Printer Friendly

Credits.

1436. What credits may be taken against the tax?

After rates have been applied to compute the tax, certain payments and credits may be subtracted from the tax to arrive at the amount of tax payable. Refundable credits are recoverable regardless of the amount of the taxpayer's tax liability for the taxable year. The refundable credits include:

... Taxes withheld from salaries and wages. (6)

... Overpayments of tax. (7)

... The excess of Social Security withheld (two or more employers). (8)

... The earned income credit. (9)

... The 65% health care tax credit for uninsured workers displaced by trade competition. (10)

For 2009 and 2010, a making work pay credit is available equal to the lesser of (1) 6.2% of earned income or (2) $800 for a joint return and $400 for all others. The credit is reduced by 2% of the taxpayer's modified adjusted gross income in excess of $150,000 for a joint return and $75,000 for all others. The credit is also reduced by certain other benefits provided by ARRA 2009. The credit is not available for nonresident aliens, for persons for whom a personal exemption is claimed on another person's return, or an estate or trust. (1)

There is a first-time homebuyer credit available for a home purchased after April 8, 2008 and through April 2010. (2) The credit is available for 10% of the purchase price, up to certain limits. For homes purchased in 2009 and 2010, the dollar limits is $8,000 ($4,000 for a married individual filing separate). However, for a home purchased after November 6, 2009 by a long-time resident treated as a first-time homebuyer, the dollar limit is only $6,500 ($3,250 for a married individual filing separate). For a home purchased before November 7, 2009, the credit was phased out based on AGI of $75,000 to $95,000 ($150,000 to $170,000 for a joint return). For a home purchased after November 6, 2009, the credit is phased out based on AGI of $125,000 to $145,000 ($225,000 to $245,000 for a joint return). For a home purchased after November 6, 2009, the credit is not available to a person for whom a personal exemption is allowable to another person. The credit is not available for a home purchased after November 6, 2009 if the purchase price exceeds $800,000. For a home purchased in 2008, the credit must generally be recaptured over a 15-year period beginning with the second year after the home is purchased. The recapture generally must be accelerated if the home is sold or is no longer the taxpayer's principal residence. Credit recapture does not apply to a home purchased in 2009 or 2010 unless the home is disposed of or ceases to be used as a primary residence within three years of purchase. For a first-time homebuyer's credit that can be properly claimed in a year after 2008, the taxpayer can elect to claim the credit as of December 31 of the previous year.

The nonrefundable credits are as follows:

... The personal credits--which consist of the child and dependent care credit (3); the credit for the elderly and the permanently and totally disabled (4); the qualified adoption credit; (5); the nonrefundable portion of the child tax credit (6); the Hope Scholarship and Lifetime Learning credits (7) (see Q 1438); the credit for elective deferrals and IRA contributions (the "saver's credit," which became permanent under PPA 2006 (8));

... The nonbusiness energy property credit (9); and the residential energy efficient property credit (10).

... Other nonbusiness credits. (11)

... The general business credit (see Q 1262) is the sum of the following credits determined for the taxable year: (1) the investment credit determined under IRC Section 46 (see Q 1268) (including the rehabilitation credit; see Q 1228); (2) the work opportunity credit determined under IRC Section 51(a); (3) the alcohol fuels credit determined under IRC Section 40(a); (4) the research credit determined under IRC Section 41(a); (5) the low-income housing credit (see Q 1227) determined under IRC Section 42(a); (6) the enhanced oil recovery credit (see Q 1262) under IRC Section 43(a); (7) in the case of an eligible small business, the disabled access credit determined under IRC Section 44(a); (8) the renewable electricity production credit under IRC Section 45(a) (extended through 2009 under EIEA 2008); (9) the empowerment zone employment credit determined under IRC Section 1396(a); (10) the Indian employment credit as determined under IRC Section 45A(a); (11) the employer Social Security credit determined under IRC Section 45B(a); (12) the orphan drug credit determined under IRC Section 45C(a); (13) the new markets tax credit determined under IRC Section 45D(a); (14) in the case of an eligible employer (as defined in IRC Section 45E(c)); the small employer pension plan startup cost credit determined under IRC Section 45E(a); (15) the employer-provided child care credit determined under IRC Section 45F(a); (16) the railroad track maintenance credit determined under IRC Section 45G(a); (17) the biodiesel fuels credit determined under IRC Section 40A(a); (18) the low sulfur diesel fuel production credit determined under IRC Section 45H(a); (19) the marginal oil and gas well production credit determined under IRC Section 45I(a); (20) for tax years beginning after September 20, 2005, the distilled spirits credit determined under IRC Section 5011(a); (21) for tax year beginning after August 8, 2005, the advanced nuclear power facility production credit determined under IRC Section 45J(a); (22) for property placed in service after December 31, 2005, the nonconventional source production credit determined under IRC Section 45K(a); (23) the energy efficient home credit determined under IRC Section 45L(a); (24) the energy efficient appliance credit determined under IRC Section 45M(a); (25) the portion of the alternative motor vehicle credit to which IRC Section 30B(g)(1) applies; and (26) the portion of the alternative fuel vehicle refueling property credit to which IRC Section 30C(d)(1) applies. (1)

