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Energy Tax Credits
Kitchen appliance energy tax credits
$6,500 long-time resident of the same
main home homebuyer's tax credit
$8,000 first-time homebuyer's tax credit
Homebuyer's tax credit IRS instructions and
IRS
form 5405
Making Work
Pay Questions and Answers
Education - American Opportunity Credit Questions and Answers
2009 &
2010 brings the return of the Energy Tax Credits - Questions and Answers
2010
"cash" donations to qualifying domestic charities that are earmarked for
Haitian Relief are deductible in 2009
-
Who is eligible to claim the $6,500 tax credit?
Qualified move-up or repeat home buyers purchasing any kind of home
are eligible to claim this credit.
- What is the
definition of a move-up or repeat home buyer?
The law defines a tax credit qualified move-up home buyer (“long-time
resident”) as a person who has owned and resided in the same home for
at least five consecutive years of the eight years prior to the
purchase date. For married taxpayers, the law tests the homeownership
history of both the home buyer and his/her spouse. That is, both
spouses must qualify as long-time residents, with at least five years
of principal residency for each. Repeat home buyers do not have to
purchase a home that is more expensive than their previous home to
qualify for the tax credit.
- How is the
amount of the tax credit determined?
The tax credit is equal to 10 percent of the home’s purchase price up
to a maximum of $6,500. Purchases of homes priced above $800,000 are
not eligible for the tax credit.
- Are there any
income limits for claiming the tax credit?
Yes. The income limit for single taxpayers is $125,000; the limit is
$225,000 for married taxpayers filing a joint return. The tax credit
amount is reduced for buyers with a modified adjusted gross income
(MAGI) above those limits. The phaseout range for the tax credit
program is equal to $20,000. That is, the tax credit amount is reduced
to zero for taxpayers with MAGI of more than $145,000 (single) or
$245,000 (married) and is reduced proportionally for taxpayers with
MAGIs between these amounts.
- What is
“modified adjusted gross income”?
Modified adjusted gross income or MAGI is defined by the IRS. To find
it, a taxpayer must first determine "adjusted gross income" or AGI.
AGI is total income for a year minus certain deductions (known as
"adjustments" or "above-the-line deductions"), but before itemized
deductions from Schedule A or personal exemptions are subtracted. On
Forms 1040 and 1040A, AGI is the last number on page 1 and the first
number on page 2 of the form. For Form 1040-EZ, AGI appears on line 4
(as of 2007). Note that AGI includes all forms of income including
wages, salaries, interest income, dividends and capital gains.
To determine modified adjusted gross income (MAGI), add to AGI certain
amounts of foreign-earned income.
See
IRS Form 5405 for more details.
- If my modified
adjusted gross income (MAGI) is above the limit, do I qualify for any
tax credit?
Possibly. It depends on your income. Partial credits of less than
$6,500 are available for some taxpayers whose MAGI exceeds the
phaseout limits.
- Can you give me
an example of how the partial tax credit is determined?
Just as an example, assume that a married couple has a modified
adjusted gross income of $235,000. The applicable phaseout to qualify
for the tax credit is $225,000, and the couple is $10,000 over this
amount. Dividing $10,000 by the phaseout range of $20,000 yields 0.5.
When you subtract 0.5 from 1.0, the result is 0.5. To determine the
amount of the partial first-time home buyer tax credit that is
available to this couple, multiply $6,500 by 0.5. The result is
$3,250.
Here’s another example: assume that an individual home buyer has a
modified adjusted gross income of $138,000. The buyer’s income exceeds
$125,000 by $13,000. Dividing $13,000 by the phaseout range of $20,000
yields 0.65. When you subtract 0.65 from 1.0, the result is 0.35.
Multiplying $6,500 by 0.35 shows that the buyer is eligible for a
partial tax credit of $2,275.
Please remember that these examples are intended to provide a general
idea of how the tax credit might be applied in different
circumstances. You should always consult your tax advisor for
information relating to your specific circumstances.
- How is this home
buyer tax credit different from the tax credit that Congress enacted
in July of 2008? How is this different than the rules established in
early 2009?
The previous tax credits applied only to first-time home buyers and
were for different amounts of money.
- How do I claim
the tax credit? Do I need to complete a form or application? Are there
documentation requirements?
You claim the tax credit on your federal income tax return.
Specifically, home buyers should complete
IRS
Form 5405 to determine their tax credit amount, and then claim
this amount on line 67 of the 1040 income tax form for 2009 returns
(line 69 of the 1040 income tax form for 2008 returns).
No other applications are required, and no pre-approval is necessary.
However, you will want to be sure that you qualify for the credit
under the income limits and repeat home buyer tests. Note that you
cannot claim the credit on Form 5405 for an intended purchase for some
future date; it must be a completed purchase. Home buyers must attach
a copy of their HUD-1 settlement form (closing statement) to Form 5405
as proof of the completed home purchase.
- What types of
homes will qualify for the tax credit?
Any home that will be used as a principal residence will qualify for
the credit, provided the home is purchased for a price less than or
equal to $800,000. This includes single-family detached homes,
attached homes like townhouses and condominiums, manufactured homes
(also known as mobile homes) and houseboats. The definition of
principal residence is identical to the one used to determine whether
you may qualify for the $250,000 / $500,000 capital gain tax exclusion
for principal residences.
