Tax Law Changes That Can Fatten Your Refund
In recent years Congress made a number of adjustments to the tax code, most of them designed to reduce Americans’ tax bills. Here are the ones that will have an impact in 2011, some beyond that. When reviewing your taxes, be sure to take these changes into account:
1. The American Opportunity Tax Credit
Impact: Taxpayers with education expenses
This tax break expands the Hope credit, which goes to people who pay college-related costs for themselves, a spouse or a child, or another dependent. You can receive a credit for up to $2,500 in tuition and related expenses, such as course materials, depending on your income and filing status.
Here’s how it works: You get a credit for 100% of the first $2,000 you spend on post-secondary education. After that, you can claim a credit of 25% of the next $2,000. The American Opportunity Credit is partially refundable, so if the credit reduces the taxes you owe below zero, you can receive up to $1,000 in the form of a refund.
In late 2010, Congress extended this credit through the end of 2012.
2. Alternative minimum tax (AMT) changes
Impact: Some middle-to high-income taxpayers
In late 2010, Congress passed an “AMT patch” designed to prevent millions of taxpayers from having to pay AMT in 2010 and 2011. The exemptions for 2011 are:
- $48,450 for single and head of household filers
- $74,450 for married couples filing jointly and qualifying widow(er)s
- $37,225 for married people filing separately
By some estimates, making the adjustments Congress made in 2010 and previous years would prevent 21 million middle-income Americans from having to pay the AMT.
3. Energy-efficiency credits
Impact: Taxpayers who made energy-saving home improvements
If you made energy-saving improvements to your home, you may be able to claim a credit worth 30% of the expense, up to a total of $500. Qualifying purchases include energy-efficient windows, doors and insulation materials, as well as certain roofs and high-efficiency heat pumps, air conditioners, water heaters and wood stoves.
The credit for some expenses isn't capped at $500. These include the cost of solar electricity, solar water-heating, wind energy, and geothermal heat pumps.