ETIA 2005 provides an alternative motor vehicle credit for qualified fuel cell vehicles, advanced lean-burn technology vehicles, qualified hybrid vehicles, and qualified alternative fuel vehicles. (2) (This credit replaced the prior deduction for qualified clean-fuel vehicle property, which expired on December 31, 2005. (3)) The portion of the credit attributable to vehicles of a character subject to an allowance for depreciation is treated as a portion of the general business credit; the remainder of the credit is a personal credit allowable to the extent of the excess of the regular tax (reduced by certain other credits) over the alternative minimum tax for the taxable year. (4)

For new qualified plug-in electric drive motor vehicles acquired and placed in service after 2009, a new credit is available. The credit can vary from $2,500 to $5,000 depending on battery capacity (and subject to phaseout based on number of vehicles sold by the manufacturer). The portion of the credit attributable to property of a character subject to an allowance for depreciation is treated as part of the general business credit. The balance of the credit is generally treated as a nonrefundable personal credit. (5) An alternative credit is available for certain plug-in electric cars placed in service after February 17, 2009 and before 2011. This credit is equal to 10% of cost, up to $2,500. (6)

Beginning in 2010, the only nonrefundable personal credits available for offset against the regular income tax and the alternative minimum tax are the: (1) nonrefundable adoption credit; (2) nonrefundable child tax credit; and (3) saver's credit (see above). (For tax years beginning in 2000 through 2009, all of the nonrefundable personal credits are available for offset against the regular income tax and the alternative minimum tax. (7)) A credit may also be allowed for prior years' alternative minimum tax liability (see Q 1431).

1437. Who qualifies for the child tax credit?

A child tax credit is available for each "qualifying child" (defined below) of eligible taxpayers who meet certain income requirements. The child tax credit is $1,000 through 2010. (1) The increased child tax credit will "sunset" (expire) for tax years beginning after December 31, 2010, at which time the child tax credit will return to its pre-EGTRRA level (i.e., $500). (2)

The term qualifying child means a "qualifying child" of the taxpayer (as defined under IRC Section 152(c)--see below) who has not attained the age of 17. (3)

"Qualifying child" means, with respect to any taxpayer for any taxable year, an individual:

(1) who is the taxpayer's "child" (see below) or a descendant of such a child, or the taxpayer's brother, sister, stepbrother, or stepsister or a descendant of any such relative;

(2) who has the same principal place of abode as the taxpayer for more than one-half of the taxable year; and

(3) who has not provided over one-half of such individual's own support for the calendar year in which the taxpayer's taxable year begins. (4)

Additionally, a qualifying child must be either a citizen or a resident of the United States. (5)

The term "child" means an individual who is: (1) a son, daughter, stepson, or stepdaughter of the taxpayer; or (2) an "eligible foster child" of the taxpayer. (6) An "eligible foster child" means an individual who is placed with the taxpayer by an authorized placement agency or by judgment decree, or other order of any court of competent jurisdiction. (7) Any adopted children of the taxpayer are treated the same as natural born children. (8)

The amount of the credit is reduced for taxpayers whose modified adjusted gross income (MAGI) exceeds certain levels. A taxpayer's MAGI is his adjusted gross income without regard to the exclusions for income derived from certain foreign sources or sources within United States possessions. The credit amount is reduced by $50 for every $1000 or fraction thereof, by which the taxpayer's MAGI exceeds the following threshold amounts: $110,000 for married taxpayers filing jointly, $75,000 for unmarried individuals, and $55,000 for married taxpayers filing separately. (9)

The child tax credit is refundable to the extent of 15% of the taxpayer's earned income in excess of $10,000 (as indexed-see below). (10) For example, if the taxpayer's earned income is $16,000, the excess amount would be $6,000 ($16,000 - $10,000 = $6,000), and the taxpayer's refundable credit for one qualifying child would be $900 ($6,000 x 15% = $900). For families with three or more qualifying children, the credit is refundable to the extent that the taxpayer's Social Security taxes exceed the taxpayer's earned income credit if that amount is greater than the refundable credit based on the taxpayer's earned income in excess of $10,000 (as indexed-see below). (1) The $10,000 amount is indexed for inflation. But ARRA 2009 reduces the dollar amount to $3,000 for 2009 and 2010. (2) (Prior to 2001, the child tax credit was refundable only for individuals with three or more qualifying children. (3))

