Lesson 9

Lesson 9 Miscellaneous Credits

Objectives

• Determine eligibility for the Credit for the Elderly or the Disabled

• Calculate the Credit for the Elderly or the Disabled• Calculate the Credit for Qualified Retirement Savings

Contributions - Form 8880• Calculate the Residential Energy Credits for nonbusiness

energy property and residential energy efficient property using Form 5695.

• Calculate the Qualified Electric Vehicle Credit using Form 8834.• Calculate the Alternative Motor Vehicle Credit using Form 8910. • Accurately report the Foreign Tax Credit if Form 1116 is not

required• Be aware of the Mortgage Interest Credit

Intake/Interview Process

Form 13614 – Intake and Interview Sheet - Credits Section

Credit - Elderly/DisabledQualifications

• U.S. Citizen or resident• At least age 65 or retired on

permanent and total disability• AGI is less than:

• Single, Head of Household, or Qualifying Widow(er) $17,500

• MFJ (both spouses qualified) $25,000• MFJ (one spouse qualified) $20,000• MFS (didn’t live together) $12,500

Credit – Elderly/DisabledComputation

• Nontaxable Social Security or nontaxable pension(s) must be less than:• Single, Head of Household, or Qualifying

Widow(er) $5,000• MFJ (both spouses qualify) $7,500• MFJ (one spouse qualifies) $5,000• MFS (didn’t live together) $3,750

• Use Schedule 3 if filing Form 1040A, use Schedule R if filing Form 1040

• Substantial Gainful Activity

Credit for Qualified Retirement Savings

Contributions• Contributions to a retirement plan or

IRA may be eligible for a tax credit• Non-refundable credit• Maximum credit is $1,000• Limitations based on:

• Filing status• Adjusted Gross Income• Qualified contributions

Credit for Qualified Retirement Savings Contributions

• Form 8880 is used to calculate the credit

• Chart for the applicable percentage is part of the form

• If the taxpayer has received any distributions from a retirement plan, you may need to complete line 4 on the Form 8880

Residential Energy Credits

• Nonbusiness Energy Property Credit

• Residential Energy Efficient Property Credit

• Form 5695

Qualified Electric Vehicle Credit

• Qualified Electric Vehicle• Form 8834

Alternative Motor Vehicle Credit

• Requirements - Alternative Motor Vehicle

• Form 8910

Foreign Tax Credit

• Created to avoid double taxation• If the Taxpayer paid income, war

profits, excess profit taxes to any:• Foreign country, U.S. possession,

political subdivision or agency of the country or possession.

• May need to consult paid tax preparer to determine if the tax paid is eligible for the foreign tax credit.

Foreign Tax Credit

• If all of the following requirements are met, Form 1116 is not required:• Foreign-source income is from interest

and dividends only• The total of the foreign taxes does not

exceed $300 ($600 for MFJ)• All of the foreign taxes were legally

owed and paid to countries recognized by the U.S. as eligible for the credit

Mortgage InterestCredit

• Hold a qualified Mortgage Interest Credit Certificate on main home

• Must reduce mortgage interest deduction on Schedule A (if itemizing)

• Use Form 8396 to figure credit on mortgage interest paid

• May carry forward unused credit for up to three years

Quality Review (QR)

Form 8158 – Quality Review Checklist

Adjustments, Deductions and Credits Section

Lesson Summary

• Credit for the Elderly or the Disabled• Credit for Qualified Retirement Savings

Contributions• Residential Energy Credits• Qualified Electric Vehicle Credit• Alternative Motor Vehicle Credit• Foreign Tax Credit • Mortgage Interest Credit

Lesson 9 International Segment

Foreign Tax Credit

Objectives

• Determine which taxes are eligible for the Foreign Tax Credit

• Apply the criteria for claiming the Foreign Tax Credit

• Accurately compute the foreign tax credit using Form 1116 or tax preparation software

• Assist taxpayer in compiling the documents necessary for a paid tax preparer to complete the return

Intake/Interview Process

Form 13614 – Intake and Interview Sheet - Credits Section

What Taxes Qualify

• Foreign Source Income – Taxed by Foreign Country

• The following are the basic requirements: - Tax imposed must be similar to income tax

imposed in the US - Taxpayer must not receive any kind of specific

economic benefit from the payment of the tax - Tax must be imposed by “eligible foreign

country”

Types of Income

• Passive Income• High Withholding Tax Interest• General Limitation Income

Form 1116

• Part I – Used to report the taxable income or loss from sources outside the United States

• Part II – Used to report foreign taxes paid or accrued

• Part III – Used to compute the amount of the Foreign Tax Credit

Quality Review (QR)

Form 8158 – Quality Review Checklist

Adjustments, Deductions and Credits Section

International Summary

• To be eligible for the Foreign Tax Credit, foreign taxes must be:

- Based on foreign sourced income - Similar to US income tax - Free of any specific economic benefit - Paid to an “eligible foreign country”

• The Foreign Tax Credit is computed using Form 1116