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Tax Credits Help Homeowners Winterize their Homes, Save Energy

Expanded Recovery Act Tax Credits Help Homeowners Winterize their Homes, Save Energy; IRS Advises You to Check Tax Credit Certification Before You Buy

People can now weatherize their homes and be rewarded for their efforts. According to the Internal Revenue Service, homeowners making energy-saving improvements this fall can cut their winter heating bills and lower their 2009 tax bill as well.

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The American Recovery and Reinvestment Act (Recovery Act), enacted earlier this year, expanded two home energy tax credits: the nonbusiness energy property credit and the residential energy efficient property credit.

 

Nonbusiness Energy Property Credit

This credit equals 30 percent of what a homeowner spends on eligible energy-saving improvements, up to a maximum tax credit of $1,500 for the combined 2009 and 2010 tax years. The cost of certain high-efficiency heating and air conditioning systems, water heaters and stoves that burn biomass all qualify, along with labor costs for installing these items. In addition, the cost of energy-efficient windows and skylights, energy-efficient doors, qualifying insulation and certain roofs also qualify for the credit, though the cost of installing these items does not count.

By spending as little as $5,000 before the end of the year on eligible energy-saving improvements, a homeowner can save as much as $1,500 on his or her 2009 federal income tax return. Due to limits based on tax liability, other credits claimed by a particular taxpayer and other factors, actual tax savings will vary. These tax savings are on top of any energy savings that may result.

 

Residential Energy Efficient Property Credit

Homeowners going green should also check out a second tax credit designed to spur investment in alternative energy equipment. The residential energy efficient property credit, equals 30 percent of what a homeowner spends on qualifying property such as solar electric systems, solar hot water heaters, geothermal heat pumps, wind turbines, and fuel cell property. Generally, labor costs are included when calculating this credit.  Also, no cap exists on the amount of credit available except in the case of fuel cell property.

 

Tax Credits Help Homeowners Winterize their Homes, Save Energy

Not all energy-efficient improvements qualify for these tax credits. For that reason, homeowners should check the manufacturer’s tax credit certification statement before purchasing or installing any of these improvements. The certification statement can usually be found on the manufacturer’s website or with the product packaging. Normally, a homeowner can rely on this certification.  The IRS cautions that the manufacturer’s certification is different from the Department of Energy’s Energy Star label, and not all Energy Star labeled products qualify for the tax credits.

Eligible homeowners can claim both of these credits when they file their 2009 federal income tax return. Because these are credits, not deductions, they increase a taxpayer’s refund or reduce the tax he or she owes. An eligible taxpayer can claim these credits, regardless of whether he or she itemizes deductions on Schedule A.

 

Form 5695, Residential Energy Credits

Use Form 5695, Residential Energy Credits, to figure and claim these credits. A draft version of this form is available now on IRS.gov.

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First-Time Homebuyer Credit Provides Tax Benefits

First-Time Homebuyer Credit Provides Tax Benefits to 1.4 Million Families to Date, More Claims Expected

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With the deadline quickly approaching, the Internal Revenue Service today reminded potential homebuyers they must complete their first-time home purchases before Dec. 1 to qualify for the special first-time homebuyer credit. The American Recovery and Reinvestment Act extended the tax credit, which has provided a tax benefit to more than 1.4 million taxpayers so far.

ALERT: You must close on a new home by Nov. 30, 2009 (extended to April 30,2010), to qualify for this tax credit. With the deadline approaching, potential homebuyers should consult with their real estate professionals to ensure they have enough time left to close on a home.

The credit of up to $8,000 is generally available to homebuyers with qualifying income levels who have never owned a home or have not owned one in the past three years. The IRS has a new YouTube video (watch it below) and other resources that explain the credit in detail.

 

First-Time Homebuyer Credit Provides Tax Benefits

The IRS encouraged all eligible homebuyers to take advantage of the first-time homebuyer credit but at the same time cautioned taxpayers to avoid schemes that help ineligible people file false claims for the credit. Currently, the agency is investigating a number of cases of potential fraud and is using computer screening tools to identify questionable claims for the credit.

