Here are seven things the IRS wants you to know about the expanded adoption credit.

1. Beginning in tax year 2010 the credit is refundable, meaning that you can get it even if you owe no tax.

2. For tax year 2010 you must file a paper tax return and Form 8839, Qualified Adoption Expenses, to get the credit and you must attach documents supporting the adoption.

3. Documents may include a final adoption decree, placement agreement from an authorized agency, court documents and the state’s determination for special needs children.

4. Qualified adoption expenses are reasonable and necessary expenses directly related to the legal adoption of the child. These expenses may include adoption fees, court costs, attorney fees and travel expenses.

5. An eligible child must be under 18 years old, or physically or mentally incapable of caring for himself or herself.

6. If your modified adjusted gross income is more than $182,520, your credit is reduced. If your modified AGI is $222,520 or more, you cannot take the credit.

7. Taxpayers claiming the credit will still be able to use IRS Free File to prepare their returns, but the returns must be printed and mailed to the IRS, along with all required documentation.

 

For your 2011 return, the maximum credit you can claim for installing energy-saving windows, doors, roofs, or other eligible improvements or property is $500. Be aware the “new” old rules make that figure cumulative, meaning the amount you claimed for the credit in prior years will reduce the amount you can claim this year.

In addition, the credit may be limited by the type of property or improvements. For instance, the maximum credit you can claim for windows is $200.

Improvements you make to the “envelope” of your home, such as roofs, insulation, and windows or doors, must be expected to last at least five years. Generally, only the cost of the improvement qualifies for the credit, so you wouldn’t count what you pay for installation.

For energy-efficient property, including heating and cooling systems and water heaters, you can add labor costs when figuring the total expense to which the credit applies.

All upgrades must meet specified energy requirements and some property may qualify for other credits. Please contact us if you need details.

 

If so, repayment of the credit begins this year, and the first installment is due with your 2010 tax return.

You might already have received a letter from the IRS summarizing how much you received and what amount you need to repay. Generally, your installments will be spread in equal amounts over the next fifteen years.

Example. Say you received the maximum credit of $7,500. Since $7,500 divided by 15 is $500, that’s how much you’d add to your tax liability, beginning with your 2010 return.

In some cases — such as if you sell your home or convert it to a rental — you may have to pay back some or all of the credit before the end of the 15-year “recapture” period. The repayment is due in the tax year that the ownership or use of your home changes.

In other situations, including when you move due to military or certain other government service orders, your repayment could be reduced or eliminated.

Other exceptions may apply. Please call if you have questions about how the payback requirements affect you.

 

1. Amount – With the Child Tax Credit, you may be able to reduce your federal income tax by up to $1,000 for each qualifying child under the age of 17.
2. Qualification – A qualifying child for this credit is someone who meets the qualifying criteria of six tests: age, relationship, support, dependent, citizenship, and residence.
3. Age Test – To qualify, a child must have been under age 17 – age 16 or younger – at the end of 2010.
4. Relationship Test – To claim a child for purposes of the Child Tax Credit, they must either be your son, daughter, stepchild, foster child, brother, sister, stepbrother, stepsister or a descendant of any of these individuals, which includes your grandchild, niece or nephew. An adopted child is always treated as your own child. An adopted child includes a child lawfully placed with you for legal adoption.
5. Support Test – In order to claim a child for this credit, the child must not have provided more than half of their own support.
6. Dependent Test – You must claim the child as a dependent on your federal tax return.
7. Citizenship Test – To meet the citizenship test, the child must be a U.S. citizen, U.S. national, or U.S. resident alien.
8. Residence Test – The child must have lived with you for more than half of 2010. There are some exceptions to the residence test, which can be found in IRS Publication 972, Child Tax Credit.
9. Limitations – The credit is limited if your modified adjusted gross income is above a certain amount. The amount at which this phase-out begins varies depending on your filing status. For married taxpayers filing a joint return, the phase-out begins at $110,000. For married taxpayers filing a separate return, it begins at $55,000. For all other taxpayers, the phase-out begins at $75,000. In addition, the Child Tax Credit is generally limited by the amount of the income tax you owe as well as any alternative minimum tax you owe.
10. Additional Child Tax Credit – If the amount of your Child Tax Credit is greater than the amount of income tax you owe, you may be able to claim the Additional Child Tax Credit.

 

Here are eight things you need to know about claiming the credit:

1. You must have bought – or entered into a binding contract to buy – a principal residence located in the United States on or before April 30, 2010. If you entered into a binding contract by April 30, 2010, you must have closed on the home on or before September 30, 2010.
2. To be considered a first-time homebuyer, you and your spouse – if you are married – must not have jointly or separately owned another principal residence during the three years prior to the date of purchase.
3. To be considered a long-time resident homebuyer you and your spouse – if you are married – must have lived in the same principal residence for any consecutive five-year period during the eight-year period that ended on the date the new home is purchased.
4. The maximum credit for a first-time homebuyer is $8,000, half that amount for married individuals filing separately. The maximum credit for a long-time resident homebuyer is $6,500. Married individuals filing separately are limited to $3,250.
5. You must file a paper return and attach Form 5405, First-Time Homebuyer Credit and Repayment of the Credit with additional documents to verify the purchase. Therefore, if you claim the credit you will not be able to file electronically.
6. New homebuyers must attach a copy of a properly executed settlement statement used to complete such purchase. Buyers of a newly constructed home, where a settlement statement is not available, must attach a copy of the dated certificate of occupancy. Mobile home purchasers who are unable to get a settlement statement must attach a copy of the retail sales contract.
7. If you are a long-time resident claiming the credit, the IRS recommends that you also attach any documentation covering the five-consecutive-year period, including Form 1098, Mortgage Interest Statement or substitute mortgage interest statements, property tax records or homeowner’s insurance records.
8. Members of the military and certain other federal employees serving outside the U.S. have an extra year to buy a principal residence in the U.S. and qualify for the credit.