It is important to note that you cannot purchase a home from, among
other family members, your ancestors (parents, grandparents, etc.),
your lineal descendants (children, grandchildren, etc.) or your spouse
or your spouse’s family members. Please consult with your tax advisor
for more information.
Also see IRS Form
5405.
- I read that the
tax credit is “refundable.” What does that mean?
The fact that the credit is refundable means that the home buyer
credit can be claimed even if the taxpayer has little or no federal
income tax liability to offset. Typically this involves the government
sending the taxpayer a check for a portion or even all of the amount
of the refundable tax credit.
For example, if a qualified home buyer expected, notwithstanding the
tax credit, federal income tax liability of $5,000 and had tax
withholding of $4,000 for the year, then without the tax credit the
taxpayer would owe the IRS $1,000 on April 15th. Suppose now that the
taxpayer qualified for the $6,500 home buyer tax credit. As a result,
the taxpayer would receive a check for $5,500 ($6,500 minus the $1,000
owed).
- Instead of
buying a new home from a home builder, I hired a contractor to
construct a home on a lot that I already own. Do I still qualify for
the tax credit?
Yes. For the purposes of the home buyer tax credit, a principal
residence that is constructed by the home owner is treated by the tax
code as having been “purchased” on the date the owner first occupies
the house. In this situation, the date of first occupancy must be
after November 6, 2009 and on or before April 30, 2010 (or by June 30,
2010, provided a binding sales contract was in force by April 30,
2010).
In contrast, for newly-constructed homes bought from a home builder,
eligibility for the tax credit is determined by the settlement date.
Be sure to check with a tax advisor in cases where a HUD-1 form is not
used at settlement to be sure you have sufficient documentation to
attach to
IRS
Form 5405.
- Can I claim the
tax credit if I finance the purchase of my home under a mortgage
revenue bond (MRB) program?
Yes. The tax credit can be combined with an MRB home buyer program.
- I am not a U.S.
citizen. Can I claim the tax credit?
Perhaps. Anyone who is not a nonresident alien (as defined by the IRS)
and who has owned and resided in a principal residence in the United
States for at least five consecutive years of the eight years prior to
the purchase date can claim the tax credit if they meet the income
limits. For married taxpayers, the law tests the homeownership history
of both the home buyer and his/her spouse. The IRS provides a
definition of “nonresident alien” in IRS Publication 519.
- Is a tax credit
the same as a tax deduction?
No. A tax credit is a dollar-for-dollar reduction in what the taxpayer
owes. That means that a taxpayer who owes $6,500 in income taxes and
who receives an $6,500 tax credit would owe nothing to the IRS.
A tax deduction is subtracted from the amount of income that is taxed.
Using the same example, assume the taxpayer is in the 15 percent tax
bracket and owes $6,500 in income taxes. If the taxpayer receives a
$6,500 deduction, the taxpayer’s tax liability would be reduced by
$975 (15 percent of $6,500), or lowered from $6,500 to $5,525.
- Is there a way
for a home buyer to access the money allocable to the credit sooner
than waiting to file their 2009 or 2010 tax return?
Yes. Prospective home buyers who believe they qualify for the tax
credit are permitted to reduce their income tax withholding. Reducing
tax withholding (up to the amount of the credit) will enable the buyer
to accumulate cash by raising his/her take home pay. This money can
then be applied to the downpayment.
Buyers should adjust the withholding amount on their W-4 via their
employer or through their quarterly estimated tax payment. IRS
Publication 919 contains rules and guidelines for income tax
withholding. Prospective home buyers should note that if income tax
withholding is reduced and the tax credit qualified purchase does not
occur, then the individual would be liable for repayment to the IRS of
income tax and possible interest charges and penalties.
In addition, rule changes made as part of the economic stimulus
legislation allow home buyers to claim the tax credit and participate
in a program financed by tax-exempt bonds. As a result, some state
housing finance agencies have introduced programs that provide
short-term second mortgage loans that may be used to fund a
downpayment. Prospective home buyers should check with their state
housing finance agency to see if such a program is available in their
community. To date, 18 state agencies have announced tax credit
assistance programs, and more are expected to follow suit. The
National Council of State Housing Agencies (NCSHA) has compiled a list
of such programs, which can be found
here.
- HUD allows
“monetization” of the tax credit. What does that mean?
It means that HUD will allow buyers using FHA-insured mortgages to
apply their anticipated tax credit toward their home purchase
immediately rather than waiting until they file their 2009 or 2010
income taxes to receive a refund. These funds may be used for certain
downpayment and closing cost expenses.
Under the guidelines announced by HUD, non-profits and FHA-approved
lenders are allowed to give home buyers short-term loans. The
guidelines also allow government agencies, such as state housing
finance agencies, to facilitate home sales by providing longer term
loans secured by second mortgages.
Housing finance agencies and other government entities may also issue
tax credit loans, which home buyers may use to satisfy the FHA 3.5
percent downpayment requirement.
In addition, approved FHA lenders can purchase a home buyer’s
anticipated tax credit to pay closing costs and downpayment costs
above the 3.5 percent downpayment that is required for FHA-insured
homes.
More information about the guidelines is available on the NAHB web
site. Read the
HUD mortgagee letter (pdf) and an explanation of the
FHA Mortgagee Letter on Tax Credit Monetization (pdf).