Because the credit is only in effect for a limited time, those considering buying a home must act soon to qualify for the credit. Under the Recovery Act, an eligible home purchase must be completed before Dec. 1, 2009. This means that the last day to close on a home is Nov. 30.

The credit cannot be claimed until after the purchase is completed. For purchases made this year before Dec. 1, taxpayers have the option of claiming the credit on their 2008 returns or waiting until next year and claiming it on their 2009 returns.

For those considering a home purchase this fall, here are some other details about the first-time homebuyer credit:

  • The credit is 10 percent of the purchase price of the home, with a maximum available credit of $8,000 for either a single taxpayer or a married couple filing jointly. The limit is $4,000 for a married person filing a separate return. In most cases, the full credit will be available for homes costing $80,000 or more.
  • The credit reduces the taxpayer’s tax bill or increases his or her refund, dollar for dollar. Unlike most tax credits, the first-time homebuyer credit is fully refundable. This means that the credit will be paid to eligible taxpayers, even if they owe no tax or the credit is more than the tax owed.
  • Only the purchase of a main home located in the United States qualifies. Vacation homes and rental properties are not eligible.
  • A home constructed by the taxpayer only qualifies for the credit if the taxpayer occupies it before Dec. 1, 2009.
  • The credit is reduced or eliminated for higher-income taxpayers. The credit is phased out based on the taxpayer’s modified adjusted gross income (MAGI). MAGI is 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 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.
  • The credit must be repaid if, within three years of purchase, the home ceases to be the taxpayer’s main home. For example, a taxpayer who claims the credit based on a qualifying purchase on Sept. 1, 2009, must repay the full credit if he or she sells the home or converts it to business or rental use at any time before Sept. 1, 2012.

Taxpayers cannot take the credit even if they buy a main home before Dec. 1 if:

  • The taxpayer’s income is too large. This means joint filers with MAGI of $170,000 and above and other taxpayers with MAGI of $95,000 and above.
  • The taxpayer buys a home from a close relative. This includes a home purchased from the taxpayer’s spouse, parent, grandparent, child or grandchild.
  • The taxpayer owned another main home at any time during the three years prior to the date of purchase. For a married couple filing a joint return, this requirement applies to both spouses. For example, if the taxpayer bought a home on Sept. 1, 2009, the taxpayer cannot take the credit for that home if he or she owned, or had an ownership interest in, another main home at any time from Sept. 2, 2006, through Sept. 1, 2009.
  • The taxpayer is a nonresident alien.

For details on claiming the credit, see Form 5405, First-Time Homebuyer Credit.

Taxpayers: Beware of First-Time Homebuyer Credit Fraud

NOTE: There are changes in the program and there is currently not a first-time home buyer credit. The information on this page is for past reference. You may be able to take the first-time homebuyer credit if you were an eligible buyer who purchased a home as your primary residence in 2008, 2009 or 2010. Eligibility varies depending upon the year of your purchase. And there are specific benefits that certain members of the military and certain other federal employees have, such as an additional year to buy a home in the United States, if they otherwise qualified for the credit. This credit reduces your tax bill or increases your refund depending on the tax you owe. The IRS refunds the credit, even if you owe no tax or the credit is more than the tax owed. [Added 1/4/11] Legislation enacted in July 2010 extended the closing deadline from June 30 to Sept. 30, 2010, for eligible homebuyers. Legislative changes in November 2009 expanded and extended the credit and also added documentation requirements for claiming the credit. Due to increased compliance checks by the IRS, failure to submit documentation will slow down the issuance of any applicable refund.

 

Taxpayers: Beware of First-Time Homebuyer Credit Fraud

The Internal Revenue Service today announced its first successful prosecution related to fraud involving the first-time homebuyer credit and warned taxpayers to beware of this type of scheme.

Our new house.

On Thursday July 23, 2009, a Jacksonville, Fla.-tax preparer, James Otto Price III, pled guilty to falsely claiming the first-time homebuyer credit on a client’s federal tax return. Price faces the possibility of up to three years in jail, a fine of as much as $250,000, or both.