 

Here are 10 things to know about this valuable credit, which has been making the lives of working people a little easier for 36 years.

1. As your financial, marital or parental situations change from year to year, you should review the EITC eligibility rules to determine whether you qualify. Just because you didn’t qualify last year, doesn’t mean you won’t this year.
2. If you qualify, the credit could be worth up to $5,666. EITC not only reduces the federal tax you owe, but could result in a refund. The amount of your EITC is based on your earned income and whether or not there are qualifying children in your household. The average credit was around $2,100 last year.
3. If you eligible for EITC, you must file a federal income tax return and specifically claim the credit – even if you are not otherwise required to file.Remember to include Schedule EIC, Earned Income Credit when you file your Form 1040 or, if you file Form 1040A, use and retain the EIC worksheet.
4. You do not qualify for EITC if your filing status is Married Filing Separately.
5. You must have a valid Social Security Number. You, your spouse – if filing a joint return – and any qualifying child listed on Schedule EIC must have a valid SSN issued by the Social Security Administration.
6. You must have earned income. You have earned income if you work for someone who pays you wages, you are self-employed, you have income from farming, or – in some cases – you receive disability income.
7. Married couples and single people without children may qualify. If you do not have qualifying children, you must also meet the age and residency requirements as well as dependency rules.
8. Special rules apply to members of the U.S. Armed Forces in combat zones. Members of the military can elect to include their nontaxable combat pay in earned income for the EITC. If you make this election, the combat pay remains nontaxable.
9. It’s easy to determine whether you qualify. The EITC Assistant, an interactive tool available on the IRS website, removes the guesswork from eligibility rules. Just answer a few simple questions to find out if you qualify and estimate the amount of your EITC.
10. Free help is available at Volunteer Income Tax Assistance sites and IRS Taxpayer Assistance Centers to help you prepare and claim your EITC.

 

1. Dependents In most cases, a child can be claimed as a dependent in the year they were born.
2. Child Tax Credit You may be able to take this credit on your tax return for each of your children under age 17. If you do not benefit from the full amount of the Child Tax Credit, you may be eligible for the Additional Child Tax Credit.
3. Child Dependent Care Credit You may be able to claim the credit if you pay someone to care for your child under age 13 so that you can work or look for work. For more information see IRS Publication 503, Child and Dependent Care Expenses.
4. Earned Income Tax Credit The EITC is a benefit for certain people who work and have earned income from wages, self-employment or farming. EITC reduces the amount of tax you owe and may also give you a refund.
5. Aoption Credit You may be able to take a tax credit for qualifying expenses paid to adopt an eligible child. Taxpayers claiming the adoption credit must file a paper tax return because adoption-related documentation must be included.
6. Children with Earned Income If your child has income earned from working they may be required to file a tax return.
7. Children with Investment Income Under certain circumstances a child’s investment income may be taxed at the parent’s tax rate.
8. Higher Education Credits Education tax credits can help offset the costs of education. The American Opportunity and the Lifetime Learning Credit are education credits that reduce your federal income tax dollar-for-dollar, unlike a deduction, which reduces your taxable income.
9. Student loan Interest You may be able to deduct interest you pay on a qualified student loan. The deduction is claimed as an adjustment to income so you do not need to itemize your deductions.
10. Self-employed health insurance deduction If you were self-employed and paid for health insurance, you may be able to deduct any premiums you paid for coverage after March 29, 2010, for any child of yours who was under age 27 at the end of 2010, even if the child was not your dependent.

 

So what education credits can you claim on your 2010 federal income tax return? The Hope Scholarship/American Opportunity Credit and the Lifetime Learning Credit are available this year, and, as you may already know, have many similarities.

For instance, to be eligible for these credits, the qualified out-of-pocket education expenses you pay in 2010 must be for academic periods that begin this year or in the first three months of 2011. Tuition and fees are qualified education expenses for purposes of claiming the credits, while room and board are not.

How do the credits differ? One difference is the maximum available amount. Generally, you can claim up to $2,500 per eligible student when you qualify for the Hope Scholarship/American Opportunity Credit, while the most you can claim for the Lifetime Learning Credit is $2,000.

Another difference is the adjusted gross income level at which the credits begin to shrink. For 2010, the phase-out for the Hope Scholarship/American Opportunity Credit starts at $80,000 when you’re single ($160,000 for married filing jointly). For the Lifetime Learning Credit, the phase-out begins at $50,000 for singles ($100,000 when you’re married filing jointly).

Call for more information. We have a complete list of education tax benefits, including qualified savings bond interest, student loan deductions, and withdrawals from IRAs and college savings plans.