An FAQ about monetization (pdf) is available at the NAHB web site.
- If I’m qualified
for the tax credit and buy a home in 2009 (or 2010), can I apply the
tax credit against my 2008 (or 2009) tax return?
Yes. The law allows taxpayers to choose (“elect”) to treat qualified
home purchases in 2009 (or 2010) as if the purchase occurred on
December 31, 2008 (or if in 2010, December 31, 2009). This means that
the previous year’s income limit (MAGI) applies and the election
accelerates when the credit can be claimed. A benefit of this election
is that a home buyer in 2009 or 2010 will know their prior year MAGI
with certainty, thereby helping the buyer know whether the income
limit will reduce their credit amount.
Taxpayers buying a home who wish to claim it on their prior year tax
return, but who have already submitted their tax return to the IRS,
may file an amended return claiming the tax credit using Form 1040X.
You should consult with a tax professional to determine how to arrange
this.
- For a home
purchase in 2009 or 2010, can I choose whether to treat the purchase
as occurring in the prior or present year, depending on in which year
my credit amount is the largest?
Yes. If the applicable income phaseout would reduce your home buyer
tax credit amount in the present year and a larger credit would be
available using the prior year MAGI amounts, then you can choose the
year that yields the largest credit amount.
- How can two
unmarried buyers allocate the tax credit if one qualifies for the
$8,000 first-time home buyer tax credit and the other qualifies for
the $6,500 repeat home buyer credit?
The buyers can allocate the tax credit in any reasonable manner,
provided neither claims a tax credit higher than the one they qualify
for and the home purchase does not yield a
total of more than $8,000 in tax credits. For example, the repeat home
buyer could claim $6,500 and the first-time home buyer could claim
$1,500. Alternatively, both buyers could claim a $4,000 tax credit.
- Does a married
couple qualify for any home buyer tax credit in the following
situation? Spouse A has lived in and owned the same principal
residence for at least five years. Spouse B has lived in and owned the
same principal residence for less than five years.
In this situation, the couple does not qualify for any home buyer tax
credit. Because the couple is married, the law tests the ownership
history of both spouses. Spouse A clearly does not
qualify for the $8,000 first-time home buyer tax credit, so neither
does Spouse B.
Spouse A does appear to qualify for the $6,500 repeat buyer credit,
but because Spouse B has not owned and lived in the same principal
residence for at least five years, neither of them can claim the
repeat home buyer tax credit.
-
Who is eligible to claim the $8,000 tax credit?
First-time home buyers purchasing any kind of home—new or resale—are
eligible for the tax credit. To qualify for the tax credit, a home
purchase must occur on or after January 1, 2009 and on or before April
30, 2010. For the purposes of the tax credit, the purchase date is the
date when closing occurs and the title to the property transfers to
the home owner. A limited exception exists for certain contract for
deed purchases and installment sale purchases.
See the IRS website for more detail.
However, the law also allows home sales occurring by June 30, 2010 to
qualify, provided they are due to a binding sales contract in force on
or before April 30, 2010.
Persons who are claimed as dependents by other taxpayers or who are
under age 18 are not qualified for the tax credit program.
- What is the
definition of a first-time home buyer?
The law defines “first-time home buyer” as a buyer who has not owned a
principal residence during the three-year period prior to the
purchase. For married taxpayers, the law tests the homeownership
history of both the home buyer and his/her spouse.
For example, if you have not owned a home in the past three years but
your spouse has owned a principal residence, neither you nor your
spouse qualifies for the first-time home buyer tax credit. However,
IRS Notice 2009-12 allows unmarried joint purchasers to allocate the
credit amount to any buyer who qualifies as a first-time buyer, such
as may occur if a parent jointly purchases a home with a son or
daughter. Ownership of a vacation home or rental property not used as
a principal residence does not disqualify a buyer as a first-time home
buyer.
- How is the
amount of the tax credit determined?
The tax credit is equal to 10 percent of the home’s purchase price up
to a maximum of $8,000.
- Are there any
income limits for claiming the tax credit?
Yes. For sales occuring after November 6, 2009, the income limit for
single taxpayers is $125,000; the limit is $225,000 for married
taxpayers filing a joint return. The tax credit amount is reduced for
buyers with a modified adjusted gross income (MAGI) of more than
$125,000 for single taxpayers and $225,000 for married taxpayers
filing a joint return. The phaseout range for the tax credit program
is equal to $20,000. That is, the tax credit amount is reduced to zero
for taxpayers with MAGI of more than $145,000 (single) or $245,000
(married) and is reduced proportionally for taxpayers with MAGIs
between these amounts.
- The income
limits for claiming the tax credit were raised when the tax credit was
extended. Are the higher limits retroactive?
No. The new income limits are only applicable to purchases occurring
after November 6, 2009.
The income limits for sales occuring on or after January 1, 2009 and
on or before November 6, 2009 are $75,000 for single taxpayers and
$150,000 for married couples filing jointly.
- What is
“modified adjusted gross income”?
Modified adjusted gross income or MAGI is defined by the IRS. To find
it, a taxpayer must first determine “adjusted gross income” or AGI.
