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Taking Advantage of Tax Credits in 2011 Incomes Taxes

by on April 4, 2012

By Meghan Stewart

Part three of tax week takes a look at personal income tax credits you can use to reduce your amount of taxable income and save big on your refund. A tax credit is an incentive offered to taxpayers or at least a group of taxpayers with a particular qualification. Tax credits change every year and some are available for one year only, so it’s important to review potential credits every year to make sure you have everything factored correctly.

Here are some of the major tax credits you may wish to take advantage of for your 2011 income tax filings:

  • First-time homebuyer credit. The Housing and Economic Recovery Act of 2008 didn’t invent the first-time homebuyer credit, but it did improve it. Several other pieces of legislation have made it easier to use as well. The credit limitation is $8,000. There’s another part that’s been added, too. Long-time homeowners of a primary residence (i.e. you’ve lived in your primary residence for 5 consecutive years of the past 8) who purchase a new primary residence can get a tax credit up to $6,500.
  • Child and dependent care credit. If you paid for care of a child under the age of 13 or any dependent with a physical or mental condition which prevents them caring for themselves then you may be entitled to this tax credit. You get a tax credit of up to $3,000 for one such dependent or $6,000 if you have two or more. If you are married, your spouse must have earned income or been enrolled as a full-time student for at least 5 months for your to qualify.
  • Adoption credit. You can claim a refundable tax credit for all qualified expenses paid during the process of adopting an eligible child. This includes adoption fees, court costs and attorney fees, and even travel expenses and other expenses related to the legal adoption of a child. The adoption credit is capped at $13,360.
  • Retirement savings contribution credit. This gives you a tax credit of up to 50% of the value of contributions made to any registered retirement account, such as an IRA or Roth IRA. The amount of your credit is determined by the contributions you make and your credit rate determined by your adjusted gross income. The lower your income, the higher your credit rate—which means you enjoy a better credit as a low-income saver.
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