The benefits for adopting a child have increased form 2007.
For 2008, the maximum adoption credit has increased to $11,650. Also, the maximum exclusion from income for benefits under your employer's adoption assistance program has increased to $11,650. These amounts are phased out if your modified adjusted gross income (MAGI) is between $174,730 and $214,730. You cannot claim the credit or exclusion if your MAGI is $214,730 or more.
For 2009, the maximum adoption credit has increased to $12,150. Also, the maximum exclusion from income for benefits under your employer's adoption assistance program has increased to $12,150. These amounts are phased out if your modified AGI is between $182,180 and $222,180. You cannot claim the credit or exclusion if your modified AGI is $222,180 or more.
This is good news for those who adopted children last year and plan to do so this year.
For more help on tax preperation and tax resolution find a good tax firm.
Showing posts with label Tax Credits. Show all posts
Showing posts with label Tax Credits. Show all posts
Monday, January 12, 2009
Don't Miss Out On Your Tax Credit
The IRS reminds us of tax dedutons we may be overlooking. Here is a list of a few that are taking by a lot of tax payers.
Tax credits can help pay the cost of raising a family, going to college, saving for retirement or getting daycare for dependents. But each year, many taxpayers overlook these credits, even though they often qualify for one or more.
While tax deductions and tax credits can both save money, they are fundamentally different. A deduction lowers the income on which the tax is figured, while a credit lowers the tax itself.
The popular credits listed below can help either lower a taxpayer’s bill or increase a refund.
First-Time Homebuyer Credit
Those who bought a main home recently or are considering buying one may qualify for the first-time homebuyer credit. Normally, a taxpayer qualifies if she didn’t own a main home during the prior three years. This unique credit of up to $7,500 works much like a 15-year interest-free loan. It is available for a limited time only –– on homes bought from April 9, 2008, to June 30, 2009. It can be claimed on new Form 5405 and is repaid each year as an additional tax. Income limits and other special rules apply.
Earned Income Tax Credit (EITC)
The Earned Income Tax Credit (EITC) helps people who work but do not earn a lot. Working families with incomes below $41,646 and childless workers with incomes under $15,880 often qualify. Generally, you must have earned income as an employee, independent contractor, farmer or business owner to qualify. Taxpayers under the minimum retirement age who receive disability payments from an employer plan may also be eligible. The EITC Assistant, available in mid-January, can help you see if you qualify.
Child Tax Credit
A taxpayer who has a dependent child under age 17 probably qualifies for the child tax credit. This credit, which can be as much as $1,000 per eligible child, is in addition to the regular $3,500 exemption claimed for each dependent. A change in the way the credit is figured means that more low- and moderate-income families will qualify for the full credit on their 2008 returns.
Credit for Child and Dependent Care Expenses
An individual who pays for someone to care for a child so he or she can work or look for work probably qualifies for the child and dependent care credit. Normally, the child must be the taxpayer’s dependent and under age 13. Though often referred to as the child care credit, this credit is also available to those who pay someone to care for a spouse or dependent, regardless of age, who is unable to care for him- or herself. In most cases, the care provider’s Social Security
Education Credits
The Hope credit and the lifetime learning credit help parents and students pay for post-secondary education. Normally, a taxpayer can claim both his or her own tuition and required enrollment fees, as well as those for a dependent’s college education. The Hope credit targets the first two years of post-secondary education, and an eligible student must be enrolled at least half time. A taxpayer can also choose the lifetime learning credit, even if she is only taking one course. In some cases, however, she may do better by claiming the tuition and fees deduction, instead.
Saver’s Credit
The saver’s credit is designed to help low- and moderate-income workers save for retirement. A taxpayer probably qualifies if his income is below certain limits and he contributes to an IRA or workplace retirement plan, such as a 401(k). Income limits for 2007 are:
$26,500 for singles and married taxpayers filing separately
$39,750 for heads of household and
$53,000 for joint filers
Also known as the retirement savings contributions credit, the saver’s credit is available in addition to any other tax savings that apply. There is still time to put money into an IRA and get the saver’s credit on a 2008 return. 2008 IRA contributions can be made until April 15, 2009.
Other Credits Available
Recovery Rebate Credit, claimed on Form 1040 Line 70, Form 1040A Line 42 and Form 1040EZ Line 9. FS-2009-3 has further details
District of Columbia first-time homebuyer credit, claimed on Form 8859
Foreign tax credit, claimed on Form 1040 Line 47
Credit for the elderly or the disabled, claimed on Form 1040 Schedule R
Adoption credit, claimed on Form 8839
Residential energy efficient property credit, claimed on Form 5695
Alternative motor vehicle (including hybrids) credit, claimed on Form 8910
Credit for prior year minimum tax, claimed on Form 8801
Credits Save Taxpayers Money
These credits can increase a refund or reduce a tax bill. Usually, credits can only lower a tax liability to zero. But some credits, such as the EITC, the child tax credit, the Recovery Rebate Credit and the first-time homebuyer credit, are refundable –– in other words, they can make the difference between a balance due and a refund.
Although some credits are available to people at all income levels, others have income restrictions. These include the EITC, the Recovery Rebate Credit, the saver’s credit, the first-time homebuyer credit, the education credits and the child tax credit.
A taxpayer who qualifies can claim any credit, regardless of whether he or she itemizes deductions. Any credit can be claimed on Form 1040, sometimes referred to as “the long form.” Alternatively, many credits can also be claimed on the 1040A “short form.” The EITC and Recovery Rebate Credit can even be claimed on Form 1040EZ. The instruction booklet for each of these forms contains information about these and other tax credits.
