Can I Get Energy Tax Credit Money If I Do Not Pay Taxes?
Tax credits require existing tax liability for a taxpayer after subtracting deductions from gross income. The total of all wages and compensation equals a taxpayer's gross income. Subtracting all deductions from this amount gives the tax liability of the taxpayer. If it is positive, the taxpayer uses tax credits to further reduce that amount to zero, if possible, or perhaps create a refund.
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Paying Taxes
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Paying taxes throughout the year reduces the tax liability due upon filing the tax return. If that tax liability is zero, it is still possible for the taxpayer to use tax credits. Refundable tax credits produce a refund if even the taxpayer owes no taxes at the filing date. However, nonrefundable taxes produce no tax refund, merely reducing any existing tax liability until it reaches zero.
Energy Tax Credit
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The energy tax credit, formally known as the Residential Energy Property and Residential Energy Efficient Property Credits, is a nonrefundable tax credit. Therefore, eligibility relies on the taxpayer having a tax liability prior to paying his taxes. Paying taxes is not a requirement for taking this tax credit. In fact, underpayment during the year results in the ability to take the credit. However, the Internal Revenue Service requires using nonrefundable credits in a certain order, and this one is near the bottom.
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Order of Nonrefundable Credits
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Nonrefundable credits have an order by which they must reduce a taxpayer's existing tax liability. Using each one that applies to a person eliminates part of the amount he owes. Prior to this, the taxpayer takes the foreign tax credit, credit for child and dependent care, credit for elderly or disabled, education credits, retirement savings contribution credits, child tax credit and qualified adoption expenses credit, if applicable.
Other Eligibility Requirements and Using the Energy Tax Credit
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Owning a residence and making improvements to enable it to be more energy-efficient are requirements to use the energy tax credits. The Residential Energy Property Credit allows the taxpayer to receive a credit for making improvements to his existing home and has a maximum limit of $1,500 in 2010. The Residential Energy Efficient Property Credit provides a credit when using qualifed alternative energy equipment, such as solar electricity and water heaters, fuel cells or wind energy. The limit is 30 percent of the cost of the property.
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