The nonrefundable child tax credit can be claimed against the individual's regular income tax and alternative minimum tax (see Q 1436). The nonrefundable child tax credit cannot exceed the excess of (i) the sum of the taxpayer's regular tax plus the alternative minimum tax over (ii) the sum of the taxpayer's nonrefundable personal credits (other than the child tax credit, adoption credit, and saver's credit) and the foreign tax credit for the taxable year. (4) For tax years beginning after 2001, the refundable child tax credit is not required to be reduced by the amount of the taxpayer's alternative minimum tax. (5) The nonrefundable credit must be reduced by the amount of the refundable credit. (6)

Some additional restrictions applying to the child tax credit include: (1) an individual's tax return must identify the name and taxpayer identification number (Social Security number) of the child for whom the credit is claimed; and (2) the credit may be claimed only for a full taxable year, unless the taxable year is cut short by the death of the taxpayer. (7) For purposes of applying a uniform method of determining when a child attains a specific age, the Service has ruled that a child attains a given age on the anniversary of the date that the child was born (e.g., a child born on January 1, 1987, attains the age of 17 on January 1, 2004). (8) The IRS stated that it would apply Revenue Ruling 2003-72 retroactively and would notify those taxpayers entitled to a refund for 2002 as a result of Revenue Ruling 2003-72. (9)

The supplemental child tax credit, which was available before 2002 to certain lower income taxpayers, has been repealed. (10)

1438. What are the Hope Scholarship and Lifetime Learning Credits?

The Hope Scholarship Credit and the Lifetime Learning Credit are available to certain eligible taxpayers who pay qualified tuition and related expenses. (11)

Hope Scholarship Credit

The Hope Scholarship Credit provides a credit for each eligible student equal to the sum of: (1) 100% of qualified tuition and related expenses up to $2,000 (in 2009 and 2010); plus (2) 25% of qualified tuition and related expenses in excess of $2,000, up to the applicable limit. The applicable limit ($4,000 in 2009 and 2010) is two times the $2,000 amount. (12) AARA 2009 increased the credit amounts for 2009 and 2010. In other years, the amounts used to calculate the credit are adjusted for inflation and rounded to the next lowest multiple of $100. (13) The maximum credit for 2010 is $2,500 ($2,000 + (25% X $2,100).

The Hope Scholarship Credit is available only for the first two years (AARA 2009 expands to four years for 2009 and 2010) of postsecondary education, and can be used in only two (four) taxable years. (1) To qualify for the credit, the student must carry at least half of a full-time academic workload for an academic period during the taxable year. (2)

An eligible student generally means a student who: (1) for at least one academic period beginning in the calendar year, is enrolled at least half-time in a program leading to a degree, certificate, or other recognized educational credential and is enrolled in one of the first two (four years for 2009 and 2010) years of postsecondary education, and (2) is free of any conviction for federal or state felony offenses consisting of the possession of a controlled substance. (3)

Qualified tuition and related expenses are tuition and fees required for the enrollment or attendance of the taxpayer, the taxpayer's spouse, or any dependent of the taxpayer (for whom he is allowed a dependency exemption) at an "eligible education institution." (4) Qualified tuition and related expenses do not include nonacademic fees such as room and board, medical expenses (including required student health fees), transportation, student activity fees, athletic fees, insurance expenses, and similar personal, living or family expenses unrelated to a student's academic course of instruction. (5) Additionally, qualified tuition and related expenses do not include expenses for a course involving sports, games or hobbies, unless it is part of the student's degree program. (6) AARA 2009 expands qualified tuition and related expenses to include required course materials for 2009 and 2010.

An eligible educational institution generally means a postsecondary educational institution that: (a) provides an educational program for which it awards a bachelor's degree, or a 2-year program that would be accepted for credit towards a bachelor's degree; (b) has at least a one year program that trains students for gainful employment in a recognized profession; (c) participates in a federal financial aid program under Title IV of the Higher Education Act of 1965 or is certified by the Department of Education as eligible to participate in such a program; or (d) meets requirements for certain postsecondary vocational, proprietary institutions of higher learning and certain institutions outside the United States. In any event, the institution must also be accredited or have been granted pre-accreditation status. (7)

An academic period means a quarter, semester, trimester or other period of study (such as summer school session) as reasonably determined by an eligible educational institution. (8)

Lifetime Learning Credit

The Lifetime Learning Credit is available in an amount equal to 20% of "qualified tuition and related expenses" (defined above) paid by the taxpayer during the taxable year for any course of instruction at an "eligible educational institution" (defined above) taken to acquire or improve the job skills of the taxpayer, his spouse or dependents. The Lifetime Learning Credit is a per taxpayer credit and the maximum credit available does not vary with the number of students in the family. The maximum amount of the credit in 2010 is $2,000 (20% of up to $10,000 of qualified tuition and related expenses). (9)

Qualified tuition and related expenses, for the purposes of the Lifetime Learning Credit, include expenses for graduate as well as undergraduate courses. The Lifetime Learning Credit applies regardless of whether the individual is enrolled on a full-time, half-time, or less than half-time basis. Additionally, the Lifetime Learning Credit is available for an unlimited number of taxable years. (1)

Where taxpayers had pre-paid their child's tuition in November 2001 for the academic period that began during the first three months of the following taxable year (i.e., the spring semester of 2002), the prepayment amount was properly includable in the calculation of the taxpayers' Lifetime Learning Credit for the 2001 taxable year, not the 2002 taxable year. (2)

Limitations and Phaseouts

The Code sets forth special rules coordinating the interaction of these credits. The Lifetime Learning Credit is not available with respect to a student for whom an election is made to take the Hope Scholarship Credit during the same taxable year. (3) However, the taxpayer may use the Hope Scholarship Credit for one student and the Lifetime Learning Credit for other students in the same taxable year.