AGI is total income for a year minus certain deductions (known as
“adjustments” or “above-the-line deductions”), but before itemized
deductions from Schedule A or personal exemptions are subtracted. On
Forms 1040 and 1040A, AGI is the last number on page 1 and first
number on page 2 of the form. For Form 1040-EZ, AGI appears on line 4
(as of 2007). Note that AGI includes all forms of income including
wages, salaries, interest income, dividends and capital gains.
To determine modified adjusted gross income (MAGI), add to AGI certain
amounts of foreign-earned income.
See
IRS Form 5405 for more details.
- If my modified
adjusted gross income (MAGI) is above the limit, do I qualify for any
tax credit?
Possibly. It depends on your income. Partial credits of less than
$8,000 are available for some taxpayers whose MAGI exceeds the
phaseout limits.
- Can you give me
an example of how the partial tax credit is determined?
Just as an example, assume that a married couple has a modified
adjusted gross income of $235,000. The applicable phaseout to qualify
for the tax credit is $225,000, and the couple is $10,000 over this
amount. Dividing $10,000 by the phaseout range of $20,000 yields 0.5.
When you subtract 0.5 from 1.0, the result is 0.5. To determine the
amount of the partial first-time home buyer tax credit that is
available to this couple, multiply $8,000 by 0.5. The result is
$4,000.
Here’s another example: assume that an individual home buyer has a
modified adjusted gross income of $138,000. The buyer’s income exceeds
$125,000 by $13,000. Dividing $13,000 by the phaseout range of $20,000
yields 0.65. When you subtract 0.65 from 1.0, the result is 0.35.
Multiplying $8,000 by 0.35 shows that the buyer is eligible for a
partial tax credit of $2,800.
Please remember that these examples are intended to provide a general
idea of how the tax credit might be applied in different
circumstances. You should always consult your tax advisor for
information relating to your specific circumstances.
- How is this home
buyer tax credit different from the tax credit that Congress enacted
in early 2009?
The tax credit’s income limits were increased, the documentation
requirements were tightened, and the program's deadlines were
extended.
- How do I claim
the tax credit? Do I need to complete a form or application? Are there
documentation requirements?
You claim the tax credit on your federal income tax return.
Specifically, home buyers should complete IRS Form 5405 to determine
their tax credit amount, and then claim this amount on line 67 of the
1040 income tax form for 2009 returns (line 69 of the 1040 income tax
form for 2008 returns). No other applications are required, and no
pre-approval is necessary. However, you will want to be sure that you
qualify for the credit under the income limits and first-time home
buyer tests. Note that you cannot claim the credit on Form 5405 for an
intended purchase for some future date; it must be a completed
purchase. Home buyers must attach a copy of their HUD-1 settlement
form (closing statement) to Form 5405 as proof of the completed home
purchase.
- What types of
homes will qualify for the tax credit?
Any home that will be used as a principal residence will qualify for
the credit, provided the home is purchased for a price less than or
equal to $800,000. This includes single-family detached homes,
attached homes like townhouses and condominiums, manufactured homes
(also known as mobile homes) and houseboats. The definition of
principal residence is identical to the one used to determine whether
you may qualify for the $250,000 / $500,000 capital gain tax exclusion
for principal residences.
It is important to note that you cannot purchase a home from, among
other family members, your ancestors (parents, grandparents, etc.),
your lineal descendants (children, grandchildren, etc.) or your spouse
or your spouse’s family members. Please consult with your tax advisor
for more information.
Also see IRS Form
5405.
- I read that the
tax credit is “refundable.” What does that mean?
The fact that the credit is refundable means that the home buyer
credit can be claimed even if the taxpayer has little or no federal
income tax liability to offset. Typically this involves the government
sending the taxpayer a check for a portion or even all of the amount
of the refundable tax credit.
For example, if a qualified home buyer expected, notwithstanding the
tax credit, federal income tax liability of $5,000 and had tax
withholding of $4,000 for the year, then without the tax credit the
taxpayer would owe the IRS $1,000 on April 15th. Suppose now that the
taxpayer qualified for the $8,000 home buyer tax credit. As a result,
the taxpayer would receive a check for $7,000 ($8,000 minus the $1,000
owed).
- Instead of
buying a new home from a home builder, I hired a contractor to
construct a home on a lot that I already own. Do I still qualify for
the tax credit?
Yes. For the purposes of the home buyer tax credit, a principal
residence that is constructed by the home owner is treated by the tax
code as having been “purchased” on the date the owner first occupies
the house. In this situation, the date of first occupancy must be on
or after January 1, 2009 and on or before April 30, 2010 (or by June
30, 2010, provided a binding sales contract was in force by April, 30,
2010).
In contrast, for newly-constructed homes bought from a home builder,
eligibility for the tax credit is determined by the settlement date.
- Can I claim the
tax credit if I finance the purchase of my home under a mortgage
revenue bond (MRB) program?
Yes. The tax credit can be combined with an MRB home buyer program.
Note that first-time home buyers who purchased a home in 2008 may not
claim the tax credit if they are participating in an MRB program.
- I live in the
District of Columbia. Can I claim both the Washington, D.C. first-time
home buyer credit and this new credit?
No. You can claim only one.
- I am not a U.S.
citizen. Can I claim the tax credit?
