Miscellaneous Tax Credits

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Miscellaneous Tax Credits

What Are Miscellaneous Tax Credits?

Miscellaneous tax credits are a kind of tax credit that applies to taxpayers in a variety of scenarios. In general, a tax credit is an amount of money that persons are allowed to deduct, dollar for dollar, from their income taxes.

Miscellaneous tax credits, like all other tax credits, are intended to reward and encourage certain economic activity, such as the purchase of hybrid autos, or to reward people who have taken steps to make their houses more energy-efficient.

For example, all-electric (EV) and plug-in hybrid vehicles bought new in or after 2010 may be eligible for a $7,500 federal income tax credit. The amount of credit that a taxpayer is qualified for varies according on the capacity of the battery used to power the car. Some states and towns may provide tax breaks for qualifying automobiles. This credit does not apply to neighborhood electric vehicles (NEVs). (NEVs are a U.S. category for battery electric vehicles with a top speed of 25 miles per hour and a maximum loaded weight of 3,000 pounds.)

Furthermore, the American Recovery and Reinvestment Act (ARRA) of 2009 established tax breaks for homeowners who take steps to make their houses more energy-efficient. Energy-efficient exterior windows, doors, and skylights, as well as energy-efficient heating and air conditioning systems, may qualify for an energy tax credit of up to 30% of the cost of all qualifying modifications.

Miscellaneous tax credits are prone to change as the tax system evolves and certain activities are rewarded or penalized.

Key Takeaways

  • Miscellaneous tax credits are a kind of tax credit that applies to taxpayers in a variety of scenarios.
  • Miscellaneous tax credits are intended to reward and encourage certain economic activity, such as the purchase of hybrid vehicles, or to compensate people who have made steps to make their houses more energy-efficient.
  • Miscellaneous tax credits are prone to change as the tax system evolves and certain activities are rewarded or penalized.
  • The Mortgage Interest Credit, the Prior-Year Alternative Minimum Tax Credit, the Foreign Tax Credit, and the Qualified Electric Vehicle Credit are some of the most popular miscellaneous tax credits available.
  • Most miscellaneous tax credits are non-refundable, which means they can reduce the amount of taxes that the taxpayer must pay to the Internal Revenue Service (IRS), but if the miscellaneous tax credits reduce the tax burden so much that they give the taxpayer a credit, this amount cannot be refunded to the taxpayer.
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Understanding Miscellaneous Tax Credits

Miscellaneous tax credits are a kind of tax credit that is available to taxpayers who meet specific requirements. Individual credits are divided into five categories by the IRS: family and dependent credits, income and savings credits, homeowner credits, healthcare credits, and education credits.

The Mortgage Interest Credit—for first-time homebuyers with incomes under a certain amount—the Prior-Year Alternative Minimum Tax Credit—for taxpayers who paid the Alternative Minimum Tax (AMT) in a previous year, the Foreign Tax Credit—for taxpayers who paid tax to a foreign country for a variety of reasons—and the Qualified Electric Vehicle Credit—for taxpayers who purchase an electric or alternative fuel vehicle.

Most miscellaneous tax credits are non-refundable, which means they can reduce the amount of taxes that the taxpayer must pay to the Internal Revenue Service (IRS), but if the miscellaneous tax credits reduce the tax burden so much that they give the taxpayer a credit, this amount cannot be refunded to the taxpayer.

The exceptions to this rule are the credit for excess Social Security taxes withheld from the taxpayer’s paychecks, because this is actual money that the taxpayer should have received, and the credit for railroad retirement benefits withheld, because these benefits are not supposed to be taxed, so the taxpayer should have received the full amount.

Miscellaneous Tax Credits vs. Miscellaneous Tax Deductions

Miscellaneous tax credits are applied after the taxpayer’s income and tax liabilities have been computed, and the amount of the credit is deducted immediately from the amount of tax owed. Miscellaneous tax deductions, on the other hand, are removed from the taxpayer’s income and impact the total taxable income, which is used to compute the taxpayer’s tax burden.

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Tax credits are typically known as after-tax, whilst tax deductions are known as before-tax. Miscellaneous tax credits may be claimed as long as the person qualifies. Miscellaneous tax deductions may be claimed only if the overall deductions exceed 2% of the taxpayer’s gross income.

Tax Deductions Vs. Tax Credits

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