Both credits are subject to the same phaseout rules based on the taxpayer's modified adjusted gross income (MAGI). MAGI is the taxpayer's adjusted gross income without regard to the exclusions for income derived from certain foreign sources or sources within United States possessions. The maximum credit in each case is reduced by the credit multiplied by a ratio. For single taxpayers, the ratio equals the excess of (i) the taxpayers' MAGI over $40,000 to (ii) $10,000. For married taxpayers filing jointly, the ratio equals (a) the excess of the taxpayer's MAGI over $80,000 to (b) $20,000. (4) The $40,000 and $80,000 amounts are adjusted for inflation and rounded to the next lowest multiple of $1,000. (5) For 2010, the threshold amounts are $50,000 for single taxpayers and $100,000 for married taxpayers filing jointly for the Lifetime Learning Credit. (6) AARA 2009 increases the threshold amounts in 2009 and 2010 for the Hope Scholarship Credit to $160,000 for married taxpayers filing jointly and $80,000 for single taxpayers.

The amount of qualified tuition and related expenses for both credits is limited by the sum of the amounts paid for the benefit of the student, such as scholarships, education assistance advances, and payments (other than a gift, bequest, devise, or inheritance) received by an individual for educational expenses attributable to enrollment. (7) The IRS has determined that qualified tuition and related expenses paid with distributions of educational benefits from a trust could be used to compute Hope Scholarship and Lifetime Learning Credits if the distributions were included in the taxable income of the beneficiaries. (8)

Neither credit is allowed unless a taxpayer elects to claim it on a timely filed (including extensions) federal income tax return for the taxable year in which the credit is claimed. The election is made by completing and attaching Form 8863, Education Credits (Hope and Lifetime Learning Credits), to the return. (9) Neither credit is allowed unless the taxpayer provides the name and the taxpayer identification (i.e., Social Security) number of the student for whom the credit is claimed. (10)

If the student is claimed as a dependent on another individual's tax return (e.g., parents) he cannot claim either credit for himself, even if he paid the expenses himself. (1) (The Service has privately ruled that a student was entitled to claim a Hope Scholarship Credit on his own return even though his parents were eligible to claim him as a dependent, but chose not to do so. (2)) However, if another individual is eligible to claim the student as a dependent, but does not do so, only the student may claim the Hope or Lifetime Learning Credit for his own qualified tuition and related expenses. (3) Both credits are unavailable to married taxpayers filing separately. (4) Neither of these credits is allowed for any expenses for which there is a deduction available. (5) Taxpayers are not eligible to claim a Hope or Lifetime Learning Credit and the deduction for qualified higher education expenses in the same year with respect to the same student. (6)

A taxpayer may claim a Hope Scholarship or Lifetime Learning Credit and exclude distributions from a qualified tuition program on behalf of the same student in the same taxable year if the distribution is not used to pay the same educational expenses for which the credit was claimed. (7) See Q 1413.

A taxpayer can claim a Hope Scholarship or Lifetime Learning Credit and exclude distributions from a Coverdell Education Savings Account (ESA--see Q 1412) on behalf of the same student in the same taxable year if the distribution is not used to pay the same educational expenses for which the credit was claimed. (8) A taxpayer may elect not to have the Hope Scholarship or Lifetime Learning Credit apply with respect to the qualified higher education expenses of an individual for any taxable year. (9)

For 2009 and 2010, AARA 2009 makes the Hope Scholarship Credit allowable against the alternative minimum tax and a portion of the tax is made refundable.

Reporting. For the reporting requirements for higher education tuition and related expenses, see IRC Sec. 6050S, as amended by P.L. 107-131 (1-16-2002). For the reporting requirements for qualified tuition and related expenses, see Treas. Reg. [section] 1.6050S-1; TD 9029. (10)

1439. What energy credits may be taken against the tax? Credit for Nonbusiness Energy Property

Editor's Note:The credit for nonbusiness energy property expired on December 31, 2007. Congress later revived it for 2009. (11)

An individual taxpayer may claim as a credit an amount equal to the sum of: (1) 10% of the amount paid or incurred by the taxpayer for "qualified energy efficiency improvements" (see below) installed during the taxable year; and (2) the amount of the "residential energy property expenditures" (see below) paid or incurred by the taxpayer during the taxable year. (12)