Maybe. Anyone who is not a nonresident alien (as defined by the IRS),
who has not owned a principal residence in the previous three years
and who meets the income limits test may claim the tax credit for a
qualified home purchase. The IRS provides a definition of “nonresident
alien” in IRS Publication 519.
- Is a tax credit
the same as a tax deduction?
No. A tax credit is a dollar-for-dollar reduction in what the taxpayer
owes. That means that a taxpayer who owes $8,000 in income taxes and
who receives an $8,000 tax credit would owe nothing to the IRS.
A tax deduction is subtracted from the amount of income that is taxed.
Using the same example, assume the taxpayer is in the 15 percent tax
bracket and owes $8,000 in income taxes. If the taxpayer receives an
$8,000 deduction, the taxpayer’s tax liability would be reduced by
$1,200 (15 percent of $8,000), or lowered from $8,000 to $6,800.
- I bought a home
in 2008. Do I qualify for this credit?
No, but if you purchased your first home between April 9, 2008 and
January 1, 2009, you may qualify for a different tax credit. Please
consult with your tax advisor for more information.
- Is there a way
for a home buyer to access the money allocable to the credit sooner
than waiting to file their 2009 or 2010 tax return?
Yes. Prospective home buyers who believe they qualify for the tax
credit are permitted to reduce their income tax withholding. Reducing
tax withholding (up to the amount of the credit) will enable the buyer
to accumulate cash by raising his/her take home pay. This money can
then be applied to the downpayment.
Buyers should adjust their withholding amount on their W-4 via their
employer or through their quarterly estimated tax payment. IRS
Publication 919 contains rules and guidelines for income tax
withholding. Prospective home buyers should note that if income tax
withholding is reduced and the tax credit qualified purchase does not
occur, then the individual would be liable for repayment to the IRS of
income tax and possible interest charges and penalties.
In addition, rule changes made as part of the economic stimulus
legislation allow home buyers to claim the tax credit and participate
in a program financed by tax-exempt bonds. As a result, some state
housing finance agencies have introduced programs that provide
short-term second mortgage loans that may be used to fund a
downpayment. Prospective home buyers should check with their state
housing finance agency to see if such a program is available in their
community. To date, 18 state agencies have announced tax credit
assistance programs, and more are expected to follow suit. The
National Council of State Housing Agencies (NCSHA) has compiled a list
of such programs, which can be found
here.
- HUD is now
allowing "monetization" of the tax credit. What does that mean?
It means that HUD allows buyers using FHA-insured mortgages to apply
their anticipated tax credit toward their home purchase immediately
rather than waiting until they file their 2009 or 2010 income taxes to
receive a refund. These funds may be used for certain downpayment and
closing cost expenses.
Under HUD’s guidelines, non-profits and FHA-approved lenders are
allowed to give home buyers short-term loans of up to $8,000. The
guidelines also allow government agencies, such as state housing
finance agencies, to facilitate home sales by providing longer term
loans secured by second mortgages.
Housing finance agencies and other government entities may also issue
tax credit loans, which home buyers may use to satisfy the FHA 3.5
percent downpayment requirement. In addition, approved FHA lenders can
purchase a home buyer’s anticipated tax credit to pay closing costs
and downpayment costs above the 3.5 percent downpayment that is
required for FHA-insured homes.
More information about the guidelines is available on the NAHB web
site. Read the
HUD mortgagee letter (pdf) and an explanation of the
FHA Mortgagee Letter on Tax Credit Monetization (pdf).
An FAQ about monetization (pdf) is available at the NAHB web site.
- If I’m qualified
for the tax credit and buy a home in 2009 (or 2010), can I apply the
tax credit against my 2008 (or 2009) tax return?
Yes. The law allows taxpayers to choose (“elect”) to treat qualified
home purchases in 2009 (or 2010) as if the purchase occurred on
December 31, 2008 (or if in 2010, December 31, 2009). This means that
the previous year’s income limit (MAGI) applies and the election
accelerates when the credit can be claimed. A benefit of this election
is that a home buyer in 2009 or 2010 will know their prior year MAGI
with certainty, thereby helping the buyer know whether the income
limit will reduce their credit amount.
Taxpayers buying a home who wish to claim it on their prior year tax
return, but who have already submitted their tax return to the IRS,
may file an amended return claiming the tax credit using Form 1040X.
You should consult with a tax professional to determine how to arrange
this.
- For a home
purchase in 2009 or 2010, can I choose whether to treat the purchase
as occurring in the prior or present year, depending on in which year
my credit amount is the largest?
Yes. If the applicable income phaseout would reduce your home buyer
tax credit amount in the present year and a larger credit would be
available using the prior year MAGI amounts, then you can choose the
year that yields the largest credit amount.
- How can two
unmarried buyers allocate the tax credit if one qualifies for the
$8,000 first-time home buyer tax credit and the other qualifies for
the $6,500 repeat home buyer credit?
The buyers can allocate the tax credit in any reasonable manner,
provided neither claims a tax credit higher than the one they qualify
for and the home purchase does not yield a
total of more than $8,000 in tax credits. For example, the repeat home
buyer could claim $6,500 and the first-time home buyer could claim
$1,500. Alternatively, both buyers could claim a $4,000 tax credit.
- Does a married
couple qualify for any home buyer tax credit in the following
situation? Spouse A has lived in and owned the same principal
residence for at least five years. Spouse B has lived in and owned the
same principal residence for less than five years.