Tax credits can help pay the cost of raising a family, going to college, saving for retirement or getting daycare for dependents. But each year, many taxpayers overlook these credits, even though they often qualify for one or more.
While tax deductions and tax credits can both save money, they are fundamentally different. A deduction lowers the income on which the tax is figured, while a credit lowers the tax itself.
The popular credits listed below can help either lower a taxpayer’s bill or increase a refund.
First-Time Homebuyer Credit
Those who bought a main home recently or are considering buying one may qualify for the first-time homebuyer credit. Normally, a taxpayer qualifies if she didn’t own a main home during the prior three years. This unique credit of up to $7,500 works much like a 15-year interest-free loan. It is available for a limited time only –– on homes bought from April 9, 2008, to June 30, 2009. It can be claimed on new Form 5405 and is repaid each year as an additional tax. Income limits and other special rules apply.
Earned Income Tax Credit (EITC)
The Earned Income Tax Credit (EITC) helps people who work but do not earn a lot. Working families with incomes below $41,646 and childless workers with incomes under $15,880 often qualify. Generally, you must have earned income as an employee, independent contractor, farmer or business owner to qualify. Taxpayers under the minimum retirement age who receive disability payments from an employer plan may also be eligible. The EITC Assistant, available in mid-January, can help you see if you qualify.
Child Tax Credit
A taxpayer who has a dependent child under age 17 probably qualifies for the child tax credit. This credit, which can be as much as $1,000 per eligible child, is in addition to the regular $3,500 exemption claimed for each dependent. A change in the way the credit is figured means that more low- and moderate-income families will qualify for the full credit on their 2008 returns.
Credit for Child and Dependent Care Expenses
An individual who pays for someone to care for a child so he or she can work or look for work probably qualifies for the child and dependent care credit. Normally, the child must be the taxpayer’s dependent and under age 13. Though often referred to as the child care credit, this credit is also available to those who pay someone to care for a spouse or dependent, regardless of age, who is unable to care for him- or herself. In most cases, the care provider’s Social Security
Education Credits
The Hope credit and the lifetime learning credit help parents and students pay for post-secondary education. Normally, a taxpayer can claim both his or her own tuition and required enrollment fees, as well as those for a dependent’s college education. The Hope credit targets the first two years of post-secondary education, and an eligible student must be enrolled at least half time. A taxpayer can also choose the lifetime learning credit, even if she is only taking one course. In some cases, however, she may do better by claiming the tuition and fees deduction, instead.
Saver’s Credit
The saver’s credit is designed to help low- and moderate-income workers save for retirement. A taxpayer probably qualifies if his income is below certain limits and he contributes to an IRA or workplace retirement plan, such as a 401(k). Income limits for 2007 are:
$26,500 for singles and married taxpayers filing separately
$39,750 for heads of household and
$53,000 for joint filers
Also known as the retirement savings contributions credit, the saver’s credit is available in addition to any other tax savings that apply. There is still time to put money into an IRA and get the saver’s credit on a 2008 return. 2008 IRA contributions can be made until April 15, 2009.
Other Credits Available
Recovery Rebate Credit, claimed on Form 1040 Line 70, Form 1040A Line 42 and Form 1040EZ Line 9. FS-2009-3 has further details
District of Columbia first-time homebuyer credit, claimed on Form 8859
Foreign tax credit, claimed on Form 1040 Line 47
Credit for the elderly or the disabled, claimed on Form 1040 Schedule R
Adoption credit, claimed on Form 8839
Residential energy efficient property credit, claimed on Form 5695
Alternative motor vehicle (including hybrids) credit, claimed on Form 8910
Credit for prior year minimum tax, claimed on Form 8801
Credits Save Taxpayers Money
These credits can increase a refund or reduce a tax bill. Usually, credits can only lower a tax liability to zero. But some credits, such as the EITC, the child tax credit, the Recovery Rebate Credit and the first-time homebuyer credit, are refundable –– in other words, they can make the difference between a balance due and a refund.
Although some credits are available to people at all income levels, others have income restrictions. These include the EITC, the Recovery Rebate Credit, the saver’s credit, the first-time homebuyer credit, the education credits and the child tax credit.
A taxpayer who qualifies can claim any credit, regardless of whether he or she itemizes deductions. Any credit can be claimed on Form 1040, sometimes referred to as “the long form.” Alternatively, many credits can also be claimed on the 1040A “short form.” The EITC and Recovery Rebate Credit can even be claimed on Form 1040EZ. The instruction booklet for each of these forms contains information about these and other tax credits.
Thursday, December 4, 2008
Tax Break Helps Low- and Moderate-Income Workers Save for Retirement
Plan Now to Get Full Benefit of Saver’s Credit; Tax Break Helps Low- and Moderate-Income Workers Save for Retirement
Low- and moderate-income workers can take steps now to save for retirement and earn a special tax credit in 2008 and the years ahead, according to the Internal Revenue Service.
The saver’s credit helps offset part of the first $2,000 workers voluntarily contribute to Individual Retirement Arrangements (IRAs) and to 401(k) plans and similar workplace retirement programs. Also known as the retirement savings contributions credit, the saver’s credit is available in addition to any other tax savings that apply.
Eligible workers still have time to make qualifying retirement contributions and get the saver’s credit on their 2008 tax return. People have until April 15, 2009, to set up a new IRA or add money to an existing IRA and still get credit for 2008. However, elective deferrals must be made by the end of the year to a 401(k) plan or similar workplace program, such as a 403(b) plan for employees of public schools and certain tax-exempt organizations, a governmental 457 plan for state or local government employees, and the Thrift Savings Plan for federal employees. Employees who are unable to set aside money for this year may want to schedule their 2009 contributions soon so their employer can begin withholding them in January.