Qualified energy efficiency improvements means any energy efficient "building envelope component" (see below) that meets certain energy conservation criteria, if: (1) the component is installed in or on a dwelling located in the United States that is owned and used by the taxpayer as his principal residence; (2) original use of the component commences with the taxpayer; and (3) the component reasonably can be expected to remain in use for at least five years. (1) The term "building envelope component" means: (1) any insulation material or system specifically and primarily deigned to reduce the heat loss or gain of a dwelling when installed in or on the dwelling; (2) exterior windows, including skylights; (3) exterior doors; and (4) metal roofs if the roof has appropriate coatings specifically and primarily designed to reduce the heat gain of the dwelling. (2)

In guidance, the Service clarified that a component will be treated as reasonably expected to remain in use for at least five years if the manufacturer offers, at no extra charge, at least a two-year warranty providing for repair or replacement of the component in the event of a defect in materials or workmanship. However, if the manufacturer does not offer such a warranty, all relevant facts and circumstances are taken into account in determining whether the component reasonably can be expected to remain in use for at least five years. The Service also confirmed that a taxpayer may rely on a manufacturer's certification that a building envelope component is an "eligible building envelope component." A taxpayer is not required to attach the certification to the tax return on which the credit is claimed, but should retain the certification statement as part of his records. In addition, the Service stated that a credit is allowed only for amounts paid or incurred to purchase the components, not for the onsite preparation, assembly, or original installation of the components. (3)

Residential energy property expenditures means expenditures made by the taxpayer for "qualified energy property" that is: (1) installed on or in connection with a dwelling unit located in the United States and owned and used by the taxpayer as the taxpayer's principal residence; and (2) originally placed in service by the taxpayer. (4) The term "qualified energy property" means: (1) "energy-efficient building property" (see below); (2) a qualified natural gas, propane, oil furnace or hot water boiler; or (3) an advanced main air circulating fan. All of the types of property listed in the preceding sentence must meet certain performance and quality standards. (5) "Energy efficient building property" means: (1) electric heat pump water heaters; (2) electric heat pumps; (3) geothermal heat pumps; (4) central air conditioners; and (5) natural gas, propane, or oil water heaters. (6)

The Service has confirmed that a taxpayer may rely on a manufacturer's certification that a product is "qualified energy property." A taxpayer is not required to attach the certification to the tax return on which the credit is claimed, but should retain the certification statement as part of his records. In addition, the Service stated that a credit is allowed for amounts paid or incurred to purchase qualified energy property and for expenditures for labor costs allocable to the onsite preparation, assembly, or original installation of the property. (7) The Service has issued additional guidance regarding the credit. (8)

The lifetime limitation with respect to any taxpayer for any taxable year is $500. (9) An additional limit of $200 applies to windows. (10) Other limits are as follows: advanced main air circulating fans--$50; qualified natural gas, propane, oil furnace or hot water boilers--$150; and energy-efficient building property--$300. (11)

The credit is available for property placed in service after December 31, 2005 and before January 1, 2008, and in 2009 (see Editor's Note, above). (1)

Residential Energy Efficient Property Credit

An individual taxpayer may claim as a credit an amount equal to the sum of 30% of the following expenditures made by the taxpayer during the taxable year: (1) "qualified solar electric property" (see below); (2) "qualified solar water heating property" (see below); (3) "qualified fuel cell property" (see below); (4) qualified small wind energy property (see below); and (5) qualified geothermal heat pump property (see below). (2) Solar water heating property must be certified in order for the credit to be claimed. (3)

"Qualified solar water heating property expenditure" means an expenditure for property to heat water for use in a dwelling unit located in the United States and used as a residence by the taxpayer if at least half of the energy used by such property for such purpose is derived from the sun. The term "qualified solar electric property expenditure" means an expenditure for property which uses solar energy to generate electricity for use in a dwelling unit located in the United States and used as a residence by the taxpayer. "Qualified fuel cell property expenditure" means an expenditure for qualified fuel cell property (as defined in IRC Section 48(c)(1)) installed on or in connection with a dwelling unit located in the United States and used as a principal residence by the taxpayer. "Qualified small wind energy property expenditure" means an expenditure for property which uses a wind turbine to generate electricity for use in connection with a dwelling unit located in the United States and used as a residence by the taxpayer. "Qualified geothermal heat pump property expenditure" means an expenditure for qualified geothermal heat pump property installed on or in connection with a dwelling unit located in the United States and used as a residence by the taxpayer. (4)

A special rule provides that expenditures allocable to a swimming pool, hot tub, or any other energy storage medium that has a function other than the function of storage cannot be taken into account for these purposes. (5)

