Question about Tax credits

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Anil
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Question about Tax credits

Post by Anil » Mon Oct 28, 2013 6:46 pm

Hello all,
Quick question- If a person receives more tax credits (the ones that reduce you taxes rather than reduce the taxable income) than the taxes they owe, what happens to the extra credit? Does the person receive a refund or does the credit carry over to the next year? Or something else...?

Thanks

kaneohe
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Re: Question about Tax credits

Post by kaneohe » Mon Oct 28, 2013 6:51 pm

depends......if the credit is a refundable one, you get cash back. if non-refundable you get a credit to the extent that you owe taxes, but no cash back and it's lost forever, not carried over.
You can google and find examples of each or determine what your particular one is.
Last edited by kaneohe on Mon Oct 28, 2013 6:53 pm, edited 1 time in total.

MN Finance
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Re: Question about Tax credits

Post by MN Finance » Mon Oct 28, 2013 6:52 pm

Credits don t carry over to future years, but some deductions can. Credits are either refundable or nonrefundable, which means some just reduced a tax due, while others are paid as a credit even beyond the tax due. Depends on the credit itself.
Last edited by MN Finance on Mon Oct 28, 2013 11:40 pm, edited 1 time in total.

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damjam
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Re: Question about Tax credits

Post by damjam » Mon Oct 28, 2013 6:58 pm

Examples of refundable tax credits are: Earned Income Credit, the Additional Child Tax Credit, and the American Opportunity Credit.

Nonrefundable credits are found on lines 47 - 53 on page two of the 1040. Those include the Foreign Tax Credit, Credit for Child and Dependent Care Expenses, certain Education Credits, Retirement Savings Contribution Credit, Child Tax Credit, Residential Energy Credit and some others.

Bob's not my name
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Re: Question about Tax credits

Post by Bob's not my name » Mon Oct 28, 2013 7:27 pm

And by "refundable" of course we mean that if you never paid the tax you get it refunded.

pshonore
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Re: Question about Tax credits

Post by pshonore » Mon Oct 28, 2013 8:42 pm

MN Finance wrote:Credits don t carry over to future years, but some deductions can. Credits are either refundable or nonrefundable, which means some just reduced a tax due, while others are paid as a credit even beyond the tax due. Depends on the credit itself.
The Residential Energy Credit is a carryover (not for Insulation, doors, etc, but for fuel cell, geothermal, solar, etc). Adaption credit was a carryover but I believe that stopped in 2012.

kaneohe
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Re: Question about Tax credits

Post by kaneohe » Mon Oct 28, 2013 9:19 pm

If you think (in late 2013) that you might get stuck w/ some unused non-refundable credit, you might want to generate
more income so that the extra tax can absorb that credit that might be lost.........e.g. a Roth conversion in 2013.
You can always recharacterize all or part of that if not needed , but if you wait until 2014,it will be too late.

MarkNYC
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Re: Question about Tax credits

Post by MarkNYC » Mon Oct 28, 2013 9:21 pm

MN Finance wrote:Credits don t carry over to future years

Foreign tax credits can carry over to future years. Minimum tax credits also carryover, and there are numerous general business credits that get carried over, such as credits for nonconventional fuel source, work opportunity, increasing research activity, passive activity credits, and others.

kaneohe
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Re: Question about Tax credits

Post by kaneohe » Mon Oct 28, 2013 9:33 pm

pshonore wrote:
MN Finance wrote:Credits don t carry over to future years, but some deductions can. Credits are either refundable or nonrefundable, which means some just reduced a tax due, while others are paid as a credit even beyond the tax due. Depends on the credit itself.
The Residential Energy Credit is a carryover (not for Insulation, doors, etc, but for fuel cell, geothermal, solar, etc). Adaption credit was a carryover but I believe that stopped in 2012.


by carryover.........do you mean the credit is available this yr even tho it was scheduled to expire in previous yrs?
or do you mean a tax credit that was generated last yr was not refundable or refundable but a carryover (like a capital loss carryover?). I had not heard that the latter existed.

http://www.1040.com/federal-taxes/credits/ says that the energy credit is non-refundable so I suspect
that the two of you are using the term "carry over" in different ways.