The saver’s credit can be claimed by:
Married couples filing jointly with incomes up to $53,000 in 2008 or $55,500 in 2009;
Heads of Household with incomes up to $39,750 in 2008 or $41,625 in 2009; and
Married individuals filing separately and singles with incomes up to $26,500 in 2008 or $27,750 in 2009.
Like other tax credits, the saver’s credit can increase a taxpayer’s refund or reduce the tax owed. Though the maximum saver’s credit is $1,000 ($2,000 for married couples), the IRS cautioned that it is often much less and, due in part to the impact of other deductions and credits, may, in fact, be zero for some taxpayers.
A taxpayer’s credit amount is based on his or her filing status, adjusted gross income, tax liability and amount contributed to qualifying retirement programs. Form 8880 is used to claim the saver’s credit, and its instructions have details on figuring the credit correctly.
In tax-year 2006, the most recent year for which complete figures are available, saver’s credits totaling almost $900 million were claimed on nearly 5.2 million individual income tax returns. Saver’s credits claimed on these returns averaged $213 for joint filers, $149 for heads of household and $128 for single filers.
The saver’s credit supplements other tax benefits available to people who set money aside for retirement. For example, most workers may deduct their contributions to a traditional IRA. Though Roth IRA contributions are not deductible, qualifying withdrawals, usually after retirement, are tax-free. Normally, contributions to 401(k) and similar workplace plans are not taxed until withdrawn.
Other special rules that apply to the saver’s credit include the following:
Eligible taxpayers must be at least 18 years of age.
Anyone claimed as a dependent on someone else’s return cannot take the credit.
A student cannot take the credit. A person enrolled as a full-time student during any part of 5 calendar months during the year is considered a student.
Certain retirement plan distributions reduce the contribution amount used to figure the credit.
For 2008, this rule applies to distributions received after 2005 and before the due date (including extensions) of the 2008 return. Form 8880 and its instructions have details on making this computation.
Begun in 2002 as a temporary provision, the saver’s credit was made a permanent part of the tax code in legislation enacted in 2006. To help preserve the value of the credit, income limits are now adjusted annually to keep pace with inflation. More information about the credit is on IRS.gov.
Low- and moderate-income workers can take steps now to save for retirement and earn a special tax credit in 2008 and the years ahead, according to the Internal Revenue Service.
The saver’s credit helps offset part of the first $2,000 workers voluntarily contribute to Individual Retirement Arrangements (IRAs) and to 401(k) plans and similar workplace retirement programs. Also known as the retirement savings contributions credit, the saver’s credit is available in addition to any other tax savings that apply.
Eligible workers still have time to make qualifying retirement contributions and get the saver’s credit on their 2008 tax return. People have until April 15, 2009, to set up a new IRA or add money to an existing IRA and still get credit for 2008. However, elective deferrals must be made by the end of the year to a 401(k) plan or similar workplace program, such as a 403(b) plan for employees of public schools and certain tax-exempt organizations, a governmental 457 plan for state or local government employees, and the Thrift Savings Plan for federal employees. Employees who are unable to set aside money for this year may want to schedule their 2009 contributions soon so their employer can begin withholding them in January.
The saver’s credit can be claimed by:
Married couples filing jointly with incomes up to $53,000 in 2008 or $55,500 in 2009;
Heads of Household with incomes up to $39,750 in 2008 or $41,625 in 2009; and
Married individuals filing separately and singles with incomes up to $26,500 in 2008 or $27,750 in 2009.
Like other tax credits, the saver’s credit can increase a taxpayer’s refund or reduce the tax owed. Though the maximum saver’s credit is $1,000 ($2,000 for married couples), the IRS cautioned that it is often much less and, due in part to the impact of other deductions and credits, may, in fact, be zero for some taxpayers.
A taxpayer’s credit amount is based on his or her filing status, adjusted gross income, tax liability and amount contributed to qualifying retirement programs. Form 8880 is used to claim the saver’s credit, and its instructions have details on figuring the credit correctly.
In tax-year 2006, the most recent year for which complete figures are available, saver’s credits totaling almost $900 million were claimed on nearly 5.2 million individual income tax returns. Saver’s credits claimed on these returns averaged $213 for joint filers, $149 for heads of household and $128 for single filers.
The saver’s credit supplements other tax benefits available to people who set money aside for retirement. For example, most workers may deduct their contributions to a traditional IRA. Though Roth IRA contributions are not deductible, qualifying withdrawals, usually after retirement, are tax-free. Normally, contributions to 401(k) and similar workplace plans are not taxed until withdrawn.
Other special rules that apply to the saver’s credit include the following:
Eligible taxpayers must be at least 18 years of age.
Anyone claimed as a dependent on someone else’s return cannot take the credit.
A student cannot take the credit. A person enrolled as a full-time student during any part of 5 calendar months during the year is considered a student.
Certain retirement plan distributions reduce the contribution amount used to figure the credit.
For 2008, this rule applies to distributions received after 2005 and before the due date (including extensions) of the 2008 return. Form 8880 and its instructions have details on making this computation.
Begun in 2002 as a temporary provision, the saver’s credit was made a permanent part of the tax code in legislation enacted in 2006. To help preserve the value of the credit, income limits are now adjusted annually to keep pace with inflation. More information about the credit is on IRS.gov.
