Here are the Rules for Claiming the Child Tax Credit

If you are the parents of children under the age of 17, you may qualify for additional credits at tax time. If you have qualifying children, you may be eligible to claim the Child Tax Credit. This credit is a maximum of $1,000 per child. Your income is a determining factor as to whether you can claim the credit. The income thresholds became a permanent qualification requirement when the American Taxpayer Relief Act of 2012 was passed.

Tax credits reduce your tax liability to the IRS. Credits reduce taxes owed dollar-for-dollar. This differs from deductions as deductions only reduce taxable income amounts. The credit may only be claimed up to the amount of tax that you owe. With the maximum credit per qualifying child being $1,000, if your owed tax is only $533, as an example, then your credit would be reduced to $533.

There is, however, a way to receive an Additional Child Tax Credit where you can receive the additional funds in the form of a tax refund. To determine if you qualify for the Child Tax Credit or Additional Child Tax Credit, you must qualify under all seven qualifying tests.

Those seven tests are:

1. Age Test – Children must be under age 17 at the end of a tax year, meaning they must still be age 16 or younger on December 31.
2. Relationship Test – Qualifying children to be claimed must be related to you by either birth, marriage, an adoption, grandchild, or foster child situation. Qualifying children can also be descendants of your immediate family members, including nieces and nephews.
3. Support Test – A qualifying child cannot provide more than his or her half of their own financial support in a given tax year.
4. Dependent Test – Qualifying children must be claimable as dependent on your tax return.
5. Joint Return Test – Married children are not permitted to file joint returns with spouses if filing jointly simply to claim tax refunds.
6. Citizenship Test – To qualify, children must be a U.S. citizen. Other qualifying statuses are U.S. resident alien status or U.S. national status. IRS Publication 519 provides additional information regarding tax guidelines for aliens.
7. Residence Test – Children living under your roof for at least 183 nights, more than 50-percent of the year, qualify. Children that are born in or pass away in a tax year count for an entire year of residency.

A couple of loopholes exist with the residence test requirement. Special circumstances are taken into consideration. These circumstances include school residency requirements, planned vacations, medical illnesses, military service, kidnapping, juvenile incarceration, or parental business-related reasons. When one of these circumstances is in question, the time away counts as time that the child lived with you.

Limitations and Restrictions

The way you and your spouse choose to file can have an effect on your ability to take any Child Tax Credits as it can reduce or completely eliminate the credit. Modified gross incomes (MGI) cannot be more than $110,000 for couples married filing jointly. If you are married filing separately, individually reported income cannot exceed $55,000. The threshold for singles and those filing head of household is $75,000.

If you file your return using a paper return, you will complete IRS Form 8812 in addition to your regular tax return if you qualify for either a Child Tax Credit or Additional Child Tax Credit. You can calculate your child tax credit at TurboTax.

 

Home Improvement and Energy Tax Credits

Any home improvements go towards your cost basis when it’s time to sell your home. Home improvements are considered anything you’ve done to your home such as adding energy efficient appliances, a beautiful wooden fence in the backyard, landscaping, or a new room.

These expenses cannot be deducted at that time. Keep all your receipts and paperwork to use once you are ready to sell. The IRS can and does switch things up. Many profits from home sales are tax-free, but they can come after you and demand a part of the sale profits.

Energy Efficient Tax Credit

Congress passes laws every once-in-a-while to help Americans save the planet. These are typically energy efficient tax credits where homeowners receive credit for making their home more energy efficient. The tax credit helps to offset these expenses. Two credits include the Residential Energy Efficiency Property Credit and the Nonbusiness Energy Property Credit.

Some examples of what you can do to earn these credits include:

• Solar powered water heaters
• Exterior doors
• Skylights
• Particular roofing materials
• Central air conditioning systems
• Electric heat pumps

You cannot just make your entire home energy efficient, installing whatever you want, and expect full credit for everything you’ve done. The cost of installing these home improvements is not to be counted as part of your credit.

Some have a lifetime limit of $500. If you installed energy efficient windows, you are only allowed a credit of $200. As of today, there is a 30-percent credit available for the cost of solar, geothermal and wind energy generating systems. These credits must be filed using Form 5695 – Residential Energy Credit.

Tax-Free Profit on Sale

Homeowners have another benefit of owning real estate instead of just having a peace of mind. You can also shelter some profit if particular criteria are met. You could shelter up to $250,000 of profit tax-free if a single person had lived in the home as their primary residence for two of the five years before they sold the home.

Those married filing jointly can shelter up to $500,000 but have two criteria to be met.

• One of the spouses had to have owned the home as their primary home for two of the five years before they sold the home.
• Both spouses had to have lived in the home as their primary residence for two of the five years before they sold the home.

Please note, that in all of the above situations, if you sold the home for a loss, you can’t deduct it.

You can use these exclusions each time you sell a home you’ve lived in for two of the five years before you sell it. However, any gains over the limits of $250,000/$500,000, must be reported as a capital gain on Schedule D.

Wrap Up of Tax Breaks for Buying a Home

Keep in mind that there are many homeowner tax deductions you may qualify for. Your tax preparer can give you more solid advice, so speak to them about home improvement credits available to you.