Here are some recent changes in the tax law with an explanation of how much they can save you money.
In recent years Congress made a number of adjustments to the tax code, most of them designed to reduce Americans’ tax bills. 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.
This once temporary credit has now been made permanent.
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 2013 and beyond. The exemptions for 2020 are:
- $72,9000 for single and head of household filers
- $113,400 for married couples filing jointly and qualifying widow(er)s
- $56,700 for married people filing separately
These amounts are indexed for inflation for future tax years.
3. Energy-efficiency credits
Impact: Taxpayers who installed alternative energy equipment
If you installed alternative energy equipment including hot water heaters, solar electric equipment and wind turbines in your home, you may be able to claim a credit worth 26% in of the expense in 2020, 26% in 2020, and 22% in 2021. The credit expires after 2021. The credit is not refundable but any excess can be carried forward to future tax years.
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