Wednesday, November 26, 2008
IRS Announces 2009 Standard Mileage Rates
The Internal Revenue Service today issued the 2009 optional standard mileage rates used to calculate the deductible costs of operating an automobile for business, charitable, medical or moving purposes.
Beginning on Jan. 1, 2009, the standard mileage rates for the use of a car (also vans, pickups or panel trucks) will be:
55 cents per mile for business miles driven
24 cents per mile driven for medical or moving purposes
14 cents per mile driven in service of charitable organizations
The new rates for business, medical and moving purposes are slightly lower than rates for the second half of 2008 that were raised by a special adjustment mid-year in response to a spike in gasoline prices.
The rate for charitable purposes is set by law and is unchanged from 2008.
The business mileage rate was 50.5 cents in the first half of 2008 and 58.5 cents in the second half. The medical and moving rate was 19 cents in the first half and 27 cents in the second half.
The mileage rates for 2009 reflect generally higher transportation costs compared to a year ago, but the rates also factor in the recent reversal of rising gasoline prices. While gasoline is a significant factor in the mileage rate, other fixed and variable costs, such as depreciation, enter the calculation.
The standard mileage rate for business is based on an annual study of the fixed and variable costs of operating an automobile. The rate for medical and moving purposes is based on the variable costs as determined by the same study. Independent contractor Runzheimer International conducted the study.
A taxpayer may not use the business standard mileage rate for a vehicle after using any depreciation method under the Modified Accelerated Cost Recovery System (MACRS) or after claiming a Section 179 deduction for that vehicle. In addition, the business standard mileage rate cannot be used for any vehicle used for hire or for more than four vehicles used simultaneously.
Taxpayers always have the option of calculating the actual costs of using their vehicle rather than using the standard mileage rates.
Beginning on Jan. 1, 2009, the standard mileage rates for the use of a car (also vans, pickups or panel trucks) will be:
55 cents per mile for business miles driven
24 cents per mile driven for medical or moving purposes
14 cents per mile driven in service of charitable organizations
The new rates for business, medical and moving purposes are slightly lower than rates for the second half of 2008 that were raised by a special adjustment mid-year in response to a spike in gasoline prices.
The rate for charitable purposes is set by law and is unchanged from 2008.
The business mileage rate was 50.5 cents in the first half of 2008 and 58.5 cents in the second half. The medical and moving rate was 19 cents in the first half and 27 cents in the second half.
The mileage rates for 2009 reflect generally higher transportation costs compared to a year ago, but the rates also factor in the recent reversal of rising gasoline prices. While gasoline is a significant factor in the mileage rate, other fixed and variable costs, such as depreciation, enter the calculation.
The standard mileage rate for business is based on an annual study of the fixed and variable costs of operating an automobile. The rate for medical and moving purposes is based on the variable costs as determined by the same study. Independent contractor Runzheimer International conducted the study.
A taxpayer may not use the business standard mileage rate for a vehicle after using any depreciation method under the Modified Accelerated Cost Recovery System (MACRS) or after claiming a Section 179 deduction for that vehicle. In addition, the business standard mileage rate cannot be used for any vehicle used for hire or for more than four vehicles used simultaneously.
Taxpayers always have the option of calculating the actual costs of using their vehicle rather than using the standard mileage rates.
Sunday, October 12, 2008
Stimulus Checks for Military Combat Personel
This section is for military personnel who are serving in combat zones.
For federal tax purposes, the U.S. Armed Forces includes officers and enlisted personnel in all regular and reserve units controlled by the Secretaries of Defense, the Army, Navy and Air Force. The Coast Guard and National Guard are also included, but not the U.S. Merchant Marine or the American Red Cross.
Normally, combat pay is not counted as income and is not taxable. For the purposes of receiving an economic stimulus payment, however, military personnel serving in combat zones have the option of including their nontaxable combat pay on their 2007 or 2008 income tax returns if it helps their eligibility for the 2008 economic stimulus payments.
To receive the stimulus payment this year, combat zone personnel or their spouses must file a tax year 2007 income tax return by Oct. 15, 2008. Otherwise, they can claim the economic stimulus payment on next year’s income tax return.
Military personnel who normally would not file an income tax return because their 2007 income is not taxable can file a simple Form 1040A with the IRS if they want to receive the economic stimulus payment. They should report their nontaxable combat pay on line 40b of the Form 1040A to show at least $3,000 in qualifying income. The Department of Defense lists the amount of excluded combat pay, along with the designation, “Code Q,” in box 12 of Form W-2.
The IRS has developed Package 1040A-3, an 8-page publication containing tax tips, a sample Form 1040A and a blank Form 1040A. The package contains everything needed to file the return immediately.
Package 1040A-3 , 8-page information package
Basic Eligibility Requirements
You have, or your family has, at least $3,000 in qualifying income from, or in combination with, Social Security benefits, certain Veterans Affairs benefits, Railroad Retirement benefits and earned income. Supplemental Security Income (SSI) does not count as qualifying income for the stimulus payment.
You are not a dependent or eligible to be a dependent on someone else’s federal tax return. (The same must be true of any family members claimed on your return.)
Due to a new law change, the spouses and children of married military personnel are not required to have valid Social Security Numbers.
To Claim Your Payment
If you normally don’t file a federal tax return but must file one this year solely to claim your economic stimulus payment, you should file by Oct. 15, 2008, to ensure that you receive the payment this year.
Find out where to send your tax return.
It will generally take a minimum of eight weeks after you file your return to get your stimulus payment.