In this situation, the couple does not qualify for any home buyer tax
credit. Because the couple is married, the law tests the ownership
history of both spouses. Spouse A clearly does not
qualify for the $8,000 first-time home buyer tax credit, so neither
does Spouse B.
Spouse A does appear to qualify for the $6,500 repeat buyer credit,
but because Spouse B has not owned and lived in the same principal
residence for at least five years, neither of them can claim the
repeat home buyer tax credit.
Making Work Pay Questions and Answers: General Issues
|
| |
| Q1. What is the
Making Work Pay Credit?
A. In tax years 2009 and
2010, the Making Work Pay provision will provide a refundable
tax credit of up to $400 for individuals and up to $800 for
married taxpayers filing joint returns.
Q2. How will taxpayers
get this credit?
A. For people who receive
a paycheck and are subject to withholding, the credit will
typically be handled by their employers through automated
withholding changes to be made in early spring 2009. These
changes may result in an increase in the amount of take-home
pay. The amount of the credit will be reported on the 2009
income tax return. Taxpayers who do not have taxes withheld by
an employer during the year can also claim the credit on their
2009 tax return filed in 2010.
Q3. How will the
self-employed (those who do not receive Social Security,
Veterans Affairs or Railroad Retirement Board income) claim this
credit?
A. Self-employed
taxpayers can claim the Making Work Pay credit on their 2009
return filed in 2010. Self-employed individuals should evaluate
their expected income tax liability and determine whether they
want to make any adjustments in their estimated tax payments.
Q4. Can private
pensioners (those who do not receive Social Security, Veterans
Affairs or Railroad Retirement Board income) claim this credit?
A. Private pension
recipients are not eligible for the Making Work Pay credit
unless they have earned income. However, because the new
withholding tables reduce the taxes withheld from all taxpayers,
pension recipients may not have enough tax withheld from their
pension benefits to cover their tax liability on those
payments. The IRS recommends that pension recipients evaluate
their expected tax liability for the year and consider whether
they need to make estimated tax payments or adjust their
withholding on
Form W-4P, Withholding Certificate for Pension or Annuity
Payments.
Q5. Are employees
required to have a valid Social Security number (SSN) to be
eligible for the Making Work Pay tax credit?
A. Yes, eligibility for
this credit is conditioned upon providing a valid SSN.
Q6. If a taxpayer is
eligible for more of a credit, how can it be claimed?
A. The modified tables
take the anticipated credit into account through reduced
withholding. However, the Making Work Pay credit will be
reported on all filed 2009 income tax returns, along with the
taxpayer’s withheld income tax. Taxpayers receiving less than
the full amount of the anticipated credit through reduced
withholding will still be entitled to the full credit on their
return. |
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American
Opportunity Credit: Questions and Answers
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| |
| Q1. Are there any changes to the tax
credits for college expenses?
A. The American opportunity tax credit, which expanded and
renamed the already-existing Hope credit, can be claimed for
tuition and certain fees you pay for higher education in 2009
and 2010.
Q2. The Hope credit originally applied
only to the first two years of college. Has that changed?
A. Yes. The American opportunity tax credit
can be claimed for expenses for the first four years of
post-secondary education.
Q3. How much is the American
opportunity tax credit worth?
A. It is a tax credit of up to $2,500 of the
cost of qualified tuition and related expenses paid during the
taxable year. That is a $700 increase from the previous Hope
credit.
Q4. What education expenses qualify
for the American opportunity tax credit?
A. The term "qualified tuition and related
expenses" has been expanded to include expenditures for "course
materials." For this purpose, the term "course materials" means
books, supplies and equipment needed for a course of study
whether or not the materials are purchased from the educational
institution as a condition of enrollment or attendance.
Q5. Does an expenditure for a computer
qualify for the American opprtunity tax credit?
A. Whether an expenditure for a computer
qualifies for the credit depends on the facts. An expenditure
for a computer would qualify for the credit if the computer is
needed for enrollment or attendance at the educational
institution.
Q6. How is the American opportunity
tax credit calculated?
A. Taxpayers will receive a tax credit based
on 100 percent of the first $2,000 of tuition, fees and course
materials paid during the taxable year, plus 25 percent of the
next $2,000 of tuition, fees and course materials paid during
the taxable year.
Q7. How will the American opportunity
tax credit affect my income tax return?
A. You will be able to reduce your tax
liability one dollar for each dollar of credit for which you're
eligible. If the amount of the American opportunity tax credit
for which you're eligible is more than your tax liability, the
amount of the credit that is more than your tax liability is
refundable to you, up to a maximum refund of 40 percent of the
amount of the credit for which you’re eligible.
Q8. Who is eligible for the American
opportunity tax credit?
A. A taxpayer who pays qualified tuition and
related expenses and whose federal income tax return has a
modified adjusted gross income of $80,000 or less ($160,000 or
less for joint filers) is eligible for the credit. The credit is
reduced ratably if a taxpayer’s modified adjusted gross income
exceeds those amounts. A taxpayer whose modified adjusted gross
income is greater than $90,000 ($180,000 for joint filers)
cannot benefit from this credit.
Q9. What is "modified adjusted gross
income" for the purposes of the American opportunity tax credit?