To date, the IRS has executed seven search warrants and currently has 24 open criminal investigations in pursuit of potential instances of fraud involving the credit. The agency has a number of sophisticated computer screening tools to quickly identify returns that may contain fraudulent claims for the first-time homebuyer credit.

“We will vigorously pursue anyone who falsely tries to claim this or any other tax credit or deduction,” said Eileen Mayer, Chief, IRS Criminal Investigation. “The penalties for tax fraud are steep. Taxpayers should be wary of anyone who promises to get them a big refund.”

Whether a taxpayer prepares his or her own return or uses the services of a paid preparer, it is the taxpayer who is ultimately responsible for the accuracy of the return. Fraudulent returns may result not only in the required payment of back taxes but also in penalties and interest.

 

First-Time Homebuyer Tax Credit

The First-Time Homebuyer Credit, originally passed in 2008 and modified in 2009, provides up to $8,000 for first-time homebuyers. The purchaser, however, must qualify as a first-time homebuyer, which for purposes of this credit means someone who has not owned a primary residence in the past three years. If the taxpayer is married, this requirement also applies to the taxpayer’s spouse. The home purchase must close before Dec. 1, 2009, to qualify, and the credit may not be claimed on the purchaser’s tax return until after the taxpayer closes and has purchased the home.

Different rules apply for homes bought in 2008.

Full details and instructions are available on the official IRS Web site:

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5 Tax Facts about Summertime Child Care Expenses

Many parents who work or are looking for work must arrange for care of their children under 13 years of age during the school vacation. There are often possible tax deductions that can be taken advantge of for parents who put their children into some form of supervised care. If you paid a daycare center, babysitter, summer camp, or other care provider to care for a qualifying child under age 13 or a disabled dependent of any age, you may qualify for a tax credit of up to up to 35 percent of qualifying expenses of $3,000 for one child or dependent, or up to $6,000 for two or more children or dependents.

 

5 Tax Facts about Summertime Child Care Expenses

Here are five facts the IRS wants you to know about a tax credit available for child care expenses. The Child and Dependent Care Credit is available for expenses incurred during the lazy days of summer and throughout the rest of the year.

 

Summer Child Care Expenses that are Deductible

  1. The cost of day camp can count as an expense towards the child and dependent care credit.
  2. Expenses for overnight camps do not qualify.
  3. If your childcare provider is a sitter at your home or a daycare facility outside the home, you’ll get some tax benefit if you qualify for the credit.
  4. The actual credit can be up to 35 percent of your qualifying expenses, depending upon your income.
  5. You may use up to $3,000 of the unreimbursed expenses paid in a year for one qualifying individual or $6,000 for two or more qualifying individuals to figure the credit.

Regardless of whether you paid for after-class child care during the school year or a week of day camp during summer break, you can apply the costs to the child and dependent care tax credit and use it to cut your tax bill at filing time. The child and dependent care tax credit is available to help offset the costs of providing care for children under age 13 while the child’s parents are working. If you work from home and you pay someone to watch your child so that you can get your work done, those expenses may qualify for the credit. Day camp expenses may also qualify for the credit, even if the camp is a “specialty camp,” such as a sports camp or a computer camp.

 

Almost everything that you bought in order to send your kid to camp is non-deductible. That includes:

  • Sports equipment. It’s personal in nature and not deductible, even if it’s required.
  • Clothing. Again, it’s personal in nature even if specifically required. And yes, even if those are clothes that your child would never, ever wear outside of camp.
  • Fans and furniture for overnight camp. Still, personal in nature and not deductible.

Expenses involved in simply getting ready for camp are deductible. That includes:

  • Physicals. The cost of a physical or well exam is deductible; you do not have to be sick in order for the visit to be deductible.
  • Shots. Vaccines and immunizations are considered preventative care and are deductible.
  • Fees for doctors. Most doctors charge a fee to complete forms for camp now. If those are part of your medical care, they are deductible.

Make sure you save receipts for camp and ask for the camp’s taxpayer identification number. You’ll need that number and the camp address to put on your tax return as substantiation of the expenses for the dependent care tax credit. Save the receipts as back up. For the workplace FSA, you need the camp address and a receipt or a signature of the camp director.