Free Tax Help Available
Individuals who need to file a return this year to receive a stimulus payment may be able to take advantage of free tax preparation sites nationwide for low-income and older taxpayers.
Free File - Economic Stimulus Payment provides free tax preparation software and electronic filing for people who are submitting a return solely to receive their economic stimulus payment
The Volunteer Income Tax Assistance (VITA) program provides help to low- and moderate-income taxpayers. Call 1-800-906-9887 to locate the nearest VITA site.
IRS employees will help prepare Form 1040A returns for low-income workers, retirees, disabled veterans and others at IRS Taxpayer Assistance Centers. For a list of centers in your state and their hours of operation, Contact My Local Office.
For federal tax purposes, the U.S. Armed Forces includes officers and enlisted personnel in all regular and reserve units controlled by the Secretaries of Defense, the Army, Navy and Air Force. The Coast Guard and National Guard are also included, but not the U.S. Merchant Marine or the American Red Cross.
Normally, combat pay is not counted as income and is not taxable. For the purposes of receiving an economic stimulus payment, however, military personnel serving in combat zones have the option of including their nontaxable combat pay on their 2007 or 2008 income tax returns if it helps their eligibility for the 2008 economic stimulus payments.
To receive the stimulus payment this year, combat zone personnel or their spouses must file a tax year 2007 income tax return by Oct. 15, 2008. Otherwise, they can claim the economic stimulus payment on next year’s income tax return.
Military personnel who normally would not file an income tax return because their 2007 income is not taxable can file a simple Form 1040A with the IRS if they want to receive the economic stimulus payment. They should report their nontaxable combat pay on line 40b of the Form 1040A to show at least $3,000 in qualifying income. The Department of Defense lists the amount of excluded combat pay, along with the designation, “Code Q,” in box 12 of Form W-2.
The IRS has developed Package 1040A-3, an 8-page publication containing tax tips, a sample Form 1040A and a blank Form 1040A. The package contains everything needed to file the return immediately.
Package 1040A-3 , 8-page information package
Basic Eligibility Requirements
You have, or your family has, at least $3,000 in qualifying income from, or in combination with, Social Security benefits, certain Veterans Affairs benefits, Railroad Retirement benefits and earned income. Supplemental Security Income (SSI) does not count as qualifying income for the stimulus payment.
You are not a dependent or eligible to be a dependent on someone else’s federal tax return. (The same must be true of any family members claimed on your return.)
Due to a new law change, the spouses and children of married military personnel are not required to have valid Social Security Numbers.
To Claim Your Payment
If you normally don’t file a federal tax return but must file one this year solely to claim your economic stimulus payment, you should file by Oct. 15, 2008, to ensure that you receive the payment this year.
Find out where to send your tax return.
It will generally take a minimum of eight weeks after you file your return to get your stimulus payment.
Free Tax Help Available
Individuals who need to file a return this year to receive a stimulus payment may be able to take advantage of free tax preparation sites nationwide for low-income and older taxpayers.
Free File - Economic Stimulus Payment provides free tax preparation software and electronic filing for people who are submitting a return solely to receive their economic stimulus payment
The Volunteer Income Tax Assistance (VITA) program provides help to low- and moderate-income taxpayers. Call 1-800-906-9887 to locate the nearest VITA site.
IRS employees will help prepare Form 1040A returns for low-income workers, retirees, disabled veterans and others at IRS Taxpayer Assistance Centers. For a list of centers in your state and their hours of operation, Contact My Local Office.
Alternative Motor Vehicle Credit
Hybrid Vehicles
Vehicles Purchased or Placed in Service
The Energy Policy Act of 2005 replaced the clean-fuel burning deduction with a tax credit. A tax credit is subtracted directly from the total amount of federal tax owed, thus reducing or even eliminating the taxpayer’s tax obligation. The tax credit for hybrid vehicles applies to vehicles purchased or placed in service on or after January 1, 2006.
The credit is only available to the original purchaser of a new, qualifying vehicle. If a qualifying vehicle is leased to a consumer, the leasing company may claim the credit.
Hybrid vehicles have drive trains powered by both an internal combustion engine and a rechargeable battery. Many currently available hybrid vehicles may qualify for the tax credit.
These models have been certified for the credit in the following amounts:
† This reflects a decrease in the credit amount as of Oct. 1, 2006, due to the manufacturers meeting quarterly sales of 60,000 qualified hybrid cars — See Quarterly Sales, below.
†† This credit amount does not phase out. The full amount of the altenative fuel vehicle credit would be available for vehicles purchased on or before December 31, 2010.
Qualifed Cars and Credit Amounts
Model Year 2009
Model Year 2008
Model Year 2007
Model Year 2006
Model Year 2005
Quarterly Sales
Consumers seeking the credit may want to buy early since the full credit is only available for a limited time. Taxpayers may claim the full amount of the allowable credit up to the end of the first calendar quarter after the quarter in which the manufacturer records its sale of the 60,000th hybrid passenger automobile or light truck or advance lean burn technology motor vehicle. For the second and third calendar quarters after the quarter in which the 60,000th vehicle is sold, taxpayers may claim 50 percent of the credit. For the fourth and fifth calendar quarters, taxpayers may claim 25 percent of the credit. No credit is allowed after the fifth quarter.
More information on the latest hybrid quarterly sales is available.
For example, F Company is a manufacturer of hybrid motor vehicles, but not advanced lean burn technology motor vehicles. F Company sells its 60,000th hybrid car on March 31, 2007.
Ms. Smith buys an F Company hybrid car on June 30, 2007, and claims the full credit.
Ms. Maple buys an F Company hybrid car on Dec. 31, 2007, and claims 50 percent of the credit.
