What Tax Credits Are Available?
A tax deduction reduces the amount of taxable income on a return, while a tax credit reduces the amount of tax liability dollar for dollar. For example, a United States filer who owes $1,000 in federal income tax and receives a $1,000 tax credit will not pay a cent to the Internal Revenue Service (IRS). A refundable credit allows the filer to receive cash if he earns more in credits than the amount of taxed owed.
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Income
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Low-income workers may claim the Earned Income Tax Credit (EITC), which provides a refundable credit to persons aged at least 25 but under the age of 65. Residents must live in the U.S. at least half of the year and may not have someone claim them as a dependent. According to the instructions for IRS Form 1040, the maximum credit for a parent with a dependent child came to $3,043 in 2009.
Child
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According to the IRS, the Child Tax Credit provides a refundable $1,000 credit for each eligible child dependent in a household. To qualify, a child must be under the age of 17 and a U.S. citizen, resident alien or national at the end of a tax year. A parent can claim her child as a dependent if the child has lived with the parent for more than half the tax year and the parent provides for the child's welfare. The IRS reduces the amount of the credit for single taxpayers who earn over $75,000.
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House
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According to the National Association of Homebuilders, the IRS provides up to a $8,000 refundable homebuyer tax credit for persons who have purchased their first primary residence or up to a $6,500 tax credit for repeat homebuyers. The credit equals 10 percent of the purchase price of a property. Homeowners must have entered a binding sales contract by April 30, 2010 with a close date of Sept. 30, 2010. Homebuyers may claim this credit on their tax return by April 15, 2011.
Efficiency
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The United States Energy Star program provides consumers with a tax credit if they make certain approved upgrades to their principle residence. Qualifying home improvements, made no later than Dec. 31, 2010, provide consumers with a 30-percent credit up to $1,500 on the purchase price and installation of water heaters, insulation, windows, doors, and biomass stoves. Energy-efficient heat pumps and air conditioning units with a Seasonal Energy Efficiency Rating (SEER) of at least 15 also qualify. The Energy Star program provides a 30-percent tax credit with no limit on residential wind turbines, photovoltaic systems and geothermal heat pumps until Dec. 31, 2016.
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