The maximum credit allowed for any taxable year cannot exceed $2,000 with respect to qualified solar water heating property expenditures, $500 with respect to each half kilowatt of capacity of qualified fuel cell property (as defined in section 48(c)(1)) for which qualified fuel cell property expenditures are made, $500 with respect to each half kilowatt of capacity (not to exceed $4,000) of wind turbines for which qualified small wind energy property expenditures are made, and $2,000 with respect to any qualified geothermal heat pump property expenditures. (6) The unused portion of the credit can be carried forward to the succeeding taxable year. (7)

The credit is available for property placed in service after December 31, 2005 and before January 1, 2017. (8)

Alternative Motor Vehicle Credit

The alternative motor vehicle credit is equal to the sum of: (A) the new qualified fuel cell motor vehicle credit; (B) the new advanced lean burn technology motor vehicle credit; (C) the new qualified hybrid vehicle credit; and (D) the new qualified alternative motor vehicle credit. (1) (This credit replaces the prior deduction for qualified clean-fuel vehicle property, which sunset on December 31, 2005. (2))

(A) The new qualified fuel cell motor vehicle credit is based on the weight of the vehicle, and ranges from $8,000 (8,500 pound maximum) to $40,000 (26,000 pound maximum). (3) The amount determined above with respect to a passenger automobile or light truck is increased if the vehicle achieves certain fuel efficiencies (based on the 2002 model year city fuel economy), ranging from $1,000 to $4,000. (4) The credit for passenger automobiles and light trucks can be as much as $12,000.

The term "new qualified fuel cell motor vehicle" means a motor vehicle: (1) propelled by power derived from one or more fuel cells that convert chemical energy directly into electricity by combining oxygen with hydrogen fuel that is stored on board the vehicle in any form and may or may not require reformation prior to use; (2) that, in the case of a passenger vehicle or light truck, has received a certificate that the vehicle meets certain emission levels; (3) the original use of which begins with the taxpayer; (4) that is acquired for use or lease by the taxpayer and not for resale; and (5) that is made by a manufacturer. (5)

(B) The amount of the new advanced lean burn technology motor vehicle credit is based on fuel economy, and ranges from $400 to $2,400. The amount of the credit is increased by the conservation credit (based on lifetime fuel savings), and ranges from $250 to $1,000. (6) The credit for passenger automobiles and light trucks can be as much as $3,400.

The term "advanced lean burn technology motor vehicle" means a passenger automobile or light truck: (1) with an internal combustion engine that (i) is designed to operate primarily using more air than is necessary for complete combustion of the fuel, (ii) incorporates direct injection, (iii) achieves at least 125% of the 2002 model year city fuel economy, and (iv) for 2004 and later model vehicles, has received a certificate that the vehicle meets or exceeds certain emission standards; (2) the original use of which begins with the taxpayer; (3) is acquired for use or lease by the taxpayer and not for resale; and (4) is made by a manufacturer. (7)

(C) The new qualified hybrid motor vehicle credit amount is determined as follows: (1) If the new qualified hybrid motor vehicle is a passenger automobile or light truck weighing no more than 8,500 pounds, the credit amount is the sum of the fuel economy amount and the conservation credit (see (B), above). (8) (2) For other motor vehicles, the credit amount is equal to the applicable percentage of the "qualified incremental hybrid cost" (i.e., the excess of the manufacturer's suggested retail price for such vehicle over the price for a comparable gas or diesel powered vehicle) of the vehicle as certified. (9) The credit for passenger automobiles and light trucks can be as much as $3,400.

A "new qualified hybrid motor vehicle" means a motor vehicle that: (1) draws propulsion energy from onboard sources of stored energy that are both (i) an internal combustion or heat engine using consumable fuel, and (ii) a rechargeable energy storage system; (2) has been certified as meeting specified emission standards; (3) has maximum available power meeting certain percentages based on weight; (4) the original use of which begins with the taxpayer; (5) is acquired for use or lease by the taxpayer; and (6) is made by a manufacturer. (10)

(D) The new qualified alternative fuel motor vehicle credit is an amount equal to the applicable percentage of the incremental cost of any new qualified alternative fuel motor vehicle. (1) The "applicable percentage" is 50%, plus 30% if the vehicle has been certified as meeting certain emission standards. (2) The "incremental cost" (i.e., the excess of the manufacturer's suggested retail price for the vehicle over the price for a gas or diesel powered vehicle of the same model) cannot exceed between $4,000 to $32,000 based on the weight of the vehicle. (3)

"New qualified alternative fuel motor vehicle" means any motor vehicle: (1) that is only capable of operating on an alternative fuel; (2) the original use begins with the taxpayer; (3) is acquired by the taxpayer for use or lease but not for resale; and (4) is made by a manufacturer. (4) "Alternative fuel" means compressed natural gas, liquefied natural gas, liquefied petroleum gas, hydrogen, and any liquid at least 85% of the volume of which consists of methanol. (5)

Certifications and Limitations

Certifications. The tax credit for hybrid vehicles may be as much as $3,400 for those who purchase the most fuel-efficient vehicles. (For the guidance used by manufacturers in certifying credit amounts, see Notice 2006-9. (6)) The Service cautions that even though a manufacturer has certified a vehicle, taxpayers must meet the following requirements to qualify for the credit:

(1) The vehicle must be placed in service after December 31, 2005, and purchased on or before December 31, 2010.