For more information, including rules for claiming this credit for your spouse or a dependent age 13 or over who is not able to care for himself or herself, check out IRS Publication 503, Child and Dependent Care Expenses. This publication is available below or by calling 800-TAX-FORM (800-829-3676).

 

Additional IRS Links on Deducting Summer Camp Expenses on Tax Return:

IRS Publication 503, Child and Dependent Care Expenses

YouTube Videos on Deducting Summer Camp Expenses on Tax Return:

Summer Day Camp Expenses – English  | Spanish    | ASL  

Top 10 Tips about IRA Contributions

IRA retirements accounts are a great way to plan for retirement. As the years winds down, it is important to begin assessing what kind of contributions you may be making to a retirement plan. You can contribute to your traditional IRA at any time during the year. You must make all contributions by the due date for filing your tax return. This due date does not include extensions. For most people this means you must contribute for 2012 by April 15, 2013. If you contribute between Jan. 1 and April 15, you should contact your IRA plan sponsor to make sure they apply it to the right year.

 

Top 10 Tips about IRA Contributions

The great thing about a traditional IRA is that, even if you make contributions in the following tax year, the IRS lets you take a deduction for some of these IRA contributions on your prior-year tax return (you must make the contributions by mid-April). In other words, if you are filing your 2014 taxes, the contributions you make to a traditional IRA through mid-April of 2015 may be deductible. This is why your account administrator has until May 31 to send Form 5498 to you.

There is still time to make contributions to your traditional Individual Retirement Arrangement, better known as an IRA.

 

Below are the top ten things you should know about money you put aside for retirement in an IRA.

  1. You may be able to deduct some or all of your contributions to your IRA and you also may be eligible for a tax credit equal to a percentage of your contribution.
  2. Contributions can be made to your traditional IRA at any time during the year or by the due date for filing your return for that year, not including extensions. For most people, this means contributions for 2008 must be made by April 15, 2009.
  3. The amount of funds in your IRA are generally not taxed until you receive distributions from that IRA.
  4. To figure your deduction for IRA contributions, use the worksheets in the instructions for the form you are filing.
  5. For 2008, the most that can be contributed to your traditional IRA generally is the smaller of the following amounts: $5,000 or the amount of your taxable compensation for the year. Taxpayers who are 50 or older can contribute up to $6,000.
  6. Use Form 8880, Credit for Qualified Retirement Savings Contributions, to determine whether you are also eligible for a tax credit.
  7. You cannot deduct an IRA contribution or claim the Credit for Qualified Retirement Saving Contributions on Form 1040EZ; you must use either Form 1040A or Form 1040.
  8. To contribute to a traditional IRA, you must be under age 70 1/2 at the end of the tax year.
  9. You must have taxable compensation, such as wages, salaries, commissions and tips. If you file a joint return, only one of you needs to have compensation.
  10. Refer to IRS Publication 590, Individual Retirement Arrangements, for information on the amounts you will be eligible to contribute to your IRA account.

You may also qualify for the Savers Credit, formally known as the Retirement Savings Contributions Credit. The credit can reduce your taxes up to $1,000 (up to $2,000 if filing jointly). Use Form 8880, Credit for Qualified Retirement Savings Contributions, to claim the Saver’s Credit.

You can get a traditional IRA if you’re under age 70 1/2 and receive taxable compensation.

  • Wages, salaries, and tips
  • Sales commissions
  • Professional fees
  • Bonuses
  • Self-employment income
  • Military compensation while serving in a combat zone tax-exclusion area
  • Alimony or separate maintenance payments included in gross income

 

Income not included as compensation for IRA purposes includes:

  • Profit from the sale of stocks or other property
  • Rental income
  • Pension or annuity income
  • Deferred compensation

Both Form 8880 and Publication 590 can be downloaded below or ordered by calling 800-TAX-FORM (800-829-3676).

