Other Credits
There are other credits that a taxpayer may be eligible to use. Table 6.5, “Available Credits” below lists the credit, qualifications to meet, the purpose and how the credit is computed and/or the amount that might be available.
Table 6.5. Available Credits
| Name of credit | Description | Potential credit amount and/or how to compute |
|---|---|---|
| Adoption | Credit to defray expenses in the adoption of an eligible child (under 18 or physically or mentally incapable of caring for herself/himself, or “special” needs child). | Credit up to $11,390 |
| Foreign Tax | Credit for the tax paid or accrued to a foreign country during the year. Credit cannot exceed foreign tax paid. | Computation: tax credit = U.S. tax liability × (net foreign income / worldwide taxable income) |
| Mortgage interest | Lower income taxpayers who were issued a mortgage credit certificate by their local government can take a credit but it must be reduced by any mortgage interest itemized deduction. | Use Form 8396 to compute the credit. |
| Retirement savings contribution | Lower income (AGI less than $25,000 single, $37,500 head of household, $50,000 married filing jointly) taxpayers can be eligible for a credit if they contribute to a retirement savings account (even a Roth). | Use Form 8801 to compute the credit. |
| Alternative motor vehicle | A taxpayer can be eligible for a credit when purchasing a hybrid energy source vehicle, including electric drive vehicles. The credits are specific to manufacturer, make, model, and the number that have been sold. Unless extended by Congress, credits expire December 31, 2010. | To get official credit amounts and their expiration dates, go to the IRS Web page at http://www.irs.gov and search for motor vehicle credits. |
| Residential energy | Home improvements including insulations, windows, doors, and a roof that reduces heat gain may be eligible for credits. Also available if photovoltaic equipment, solar water heaters, and fuel cells are installed. | Use Form 5695 to compute the credit. |
| Excess Social Security and railroad retirement tax withheld | A taxpayer working for two or more employers and earning more than the maximum income subject to Social Security or Railroad Retirement Tax will have excess tax withheld. | Compute the tax on the maximum income subject to the tax (varies every year) and subtract the amount withheld by all employers. The excess is claimed as a credit in the credits section of Form 1040. |
Congress created a new credit that is designed to encourage home ownership and ease the surplus of unsold houses. The credit is available for first-time home buyers for purchases from April 8, 2008, and before July 1, 2009 (taxpayers should check to see if Congress revised these dates as new economics stimulus programs were being considered at the end of 2008 and early to 2009, which still might retroactively apply to 2008 purchases). The credit is equal to 10% of the purchase price but it cannot exceed $7,500 and the credit is phased out for modified AGI of $75,000 to $95,000 for singles and $150,000 to $170,000 for married filing jointly.
A first-time home buyer is defined as a taxpayer who has not owned a principal residence (not a vacation home) during the three-year period before the purchase. If the purchase occurs after 2008, the credit may be claimed in either 2008 or 2009.
The credit is unique from other credits in that it must be repaid. Beginning two years after the purchased or for the year claimed, the credit must be repaid in equal installments over fifteen years. The credit is in effect, an interest free loan. It is also a refundable credit and can result in a payment from the IRS in excess of the tax liability.
Example
Cheryl decides to buy a new home (her first) and closes on the title March 1, 2009. She files an amended 2008 federal income tax return and claims a credit of $7,500 (she did not exceed the AGI limitation, and 10% of the purchase price exceeded $7,500). Beginning in 2010, Cheryl must add $500 ($7,500 credit/15 years) to her tax liability to repay the credit. She will complete her payments on her 2024 tax return.
Go to Publication 17 and read Chapter 37: Other Credits.
Questions and Problems
Oksana has taxable income of $55,000 from the Ukraine, which imposes a 30% income tax, and $45,000 of income from Germany, which imposes a 40% income tax. Oksana taxable income from U.S. sources of $100,000 and U.S. tax liability before credits of $38,000. What is the amount of the foreign tax credit?
$16,500
$17,250
$19,000
$34,500
$38,000
Karl worked for three employers during the year. Each employer deducted Social Security and Medicare taxes from his wages. He earned $46,000, $35,000, and $29,000 from the three employers. What is the amount of credit Karl can claim for excessive withholding in 2008?
$0
$1,798
$2,170
$2,852
Some other amount
Maria and Manuelo buy their first new home February 15, 2009. The purchase price was $183,000 and they paid $23,000 as a down payment. How much can they claim and in what year can they claim a first-time home buyer’s credit?
$16,000 in 2009
$16,000 in 2008 or 2009
$7,500 in 2009
$7,500 in 2008 or 2009
Brie bought an energy-efficient geothermal heat pump for her home at a cost of $3,500. What is her credit?
In 2008, Ben spent $4,000 on certified energy efficient insulation for his home and installs certified energy efficient windows costing $2,500. What is Ben’s credit for 2008?
Gerda’s U.S. taxable income is $76,400. She files single. She also had income of $42,000 while working in Austria and paid 32% in tax. What is the amount of Gerda’s foreign tax credit? $________