...........but MarkNYC gets the last & best words............

Spirit Rider
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Re: Question about Tax credits

Post by Spirit Rider » Mon Oct 28, 2013 11:19 pm

A portion of the Child Tax Credit may be refundable as the Additional Child Tax Credit if other tax credits and tax due limited the amount of the credit. The most likely cause of this being a Child Care Credit on modest incomes.

pshonore
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Re: Question about Tax credits

Post by pshonore » Tue Oct 29, 2013 8:02 am

kaneohe wrote:
pshonore wrote:
MN Finance wrote:Credits don t carry over to future years, but some deductions can. Credits are either refundable or nonrefundable, which means some just reduced a tax due, while others are paid as a credit even beyond the tax due. Depends on the credit itself.
The Residential Energy Credit is a carryover (not for Insulation, doors, etc, but for fuel cell, geothermal, solar, etc). Adaption credit was a carryover but I believe that stopped in 2012.


by carryover.........do you mean the credit is available this yr even tho it was scheduled to expire in previous yrs?
or do you mean a tax credit that was generated last yr was not refundable or refundable but a carryover (like a capital loss carryover?). I had not heard that the latter existed.

http://www.1040.com/federal-taxes/credits/ says that the energy credit is non-refundable so I suspect
that the two of you are using the term "carry over" in different ways.

...........but MarkNYC gets the last & best words............
If you are eligible for a Residential Energy Efficient Property Credit (solar, wind, geo, etc) and the amount of the credit exceeds your tax liability, it is not refundable but you can carryover the unused amount to future years. See Form 5695 Part I. Adaption credit was similar but that stopped in 2012

Anil
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Re: Question about Tax credits

Post by Anil » Tue Oct 29, 2013 6:10 pm

pshonore wrote:....If you are eligible for a Residential Energy Efficient Property Credit (solar, wind, geo, etc) and the amount of the credit exceeds your tax liability, it is not refundable but you can carryover the unused amount to future years. See Form 5695 Part I. Adaption credit was similar but that stopped in 2012


Thank you. That (Solar) is exactly the credit I had in mind.

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jimgour
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Re: Question about Tax credits

Post by jimgour » Sun Mar 02, 2014 1:26 pm

I didn't see this issue addressed (but maybe I missed it):
We used the "Energy Credit" a few years ago, and there is a limit on how much you can use. However, two years ago we moved to a different house and we need to do some of the same types of improvements. Our question is, "Does the energy credit limit apply if you purchase a new (not really "new", but "different") house?

Jim

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damjam
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Re: Question about Tax credits

Post by damjam » Wed Mar 05, 2014 3:36 pm

jimgour wrote:I didn't see this issue addressed (but maybe I missed it):
We used the "Energy Credit" a few years ago, and there is a limit on how much you can use. However, two years ago we moved to a different house and we need to do some of the same types of improvements. Our question is, "Does the energy credit limit apply if you purchase a new (not really "new", but "different") house?

Jim


I'm not an expert on this credit, so the usual caveats apply.
See Form 5695.
5695 instructions wrote:Line 18
If you took a nonbusiness energy property credit in 2006, 2007, 2009, 2010, 2011, or 2012, complete the following worksheet to figure the amount to enter on line 18. If the total of the credits on line 7 of the worksheet is $500 or more, you generally cannot take this credit in 2013.

It looks like the credit is linked to the taxpayer and not the property. At least that is how I read it.

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jimgour
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Re: Question about Tax credits

Post by jimgour » Wed Mar 05, 2014 5:29 pm

That's what it looks like to us, too. I guess the fact that it doesn't make much sense is irrelevant. It is, after all, the tax code! :confused

Karamatsu
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Re: Question about Tax credits

Post by Karamatsu » Wed Mar 05, 2014 6:23 pm

Just FYI as MarkNYC said, the foreign tax credit can be carried forward ten years, and also carried back one year, so if you have unused credits in 2013 they can in principle be applied to future years or to 2012 provided you have foreign income in the same category and meet various other tests and adjustments embedded in Form 1116.

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