Mr. Grey buys an F Company hybrid car on June 30, 2008, and claims 25 percent of the credit.
Mr. Green buys an F Company hybrid car on July 1, 2008, and is unable to claim the credit, because the credit has phased out for F Company vehicles.
Toyota Motor Sales, U.S.A., Inc., has submitted quarterly reports indicating that its cumulative sales of qualified vehicles to retail dealiers has reached the 60,000-vehicle limit during the calendar quarter ending June 30, 2006. Effective Oct. 1, 2006, the tax credit amounts for certified Toyota models will be reduced. The models and allowable credits may be found in news releases IR-2006-145, Toyota Hybrids Begins Phaseout on October 1and IR-2006-154, Additional Toyota and Lexus Vehicles Certified for the Energy Tax Credit.
More detailed information may be found in the Summary of the Credit for Qualified Hybrid Vehicles
Advanced Lean Burn Technology Vehicles
Purchasers of advanced lean burn technology motor vehicles may claim a credit of $1,300 per vehicle.
Volkswagen
2009 Jetta –2.0L TDI Sedan manual and automatic
$1,300
Volkswagen
2009 Sportwagen –2.0L TDI manual and automatic
$1,300
Mercedes-Benz
GL320 BLUE TEC
$1,800
Mercedes-Benz
R320 BLUE TEC
$1,550
Mercedes-Benz
ML320 BLUE TEC
$900
Vehicles Purchased or Placed in Service
The Energy Policy Act of 2005 replaced the clean-fuel burning deduction with a tax credit. A tax credit is subtracted directly from the total amount of federal tax owed, thus reducing or even eliminating the taxpayer’s tax obligation. The tax credit for hybrid vehicles applies to vehicles purchased or placed in service on or after January 1, 2006.
The credit is only available to the original purchaser of a new, qualifying vehicle. If a qualifying vehicle is leased to a consumer, the leasing company may claim the credit.
Hybrid vehicles have drive trains powered by both an internal combustion engine and a rechargeable battery. Many currently available hybrid vehicles may qualify for the tax credit.
These models have been certified for the credit in the following amounts:
† This reflects a decrease in the credit amount as of Oct. 1, 2006, due to the manufacturers meeting quarterly sales of 60,000 qualified hybrid cars — See Quarterly Sales, below.
†† This credit amount does not phase out. The full amount of the altenative fuel vehicle credit would be available for vehicles purchased on or before December 31, 2010.
Qualifed Cars and Credit Amounts
Model Year 2009
Model Year 2008
Model Year 2007
Model Year 2006
Model Year 2005
Quarterly Sales
Consumers seeking the credit may want to buy early since the full credit is only available for a limited time. Taxpayers may claim the full amount of the allowable credit up to the end of the first calendar quarter after the quarter in which the manufacturer records its sale of the 60,000th hybrid passenger automobile or light truck or advance lean burn technology motor vehicle. For the second and third calendar quarters after the quarter in which the 60,000th vehicle is sold, taxpayers may claim 50 percent of the credit. For the fourth and fifth calendar quarters, taxpayers may claim 25 percent of the credit. No credit is allowed after the fifth quarter.
More information on the latest hybrid quarterly sales is available.
For example, F Company is a manufacturer of hybrid motor vehicles, but not advanced lean burn technology motor vehicles. F Company sells its 60,000th hybrid car on March 31, 2007.
Ms. Smith buys an F Company hybrid car on June 30, 2007, and claims the full credit.
Ms. Maple buys an F Company hybrid car on Dec. 31, 2007, and claims 50 percent of the credit.
Mr. Grey buys an F Company hybrid car on June 30, 2008, and claims 25 percent of the credit.
Mr. Green buys an F Company hybrid car on July 1, 2008, and is unable to claim the credit, because the credit has phased out for F Company vehicles.
Toyota Motor Sales, U.S.A., Inc., has submitted quarterly reports indicating that its cumulative sales of qualified vehicles to retail dealiers has reached the 60,000-vehicle limit during the calendar quarter ending June 30, 2006. Effective Oct. 1, 2006, the tax credit amounts for certified Toyota models will be reduced. The models and allowable credits may be found in news releases IR-2006-145, Toyota Hybrids Begins Phaseout on October 1and IR-2006-154, Additional Toyota and Lexus Vehicles Certified for the Energy Tax Credit.
More detailed information may be found in the Summary of the Credit for Qualified Hybrid Vehicles
Advanced Lean Burn Technology Vehicles
Purchasers of advanced lean burn technology motor vehicles may claim a credit of $1,300 per vehicle.
Volkswagen
2009 Jetta –2.0L TDI Sedan manual and automatic
$1,300
Volkswagen
2009 Sportwagen –2.0L TDI manual and automatic
$1,300
Mercedes-Benz
GL320 BLUE TEC
$1,800
Mercedes-Benz
R320 BLUE TEC
$1,550
Mercedes-Benz
ML320 BLUE TEC
$900
Thursday, September 25, 2008
FAQs about First Time Home Buying Credit
Q. Which home purchases qualify for the first-time homebuyer credit?
A. Only the purchase of a main home located in the United States qualifies and only for a limited time. Vacation homes and rental property are not eligible. You must buy the home after April 8, 2008, and before July 1, 2009. For a home that you construct, the purchase date is the first date you occupy the home.
Taxpayers who owned a main home at any time during the three years prior to the date of purchase are not eligible for the credit. This means that first-time homebuyers and those who have not owned a home in the three years prior to a purchase can qualify for the credit.