 

Additional IRS Resources on IRA Accounts:

First-Time Homebuyers Have Several Options to Maximize New Tax Credit

As part of the Treasury Department’s consumer outreach effort and with the April 15 individual tax filing deadline approaching, the Internal Revenue Service today began a concerted effort to educate taxpayers about additional options at their disposal to claim the new $8,000 first-time homebuyer credit for 2009 home purchases. For people who recently purchased a home or are considering buying in the next few months, there are several different ways that they can get this tax credit even if they’ve already filed their tax return.

 

First-Time Homebuyers Have Several Options to Maximize New Tax Credit

The Treasury Department encourages taxpayers to explore these options to maximize their credit and get their money back as fast as possible.

“The new credit can get money in the pockets of first-time homebuyers quickly,” said IRS Commissioner Doug Shulman. “For people who recently purchased a home or are considering buying in the next few months, there are several different ways that they can get this tax credit even if they’ve already filed their tax return.”

First-time homebuyers represent a significant portion of existing single-family home sales. The expansion in the first-time homebuyer credit will make it easier for first-time homebuyers to enter the housing market this year.

Under the American Recovery and Reinvestment Act of 2009, qualifying taxpayers who purchase a home before Dec. 1 receive up to $8,000, or $4,000 for married individuals filing separately. People can claim the credit either on their 2008 tax returns due April 15 or on their 2009 tax returns next year.

The filing options to consider are:

  • File an extension — Taxpayers who haven’t yet filed their 2008 returns but are buying a home soon can request a six-month extension to October 15. This step would be faster than waiting until next year to claim it on the 2009 tax return. Even with an extension, taxpayers could still file electronically, receiving their refund in as few as 10 days with direct deposit.
  • File now, amend later — Taxpayers due a sizable refund for their 2008 tax return but who also are considering buying a house in the next few months can file their return now and claim the credit later. Taxpayers would file their 2008 tax forms as usual, then follow up with an amended return later this year to claim the homebuyer credit.
  • Amend the 2008 tax return — Taxpayers buying a home in the near future who have already filed their 2008 tax return can consider filing an amended tax return. The amended tax return will allow them to claim the homebuyer credit on the 2008 return without waiting until next year to claim it on the 2009 return.
  • Claim the credit in 2009 rather than 2008 — For some taxpayers, it may make more financial sense to wait and claim the homebuyer credit next year when they file the 2009 tax return rather than claiming it now on the 2008 tax return. This could benefit taxpayers who might qualify for a higher credit on the 2009 tax return. This could include people who have less income in 2009 than 2008 because of factors such as a job loss or drop in investment income.

The IRS reminds taxpayers the amount of the credit begins to phase out for taxpayers whose modified adjusted gross income is more than $75,000, or $150,000 for joint filers. Taxpayers can claim 10 percent of the purchase price up to $8,000, or $4,000 for married individuals filing separately.

IRS.gov provides more information, including guidance for people who bought their first homes in 2008. To learn more about the overall implementation of the Recovery Act, visit www.Recovery.gov.

Five Important Tax Credits

Check it out! You might be eligible for a tax credit. A tax credit is a dollar-for-dollar reduction of taxes owed. Some credits are even refundable. That means you might receive a refund rather than owe any taxes.

 

Five Important Tax Credits

Here are five popular credits you should consider before filing your 2008 Federal Income Tax Return:
(links to download the forms below)

1. The Earned Income Tax Credit is a refundable credit for low-income working individuals and families. Income and family size determine the amount of the credit. For more information, see IRS Publication 596, Earned Income Credit.

2. The Child and Dependent Care Credit is for expenses paid for the care of your qualifying children under age 13, or for a disabled spouse or dependent, to enable you to work or look for work. For more information, see IRS Publication 503, Child and Dependent Care Expenses.

3. The Child Tax Credit is for people who have a qualifying child. The maximum amount of the credit is $1,000 for each qualifying child. This credit can be claimed in addition to the credit for child and dependent care expenses. For more information on the Child Tax Credit, see IRS Publication 972, Child Tax Credit.

4. The Retirement Savings Contributions Credit, also known as the Saver’s Credit, is designed to help low- and moderate-income workers save for retirement. You may qualify if your income is below a certain limit and you contribute to an IRA or workplace retirement plan, such as a 401(k) plan. The Saver’s Credit is available in addition to any other tax savings that apply. For more information, see IRS Publication 590, Individual Retirement Arrangements (IRAs).

