Miscellaneous Tax Credits
Some tax credits do not fall into any broad category. These are miscellaneous tax credits, and knowing about them could be a big advantage at tax time.
For instance, the Foreign Tax Credit allows you to deduct taxes paid to a foreign country. There is no requirement that you work in, live in or have ever visited that country. If you invest there and are taxed on that investment, you can claim the tax credit or, if you prefer, an itemized deduction. Since this tax credit allows you to save on federal income tax in the U.S., the foreign taxes you paid must have been income taxes or the equivalent.
One tax credit which is growing more popular is the Hybrid and Electric Vehicle Tax Credit. If you purchased your hybrid vehicle between Jan. 1, 2006 and December 31, 2010, you are eligible for a tax credit of up to $3,400 on your taxes, depending on the cost of the vehicle. An alternative fuel vehicle bought within the same timeframe can net you a tax credit of up to $4,000. Electric vehicles, however, will bring in the real savings. If you purchase your qualifying electric vehicle (such as a Nissan Leaf or Toyota IQ) in or after 2010, you can claim a tax credit of up to $7,500 to offset the cost of purchasing one of these vehicles, which retail in the $30,000 range.
There is also the Mortgage Interest Tax Credit, which is targeted at lower-income individuals buying a home for the first time. This is determined by the median income of the area in which the individual is buying the home. The house in question must be your primary home, not a vacation home or rental property. Obtain a mortgage credit certificate (MCC) from your state or local government in order to qualify. If accepted, you can receive an annual tax credit for a portion of your home mortgage interest. Use Tax Form 8396 to claim it. You may also be able to claim a tax deduction for that interest, after subtracting the tax credit from the deduction.
Miscellaneous tax deductions (which reduce your adjusted gross income, as opposed to tax credits, which reduce your overall tax liability) should be itemized on Schedule A of your tax form. These deductions include tax preparation fees and safety-deposit box fees. Miscellaneous deductions begin only after they have exceeded 2% of your gross income, though some miscellaneous deductions, such as gambling losses, are not subject to this rule.