(2) The original use of the vehicle must begin with the taxpayer claiming the credit.

(a) The credit may only be claimed by the original owner of a new, qualifying, hybrid vehicle and does not apply to a used hybrid vehicle.

(3) The vehicle must be acquired for use or lease by the taxpayer claiming the credit.

(a) The credit is only available to the original purchaser of a qualifying hybrid vehicle. If a qualifying vehicle is leased to a consumer, the leasing company may claim the credit.

(b) For qualifying vehicles used by a tax-exempt entity, the person who sold the qualifying vehicle to the person or entity using the vehicle is eligible to claim the credit, but only if the seller clearly discloses in a document to the tax-exempt entity the amount of credit.

(4) The vehicle must be used predominantly within the United States.

Limitations. There is a limit on the number of new qualified hybrid and advanced lean burn technology vehicles eligible for the credit. The phaseout period begins with the second calendar quarter following the calendar quarter that includes the first date on which the number of qualified vehicles manufactured by the manufacturer is at least 60,000. (7) The Service publishes notices providing the adjusted credit amount based on the actual number of vehicles sold for the applicable quarter.

Effective dates. The credits are in effect as follows: new qualified fuel cell motor vehicle credit (2006-2014); (B) new advanced lean burn technology motor vehicle credit (2006 - 2010); (C) new qualified hybrid vehicle credit (2006-2010); and (D) new qualified alternative fuel motor vehicle credit (2006-2010).

(6.) IRC Sec. 31(a).

(7.) IRC Sec. 35.

(8.) Treas. Reg. [section] 1.31-2.

(9.) IRC Sec. 32.

(10.) IRC Sec. 35.

(1.) IRC Sec. 36A, as amended by ARRA 2009.

(2.) IRC Sec. 36, as added by HERA 2008 and amended by ARRA 2009 and WHBAA 2009.

(3.) IRC Sec. 21.

(4.) IRC Sec. 22.

(5.) IRC Sec. 23.

(6.) See IRC Sec. 24.

(7.) IRC Sec. 25A.

(8.) IRC Sec. 25B.

(9.) IRC Sec. 25C.

(10.) IRC Sec. 25D.

(11.) See e.g., IRC Secs. 53, 901.

(1.) IRC Sec. 38(b).

(2.) IRC Sec. 30B.

(3.) See Sec. 1348, ETIA 2005; IRC Sec. 179A.

(4.) See IRC Sec. 30B(g).

(5.) IRC Sec. 30D, as amended by ARRA 2009.

(6.) IRC Sec. 30, as amended by ARRA 2009.

(7.) IRC Sec. 26(a), as amended by ARRA 2009.

(1.) IRC Sec. 24(a).

(2.) WFTRA 2004 Sec. 105; JGTRRA 2003 Sec. 107; IRC Sec. 6429.

(3.) IRC Sec. 24(c)(1).

(4.) IRC Sec. 152(c).

(5.) IRC Sec. 24(c)(2).

(6.) IRC Sec. 152(f)(1).

(7.) IRC Sec. 152(f)(1)(C).

(8.) IRC Sec. 152(f)(1)(B).

(9.) IRC Sec. 24(b)(2).

(10.) IRC Sec. 24(d)(1)(B)(i).

(1.) IRC Sec. 24(d)(1).

(2.) IRC Sec. 24(d)(3).

(3.) IRC Sec. 24(d), prior to amendment by EGTRRA 2001.

(4.) IRC Sec. 24(b)(3).

(5.) IRC Sec. 24(d).

(6.) IRC Sec. 24(d)(1).

(7.) IRC Secs. 24(e), 24(f).

(8.) Rev. Rul. 2003-72, 2003-2 CB 346.

(9.) IRS Information Letter INFO-2003-0215 (8-29-2003).

(10.) IRC Sec. 32(n), repealed by EGTRRA 2001.

(11.) IRC Sec. 25A.

(12.) IRC Secs. 25A(b)(1), 25A(b)(4); Treas. Reg. [section] 1.25A-3(a).

(13.) IRC Sec. 25A(h)(1).

(1.) Treas. Reg. [section] 1.25A-3(c).

(2.) IRC Sec. 25A(b)(2); Treas. Reg. [section] 1.25A-3(d)(ii).

(3.) IRC Sec. 25A(b)(3); Notice 97-60, 1997-2 CB 310 (Sec. 1, A3); Treas. Reg. [section] 1.25A-3(d)(1).

(4.) Treas. Reg. [section] 1.25A-2(d)(1).

(5.) Treas. Reg. [section] 1.25A-2(d)(3).