If you make an eligible purchase in 2008, you claim the first-time homebuyer credit on your 2008 tax return. For an eligible purchase in 2009, you can choose to claim the credit on either your 2008 (or amended 2008 return) or 2009 return.
Q. How much is the credit?
A. The credit is 10 percent of the purchase price of the home, with a maximum available credit of $7,500 for either a single taxpayer or a married couple filing jointly. The limit is $3,750 for a married person filing a separate return. In most cases, the full credit will be available for homes costing $75,000 or more. Whatever the size of the credit a taxpayer receives, the credit must be repaid over a 15-year period.
Q. Are there income limits?
A. Yes. The credit is reduced or eliminated for higher-income taxpayers.
The credit is phased out based on your modified adjusted gross income (MAGI). MAGI is your adjusted gross income plus various amounts excluded from income—for example, certain foreign income. For a married couple filing a joint return, the phase-out range is $150,000 to $170,000. For other taxpayers, the phase-out range is $75,000 to $95,000.
This means the full credit is available for married couples filing a joint return whose MAGI is $150,000 or less and for other taxpayers whose MAGI is $75,000 or less.
Q. Who cannot take the credit?
A. If any of the following describe you, you cannot take the credit, even if you buy a main home:
Your income exceeds the phase-out range. This means joint filers with MAGI of $170,000 and above and other taxpayers with MAGI of $95,000 and above.
You buy your home from a close relative. This includes your spouse, parent, grandparent, child or grandchild.
You stop using your home as your main home.
You sell your home before the end of the year.
You are a nonresident alien.
You are, or were, eligible to claim the District of Columbia first-time homebuyer credit for any taxable year.
Your home financing comes from tax-exempt mortgage revenue bonds.
You owned another main home at any time during the three years prior to the date of purchase. For example, if you bought a home on July 1, 2008, you cannot take the credit for that home if you owned, or had an ownership interest in, another main home at any time from July 2, 2005, through July 1, 2008.
Q. How and when is the credit repaid?
A. The first-time homebuyer credit is similar to a 15-year interest-free loan. Normally, it is repaid in 15 equal annual installments beginning with the second tax year after the year the credit is claimed. The repayment amount is included as an additional tax on the taxpayer’s income tax return for that year. For example, if you properly claim a $7,500 first-time homebuyer credit on your 2008 return, you will begin paying it back on your 2010 tax return. Normally, $500 will be due each year from 2010 to 2024.
You may need to adjust your withholding or make quarterly estimated tax payments to ensure you are not under-withheld.
For more help you can check out the IRS web site.
For more tax help click here.
A. Only the purchase of a main home located in the United States qualifies and only for a limited time. Vacation homes and rental property are not eligible. You must buy the home after April 8, 2008, and before July 1, 2009. For a home that you construct, the purchase date is the first date you occupy the home.
Taxpayers who owned a main home at any time during the three years prior to the date of purchase are not eligible for the credit. This means that first-time homebuyers and those who have not owned a home in the three years prior to a purchase can qualify for the credit.
If you make an eligible purchase in 2008, you claim the first-time homebuyer credit on your 2008 tax return. For an eligible purchase in 2009, you can choose to claim the credit on either your 2008 (or amended 2008 return) or 2009 return.
Q. How much is the credit?
A. The credit is 10 percent of the purchase price of the home, with a maximum available credit of $7,500 for either a single taxpayer or a married couple filing jointly. The limit is $3,750 for a married person filing a separate return. In most cases, the full credit will be available for homes costing $75,000 or more. Whatever the size of the credit a taxpayer receives, the credit must be repaid over a 15-year period.
Q. Are there income limits?
A. Yes. The credit is reduced or eliminated for higher-income taxpayers.
The credit is phased out based on your modified adjusted gross income (MAGI). MAGI is your adjusted gross income plus various amounts excluded from income—for example, certain foreign income. For a married couple filing a joint return, the phase-out range is $150,000 to $170,000. For other taxpayers, the phase-out range is $75,000 to $95,000.
This means the full credit is available for married couples filing a joint return whose MAGI is $150,000 or less and for other taxpayers whose MAGI is $75,000 or less.
Q. Who cannot take the credit?
A. If any of the following describe you, you cannot take the credit, even if you buy a main home:
Your income exceeds the phase-out range. This means joint filers with MAGI of $170,000 and above and other taxpayers with MAGI of $95,000 and above.
You buy your home from a close relative. This includes your spouse, parent, grandparent, child or grandchild.
You stop using your home as your main home.
You sell your home before the end of the year.
You are a nonresident alien.
You are, or were, eligible to claim the District of Columbia first-time homebuyer credit for any taxable year.
Your home financing comes from tax-exempt mortgage revenue bonds.
You owned another main home at any time during the three years prior to the date of purchase. For example, if you bought a home on July 1, 2008, you cannot take the credit for that home if you owned, or had an ownership interest in, another main home at any time from July 2, 2005, through July 1, 2008.
Q. How and when is the credit repaid?
A. The first-time homebuyer credit is similar to a 15-year interest-free loan. Normally, it is repaid in 15 equal annual installments beginning with the second tax year after the year the credit is claimed. The repayment amount is included as an additional tax on the taxpayer’s income tax return for that year. For example, if you properly claim a $7,500 first-time homebuyer credit on your 2008 return, you will begin paying it back on your 2010 tax return. Normally, $500 will be due each year from 2010 to 2024.
You may need to adjust your withholding or make quarterly estimated tax payments to ensure you are not under-withheld.
For more help you can check out the IRS web site.
