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.
Congress extended this credit through the end of 2017.
2. Alternative minimum tax (AMT) changes
Impact: Some middle-to high-income taxpayers
In early 2013, Congress made the “AMT patch” permanent to prevent millions of taxpayers from having to pay AMT in 2012 and beyond. The exemptions for 2011 are:
- $50,600 for single and head of household filers
- $78,750f or married couples filing jointly and qualifying widow(er)s
- $39,375 for married people filing separately
For tax years after 2012, these amounts will be indexed for inflation.
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.