A. It is the taxpayer's adjusted gross income
increased by foreign income that was excluded, and by income
excluded from sources in Puerto Rico or certain U.S.
possessions.
Q10. How is the credit claimed?
A. The credit is claimed using Form 8863,
attached to Form 1040 or 1040A.
Q11. I'm just beginning college this
year. Can I claim the American opportunity tax credit for all
four years I pay tuition?
A. The American opportunity tax credit is for
amounts paid in 2009 and 2010 only. You may be eligible for the
lifetime learning credit for any tuition and fees required for
enrollment you pay after 2010.
Q12. Can I also claim the tuition and
fees tax deduction in addition to claiming the American
opportunity tax credit?
A. No. You cannot claim the tuition and fees
tax deduction in the same year that you claim the American
opportunity tax credit or the lifetime learning credit. You must
choose among them. You also cannot claim the tuition and fees
tax deduction if anyone else claims the American opportunity tax
credit or the lifetime learning credit for you in the same year.
A tax deduction of up to $4,000 can be claimed for qualified
tuition and fees paid. Though the credit will usually result in
greater tax savings, taxpayers should calculate the effect of
both on the tax return to see which is most beneficial — the tax
credit or the deduction. Often tax software will automatically
compare the two for you.
Q13. Is there a new benefit that
applies to college savings plans (commonly known as 529 Plans)?
A. Yes. A qualified, nontaxable distribution
from a Section 529 plan during 2009 or 2010 now includes the
cost of the purchase of any computer technology or equipment or
Internet access and related services, if such technology,
equipment or services are to be used by the beneficiary of the
plan and the beneficiary's family during any of the years the
beneficiary is enrolled at an eligible educational institution. |
|
Energy Incentives for Individuals: Questions and
Answers
|
| |
| Q. How has the American Recovery and
Reinvestment Act of 2009 affected the tax credits for energy
efficient home improvements? A.
The new law increases the energy tax credit for homeowners who
make energy efficient improvements to their existing homes. The
new law increases the credit rate to 30 percent of the cost of
all qualifying improvements and raises the maximum credit limit
to $1,500 for improvements placed in service in 2009 and 2010.
A similar credit was available for 2007, but
was not available in 2008. Homeowners should be aware that the
standards in the new law are higher than the standards for the
credit that was available in 2007 for products that qualify as
“energy efficient” for purposes of this tax credit. The IRS has
issued guidance that will allow manufacturers to certify that
their products meet these new standards. See
Notice
2009-53.
Q. What improvements qualify for the
enhanced residential energy property credit for homeowners?
A. In 2009 and 2010, an individual may claim a
credit for 30 percent of the cost (subject to the overall credit
limit of $1,500) for the installation of the following
qualifying products:
- Energy-efficient exterior windows, doors
and skylights
- Energy-efficient heating and air
conditioning systems
- Insulation
- Water heaters (natural gas, propane or oil)
- Roofs (metal and asphalt)
- Biomass stoves
Q. Who qualifies to claim a residential
energy property credit? Are there limitations?
A. You may be able to take these credits if
you made energy saving improvements to your personal
residence. This credit is limited to improvements placed in
service during 2009 and 2010 up to a total credit of $1,500 for
both tax years combined.
The residential energy property credit is non
refundable. A nonrefundable tax credit allows taxpayers to lower
their tax liability to zero, but not below zero.
Q. Are there incentives for making your
home energy efficient by installing alternative energy
equipment — for example, installing a solar hot water heater?
A. Yes, the residential energy efficiency
property credit has been enhanced to remove some of the
previously imposed maximum amounts and allows for a credit equal
to 30 percent of the cost of qualified property. Qualifying
property includes solar water heaters, geothermal heat pumps and
small wind turbines, installed in a home. For more information,
see Notice
2009-41, which explains the effects of this change.
Q. Is there a limitation on the amount of
the residential energy efficiency property credit?
A. The American Recovery and Reinvestment Act
(ARRA) eliminates the dollar limit on the 30 percent tax credit
for alternative energy equipment, such as solar water heaters,
geothermal heat pumps and small wind turbines, installed in a
home. The cap generally has been eliminated for these
improvements beginning in the 2009 tax year.
ARRA provides for a uniform credit of 30
percent of the cost of qualifying improvements up to $1,500,
such as adding insulation, energy-efficient exterior windows,
doors and skylights, certain water heaters, metal and asphalt
roofs, biomass stoves and energy-efficient heating and air
conditioning systems.
Q. For tax years beginning in 2009, the law
allows a 30 percent tax credit, with no cap, to a homeowner for
the cost, including installation costs, of solar electric
equipment (photovoltaic). This credit provides a great incentive
to homebuilders and homebuyers to install this equipment. For
purposes of this tax credit, does the cost to the homebuyer of
the installed solar electric equipment include a builder’s
normal construction mark-up?
A. The homebuyer must make a reasonable
allocation of the cost of a home to determine the cost allocable
to the solar electric equipment on which a homebuyer computes
this credit. The cost of the solar electric equipment may
include a reasonable allocation of the homebuilder’s
construction mark-up. The homebuilder should provide the buyer
with information necessary to make this allocation.
Q. How has the American Recovery and
Reinvestment Act of 2009 affected tax credits for plug-in
electric vehicles?