For more tax help click here.
Tax Credit to Aide First-Time Homebuyers
Tax Credit to Aid First-Time Homebuyers; Must Be Repaid Over 15 Years
IR-2008-106, Sept. 16, 2008
WASHINGTON — First-time homebuyers should begin planning now to take advantage of a new tax credit included in the recently enacted Housing and Economic Recovery Act of 2008.
Available for a limited time only, the credit:
Applies to home purchases after April 8, 2008, and before July 1, 2009.
Reduces a taxpayer’s tax bill or increases his or her refund, dollar for dollar.
Is fully refundable, meaning that the credit will be paid out to eligible taxpayers, even if they owe no tax or the credit is more than the tax that they owe.
However, the credit operates much like an interest-free loan, because it must be repaid over a 15-year period. So, for example, an eligible taxpayer who buys a home today and properly claims the maximum available credit of $7,500 on his or her 2008 federal income tax return must begin repaying the credit by including one-fifteenth of this amount, or $500, as an additional tax on his or her 2010 return.
Eligible taxpayers will claim the credit on new IRS Form 5405. This form, along with further instructions on claiming the first-time homebuyer credit, will be included in 2008 tax forms and instructions and be available later this year on the IRS Web site.
If you bought a home recently, or are considering buying one, the following questions and answers may help you determine whether you qualify for the credit.
Taxpayers who owned a main home at any time during the three years prior to the date of purchase are not eligible for the credit. This means that first-time homebuyers and those who have not owned a home in the three years prior to a purchase can qualify for the credit.
If you make an eligible purchase in 2008, you claim the first-time homebuyer credit on your 2008 tax return. For an eligible purchase in 2009, you can choose to claim the credit on either your 2008 (or amended 2008 return) or 2009 return.
You may need to adjust your withholding or make quarterly estimated tax payments to ensure you are not under-withheld.
However, some exceptions apply to the repayment rule.
They include:
If you die, any remaining annual installments are not due. If you filed a joint return and then you die, your surviving spouse would be required to repay his or her half of the remaining repayment amount.
If you stop using the home as your main home, all remaining annual installments become due on the return for the year that happens.
This includes situations where the main home becomes a vacation home or is converted to business or rental property.
There are special rules for involuntary conversions.
Taxpayers are urged to consult a professional to determine the tax consequences of an involuntary conversion.
If you sell your home, all remaining annual installments become due on the return for the year of sale. The repayment is limited to the amount of gain on the sale, if the home is sold to an unrelated taxpayer. If there is no gain or if there is a loss on the sale, the remaining annual installments may be reduced or even eliminated. Taxpayers are urged to consult a professional to determine the tax consequences of a sale.
If you transfer your home to your spouse, or, as part of a divorce settlement, to your former spouse, that person is responsible for making all subsequent installment payments.
For any tax related questions or to get help if you owe the IRS call a reputable tax resollutions firm.
IR-2008-106, Sept. 16, 2008
WASHINGTON — First-time homebuyers should begin planning now to take advantage of a new tax credit included in the recently enacted Housing and Economic Recovery Act of 2008.
Available for a limited time only, the credit:
Applies to home purchases after April 8, 2008, and before July 1, 2009.
Reduces a taxpayer’s tax bill or increases his or her refund, dollar for dollar.
Is fully refundable, meaning that the credit will be paid out to eligible taxpayers, even if they owe no tax or the credit is more than the tax that they owe.
However, the credit operates much like an interest-free loan, because it must be repaid over a 15-year period. So, for example, an eligible taxpayer who buys a home today and properly claims the maximum available credit of $7,500 on his or her 2008 federal income tax return must begin repaying the credit by including one-fifteenth of this amount, or $500, as an additional tax on his or her 2010 return.
Eligible taxpayers will claim the credit on new IRS Form 5405. This form, along with further instructions on claiming the first-time homebuyer credit, will be included in 2008 tax forms and instructions and be available later this year on the IRS Web site.
If you bought a home recently, or are considering buying one, the following questions and answers may help you determine whether you qualify for the credit.
Taxpayers who owned a main home at any time during the three years prior to the date of purchase are not eligible for the credit. This means that first-time homebuyers and those who have not owned a home in the three years prior to a purchase can qualify for the credit.
If you make an eligible purchase in 2008, you claim the first-time homebuyer credit on your 2008 tax return. For an eligible purchase in 2009, you can choose to claim the credit on either your 2008 (or amended 2008 return) or 2009 return.
You may need to adjust your withholding or make quarterly estimated tax payments to ensure you are not under-withheld.
However, some exceptions apply to the repayment rule.
They include:
If you die, any remaining annual installments are not due. If you filed a joint return and then you die, your surviving spouse would be required to repay his or her half of the remaining repayment amount.
If you stop using the home as your main home, all remaining annual installments become due on the return for the year that happens.
This includes situations where the main home becomes a vacation home or is converted to business or rental property.
There are special rules for involuntary conversions.
Taxpayers are urged to consult a professional to determine the tax consequences of an involuntary conversion.
If you sell your home, all remaining annual installments become due on the return for the year of sale. The repayment is limited to the amount of gain on the sale, if the home is sold to an unrelated taxpayer. If there is no gain or if there is a loss on the sale, the remaining annual installments may be reduced or even eliminated. Taxpayers are urged to consult a professional to determine the tax consequences of a sale.
If you transfer your home to your spouse, or, as part of a divorce settlement, to your former spouse, that person is responsible for making all subsequent installment payments.
For any tax related questions or to get help if you owe the IRS call a reputable tax resollutions firm.
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