Question

Colton's adoption credit exceeds his tax liability for this year. the excess credit is:

a. refundable in the current year.
b. nonrefundable and cannot be carried to another tax year.
c. nonrefundable, but can be carried back two years.
d. nonrefundable, but can be carried forward up to five years.

Answer 1

The correct answer is that Colton's excess adoption credit is nonrefundable (option d), but can be carried forward up to five years to offset future tax liabilities.

Step-by-step explanation:

Colton's adoption credit exceeds his tax liability for this year. According to current tax law, the excess credit is nonrefundable, but it can be carried forward for future use. In this case, the correct answer to the student's question is d. nonrefundable, but can be carried forward up to five years.

Nonrefundable tax credits can only reduce a taxpayer's liability to zero. They do not result in a tax refund if they exceed the individual's tax liability. However, some nonrefundable credits, like the adoption credit, can be carried forward for a certain number of years, allowing taxpayers to use the credit to reduce their future tax liabilities.