A. Plug-in electric vehicles using certain
types of batteries may qualify for a new tax credit. The
Emergency Economic Stabilization Act of 2008 (EESA) and the
American Recovery and Reinvestment Act of 2009 (ARRA) created
two new tax credits for various types of plug-in electric
vehicles, which may include what are commonly referred to as
neighborhood electric vehicles.
Q. What types of credits are available for
qualified electric plug-in vehicles?
A. EESA created a tax credit (plug-in electric
drive motor vehicle credit) for vehicles that have at least four
wheels and draw propulsion using a rechargeable traction battery
with at least four kilowatt hours of capacity. For 2009, the
minimum credit is $2,500 and the credit tops out at $7,500 to
$15,000, depending on the weight of the vehicle and the capacity
of the battery.
ARRA creates a tax credit (plug-in electric
vehicle credit) for low-speed or two- or three-wheel electric
vehicles, such as motor scooters, purchased after Feb. 17, 2009,
and before Jan. 1, 2012. The amount of the credit is 10 percent
of the cost of the vehicle, up to a maximum credit of $2,500. To
qualify, a vehicle must be either a low-speed vehicle that is
propelled to a significant extent by a rechargeable battery with
a capacity of at least 4 kilowatt hours or be a two- or
three-wheeled vehicle that is propelled to a significant extent
by a rechargeable battery with a capacity of at least 2.5
kilowatt hours.
If the individual qualifies for both the
plug-in electric vehicle credit and the plug-in electric drive
motor vehicle credit, then the plug-in electric drive motor
vehicle credit should be claimed.
During 2009, low-speed, four-wheeled vehicles
manufactured primarily for use on public streets, roads and
highways (neighborhood electric vehicles) may qualify both for
the plug-in electric drive motor vehicle credit and, if
purchased after Feb. 17, 2009, for the plug-in electric vehicle
credit. A taxpayer may not claim both credits for the same
vehicle. Vehicles manufactured primarily for off-road use, such
as for use on a golf course, do not qualify for either credit.
Notice 2009-54 provides
certification procedures for the plug-in electric drive motor
vehicle credit for vehicles purchased in 2009. The IRS is
working on guidance regarding certification procedures for the
plug-in electric drive motor vehicle credit for vehicles
purchased after 2009.
Notice
2009-58 provides certification procedures for the plug-in
electric vehicle credit.
Q. What does “acquired” mean for
purposes of the plug-in electric vehicle credit (ARRA Section
1142) and the plug-in electric drive motor vehicle credit (ARRA
Section 1141)?
A. A vehicle is acquired under the laws of the
state in which the vehicle was purchased. Generally, under state
law, a binding contract to purchase a vehicle by itself does not
count as acquiring a vehicle. For a taxpayer to have acquired
the vehicle, he or she must have title to it under state law.
Q. What are the qualifying requirements for
a plug-in electric drive vehicle purchased after Dec. 31, 2009?
A. ARRA modifies the plug-in electric drive
motor vehicle credit for vehicles purchased after Dec. 31, 2009.
To qualify, vehicles must be newly purchased, have four or more
wheels, have a gross vehicle weight rating of less than 14,000
pounds, and draw propulsion using a battery with at least four
kilowatt hours that can be recharged from an external source of
electricity. The minimum amount of the credit for qualified
plug-in electric drive motor vehicles is $2,500 and the credit
tops out at $7,500 depending on the battery capacity of the
vehicle. The credit will begin to phase out with respect to a
manufacturer's vehicles after the manufacturer has sold at least
200,000 vehicles.
After Dec. 31, 2009 a vehicle cannot qualify
for both the plug-in electric vehicle credit and the plug-in
electric drive motor vehicle credit.
Q. Can a taxpayer claim a credit for
installing an electric drive conversion kit?
A. Yes. ARRA
provides a tax credit for plug-in electric drive conversion
kits. The credit is equal to 10 percent of the cost of
converting a vehicle to a qualified plug-in electric drive motor
vehicle and placed in service after Feb. 17, 2009. The maximum
amount of the credit is $4,000. The credit does not apply to
conversions made after Dec. 31, 2011. A taxpayer may claim this
credit even if the taxpayer claimed a hybrid vehicle credit for
the same vehicle in an earlier year.
Q. Does the Alternative Minimum Tax (AMT)
impact the alternative motor vehicle credit?
A. Starting in 2009, the new law allows the
alternative motor vehicle credit, including the tax credit for
purchasing hybrid vehicles, to be applied against the
alternative minimum tax. Prior to the new law, the alternative
motor vehicle credit could not be used to offset the AMT. |
|
January 20, 2010
WASHINGTON, D.C. - The House of Representatives today unanimously
passed H.R. 4462, legislation that would allow individuals who make
charitable contributions to victims of the earthquake in Haiti [if made
before March 1, 2010] to claim
an itemized charitable deduction on their 2009 tax return instead of
having to wait until next year to claim these deductions on their 2010
tax return. The legislation also includes a provision allowing those who
text messaged a donation the ability to use a phone bill as proof of
donation. The bipartisan bill was introduced yesterday by Ways and Means
Committee Chairman Charles B. Rangel (D-NY) and Ranking Member Dave Camp
(R-MI) joined Majority Whip James E. Clyburn (D-SC), House Republican
Whip Eric Cantor (R-VA), and
152 additional original cosponsors.
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