5. Health Coverage Tax Credit. Certain individuals, who are receiving certain Trade Adjustment Assistance, Alternative Trade Adjustment Assistance, or pension benefit payments from the Pension Benefit Guaranty Corporation, may be eligible for a Health Coverage Tax Credit when you file your 2008 tax return.

There are other credits available to eligible taxpayers. Since many qualifications and limitations apply to the various tax credits, taxpayers should carefully check their tax form instructions, the listed publications, and additional information that is available on the IRS Web site at IRS.gov. IRS forms and publications are also available by calling 800-TAX-FORM (800-829-3676).

Links to forms:

2009 Publication 596, Earned Income Credit (EIC)
Publication 972, Child Tax Credit
Publication 503, Child and Dependent Care Expenses
Publication 524, Credit for the Elderly and Disabled
Publication 970, Tax Benefits for Education
Publication 590, Individual Retirement Arrangements (IRAs)
Form 1040 Instructions

The Making Work Pay Tax Credit

Attention Employers: The IRS has issued updated withholding tables to help you implement the withholding adjustments required by the new economic stimulus law.

More details about the Making Work Pay credit will be available soon in Publication 15, (Circular E), Employer’s Tax Guide.
General Information

For 2009 and 2010, the Making Work Pay provision of the American Recovery and Reinvestment Act will provide a refundable tax credit of up to $400 for working individuals and $800 for married taxpayers filing joint returns.

 

The Making Work Pay Tax Credit

This tax credit will be calculated at a rate of 6.2% of earned income and will phase out for taxpayers with adjusted gross income in excess of $75,000, or $150,000 for married couples filing jointly.

For people who receive a paycheck and are subject to withholding, the credit will typically be handled by their employers through automated withholding changes in early spring. These changes may result in an increase in take-home pay. The amount of the credit must be reported on the employee’s 2009 income tax return filed in 2010. Taxpayers who do not have taxes withheld by an employer during the year can also claim the credit on their 2009 tax return.

It is not necessary to submit a Form W-4 to get the automatic withholding change. However, an employee with multiple jobs or married couples whose combined incomes place them in a higher tax bracket may elect to submit a revised W-4 to ensure enough withholding is held to cover the tax for his or her combined income. Publication 919 provides additional guidance for tax withholding.

 

Key Points of Making Work Pay Provision

  • Workers can receive an income tax credit equal to 6.2 percent of earned income up to a maximum credit of $400 ($800 for couples).
  • The credit could start quickly if implemented through reduced withholding. Otherwise, taxpayers would likely not benefit until they file their tax returns the following year, in which case the stimulus effect would be significantly delayed.
  • Delivery in small increments through reduced withholding—rather than in a lump sum as a tax refund—might encourage recipients to spend the credit rather than save more or pay down debt.
  • A temporary credit induces less additional spending than a permanent credit.
  • The credit could induce some low-income people to work and partially offsets the regressivity of the payroll tax.
  • JCT estimates that the proposal would cost $116.2 billion over 10 years, making it by far the largest tax provision. (If made permanent, the long-term costs would be very large—an estimated $640 billion more through 2018.)

 

How can I check to see if I received an economic recovery payment in 2009?

A. To find out if you received a 2009 Economic Recovery Payment, please call our automated telephone service at 1-866-234-2942 and select Option 1. Or use the Did I Receive a 2009 Economic Recovery Payment? online tool to verify whether you received the payment. Or, you can contact your respective agency for confirmation before completing and filing your 2009 tax return:

  • Social Security Administration: Toll Free number 800-772-1213. General ERP inquiries can be answered by the SSA Web site: www.ssa.gov/recovery.
  • Department of Veterans Affairs (VA): Toll free number is 800-827-1000. General ERP inquiries can be answered by going to the VA Web site: www.va.gov/recovery.
  • Railroad Retirement Board: Go to the RRB Web site at www.rrb.gov/recovery for more details.