased out ratably when MAGI is between $259,190 and $299,190. Their MAGI of $279,190 is halfway through the $40,000 phase-out range, so the $17,280 credit is reduced by $8,640, leaving $8,640. Up to $5,000 of the credit is refundable for 2025; the remaining nonrefundable balance first offsets tax. The $2,000 regular tax is fully offset, and the $5,000 refundable amount is refunded, so the current-year tax benefit is $2,000 + $5,000 = $7,000. The unused nonrefundable balance ($3,640 - $2,000 = $1,640) carries forward. Choice C is correct. Choice A ($2,000) treats the whole credit as nonrefundable and ignores the $5,000 refundable portion. Choice B ($5,000) counts only the refundable piece and ignores the $2,000 of tax offset by the nonrefundable balance. Choice D ($8,640) treats the entire phase-out-limited credit as currently usable, ignoring that only $5,000 is refundable and the rest is limited by tax, with any unused amount carried forward.
- Which taxpayer is potentially eligible to claim the credit for the elderly or the disabled on a 2025 Form 1040?
Answer: A 62-year-old who retired on permanent and total disability and receives $8,000 of taxable disability income in 2025.
IRC § 22 allows a taxpayer under age 65 to claim the credit if the taxpayer retired before the close of the tax year on permanent and total disability and has taxable disability income. Choice A meets those requirements. Choice B is ineligible because the taxpayer is under 65 and not disabled, so neither the age-based nor the disability-based branch of the eligibility test is met. Choice C is ineligible because an under-65 disabled taxpayer must have taxable disability income; nontaxable workers' compensation does not qualify. Choice D is ineligible because the credit is generally not allowed to a nonresident alien.
- Does Hector's $2,500 contribution count for the Saver's Credit on his 2025 return?
Answer: Yes, because the contribution was made by the due date and his AGI does not exceed the $39,500 ceiling.
Under IRC § 219(f)(3), an IRA contribution made by the due date of the return, without extensions, is treated as made for the prior taxable year, and contributions so treated may be counted for the Saver's Credit under IRC § 25B. Hector made the contribution on April 10, 2026, before the April 15, 2026 due date, and his AGI of $39,400 does not exceed the $39,500 ceiling for single taxpayers. Choice B misstates the timing rule for IRA contributions. Choice C misstates the comparison between his AGI and the ceiling. Choice D is wrong because claiming the IRA deduction does not disqualify the same contribution from the Saver's Credit.
- What is the amount of Dean's adoption credit for 2025?
Answer: $17,000, because employer-paid assistance reduces the expenses eligible for the credit.
Under IRC § 23 and the Form 8839 instructions, the adoption credit is based on qualified adoption expenses paid or incurred by the taxpayer, and no credit is allowed for expenses paid or reimbursed by an employer under an adoption assistance program. The $8,000 employer payment is also excluded from Dean's gross income under IRC § 137, so it cannot also generate a credit. Dean's eligible expenses are $25,000 − $8,000 = $17,000, below the 2025 maximum of $17,280. Because his MAGI is below the phase-out range and his $20,000 tax liability before credits does not limit the credit, the 2025 credit is $17,000. Choice A ignores the required reduction of expenses. Choice B applies the reduction to the credit ceiling rather than to the expense base. Choice C counts the employer's payment, which would produce a double benefit the statute prohibits.
- In 2025, a married couple filing jointly paid $20,000 of qualified adoption expenses to adopt an eligible child. The adoption was finalized in 2025. Their modified adjusted gross income is $200,000, and their income tax liability before any credits is $3,000. What amount of adoption credit may they claim on their 2025 return?
Answer: $8,000
IRC § 23 allows an adoption credit equal to qualified adoption expenses, subject to a per-child dollar cap of $17,280 for 2025. Because the couple's MAGI is below the $259,190 phase-out threshold, the credit is not reduced. Of the $17,280 cap, up to $5,000 is refundable for tax years beginning after 2024. The remaining $12,280 is nonrefundable and can offset only the $3,000 tax liability, so the current-year credit is $5,000 + $3,000 = $8,000, with the unused $9,280 carried forward. Choice A ($5,000) counts only the refundable portion and ignores the nonrefundable credit usable against tax. Choice C ($17,280) applies the dollar cap but ignores the tax-liability limitation on the nonrefundable portion. Choice D ($20,000) uses the actual expenses before applying the $17,280 cap and the tax-liability limitation.
- What amount must Nina repay with her 2025 return because her advance credit payments exceeded her actual credit?
Answer: $1,625, which is the repayment cap for a single taxpayer at 300% to 400% of the federal poverty line.
Under IRC § 36B(f)(2)(B), when advance premium tax credit payments exceed the actual credit, the excess must be repaid with the return, but the repayment is limited to the statutory cap based on household income as a percentage of the federal poverty line. For 2025, the cap for a single taxpayer with household income between 300% and 400% of the federal poverty line is $1,625. Nina's excess is $6,400 minus $3,900, or $2,500, and the repayment is the lesser of the excess and the cap, so she repays $1,625. Choice A ignores the cap. Choice C applies the higher cap that applies to taxpayers other than single filers. Choice D uses the cap for the 200% to 300% income tier.
- Which of the following is correct regarding the foreign tax credit for an individual taxpayer for 2025?
Answer: The foreign tax credit is nonrefundable and is limited to the same proportion of the taxpayer's U.S. tax that foreign-source taxable income bears to worldwide taxable income.
IRC § 901 allows a credit for foreign income taxes, and IRC § 904(a) limits the credit to the same proportion of U.S. tax that foreign-source taxable income bears to worldwide taxable income, so Choice C is correct. Choice A is wrong: the credit may be claimed whether or not the taxpayer itemizes. Choice B is wrong: IRC § 911(d)(6) denies a credit for taxes paid on income excluded under the foreign earned income exclusion. Choice D is wrong: the same foreign taxes may not be both credited and deducted; the taxpayer must choose between the credit and the itemized deduction.
- In 2025, a married couple filing jointly received $8,400 in advance payments of the premium tax credit for Marketplace coverage. The premium tax credit properly allowable on their Form 8962 is $6,200, and their household income is 260% of the Federal poverty line. What amount of additional tax must they report for excess advance credit payments?
Answer: $1,950
IRC § 36B(f)(2)(B) limits the repayment of excess advance premium tax credits based on household income as a percentage of the Federal poverty line. For 2025, at 260% of the Federal poverty line (the 200–300% range), the cap for taxpayers other than single is $1,950. The excess advance payment is $2,200 ($8,400 − $6,200), so the additional tax is capped at $1,950. Choice A applies the $975 single-filer cap for the same range. Choice C ignores the statutory repayment cap and uses the full excess. Choice D applies the $3,250 cap for the 300–400% range.
- What is the amount of Elena's adoption credit for 2025?
Answer: $12,960, after applying the phase-out reduction for MAGI above the $259,190 floor.
Under IRC § 23(a)(1) and (b)(2), the adoption credit is the lesser of qualified adoption expenses and the 2025 statutory maximum of $17,280, reduced proportionally when modified adjusted gross income exceeds $259,190. Elena's MAGI exceeds the floor by $10,000 ($269,190 minus $259,190), which is 25% of the $40,000 phase-out range, so the $17,280 credit is reduced by $4,320 to $12,960. Her $14,000 tax liability does not limit the credit because it exceeds the credit. Choice B omits the phase-out. Choice C applies the 25% reduction to the uncapped $19,000 of expenses. Choice D treats the $10,000 MAGI excess as a dollar-for-dollar reduction of the statutory cap, which is not the statutory ratio formula.