(6.) IRC Sec. 25A(f)(1); Treas. Reg. [section] 1.25A-2(d)(5).

(7.) See IRC Sec. 25A(f)(2); HEA 1965 Sec. 481; Treas. Reg. [section] 1.25A-2(b).

(8.) Treas. Reg. [section] 1.25A-2(c).

(9.) IRC Sec. 25A(c); Treas. Reg. [section] 1.25A-4(a).

(1.) Treas. Regs. [section][section] 1.25A-4(b), 1.25A-4(c).

(2.) Patel v. Comm., TC Sum. Op. 2006-40.

(3.) IRC Sec. 25A(c)(2)(A); Treas. Reg. [section] 1.25A-1(b).

(4.) IRC Sec. 25A(d); Treas. Reg. [section] 1.25A-1(c).

(5.) IRC Sec. 25A(h)(2); Treas. Reg. [section] 1.25A-1(c)(3).

(6.) Rev. Proc. 2009-50, 2009-45 IRB 617.

(7.) IRC Sec. 25A(g)(2); Treas. Reg. [section] 1.25A-5(c).

(8.) Let. Rul. 9839037.

(9.) Treas. Reg. [section] 1.25A-1(d).

(10.) Treas. Reg. [section] 1.25A-1(e).

(1.) IRC Sec. 25A(g)(3); Treas. Reg. [section] 1.25A-1(f)(1).

(2.) Let. Rul. 200236001.

(3.) Treas. Reg. [section] 1.25A-1(f)(1).

(4.) IRC Sec. 25A(g)(6); Treas. Reg. [section] 1.25A-1(g).

(5.) IRC Sec. 25A(g)(5); Treas. Reg. [section] 1.25A-5(d).

(6.) IRC Sec. 222(c)(2)(A).

(7.) See IRC Sec. 529(c)(3)(B)(v).

(8.) See IRC Sec. 530(d)(2)(C).

(9.) IRC Sec. 25A(e).

(10.) 67 Fed. Reg. 77678 (12-19-02). See also Notice 2006-72, 2006-36 IRB 363.

(11.) IRC Sec. 25C(g), as amended by EIEA 2008.

(12.) IRC Sec. 25C(a).

(1.) IRC Sec. 25C(c)(1).

(2.) IRC Sec. 25C(c)(2).

(3.) Notice 2006-26, 2006-11 IRB 622.

(4.) IRC Sec. 25C(d)(1).

(5.) IRC Sec. 25C(d)(2).

(6.) IRC Sec. 25C(d)(3).

(7.) Notice 2006-26, 2006-11 IRB 622.

(8.) See Notice 2006-71, 2006-34 IRB 316 (clarifying the effective dates); Notice 2006-53, 2006-25 IRB 1180 (clarifying that exterior siding does not qualify as an eligible building envelope component).

(9.) IRC Sec. 25C(b)(1).

(10.) IRC Sec. 25C(b)(2).

(11.) IRC Sec. 25C(b)(3).

(1.) IRC Sec. 25C(g).

(2.) IRC Sec. 25D(a).

(3.) IRC Sec. 25D(b)(2).

(4.) IRC Sec. 25D(d).

(5.) IRC Sec. 25D(e)(3).

(6.) IRC Sec. 25D(b).

(7.) See IRC Sec. 25D(c).

(8.) See Sec. 1333, Energy Policy Act of 2005; IRC Sec. 25D(g).

(1.) IRC Sec. 30B(a).

(2.) See Sec. 1348, ETIA 2005; IRC Sec. 179A.

(3.) IRC Sec. 30B(b)(1).

(4.) IRC Sec. 30B(b)(2).

(5.) IRC Sec. 30B(b)(3).

(6.) IRC Sec. 30B(c)(2).

(7.) IRC Sec. 30B(c)(3).

(8.) IRC Sec. 30B(d)(2)(A).

(9.) IRC Sec. 30B(d)(2)(B).

(10.) IRC Sec. 30B(d)(3).

(1.) IRC Sec. 30B(e)(1).

(2.) IRC Sec. 30B(e)(2).

(3.) IRC Sec. 30B(e)(3).

(4.) IRC Sec. 30B(e)(4)(A).

(5.) IRC Sec. 30B(e)(4)(B).

(6.) 2006-6 IRB 413.

(7.) IRC Sec. 30B(f).
COPYRIGHT 2010 ALM Media, LLC
No portion of this article can be reproduced without the express written permission from the copyright holder.
Copyright 2010 Gale, Cengage Learning. All rights reserved.

Article Details
Printer friendly Cite/link Email Feedback
Title Annotation:PART II: GENERAL FEDERAL INCOME TAXATION OF INDIVIDUALS
Publication:Tax Facts on Investments
Date:Jan 1, 2010
Words:6945
Previous Article:Rates.
Next Article:Alternative minimum tax.
Topics:

Terms of use | Privacy policy | Copyright © 2019 Farlex, Inc. | Feedback | For webmasters