# Presentation: 815939

## Lesson 9 

**Miscellaneous Credits**

**Notes:**
This lesson contains information for all courses and has been updated for Tax Year 2007.

References:
Schedule R (1040) or Schedule 3 (1040A)—\Credit for the Elderly or Disabled
Form 8880, Credit for Qualified Retirement Savings
Form 8396, Mortgage Interest Credit
Form 1116, Foreign Tax Credit 
Publication 524, Credit for the Elderly or Disabled
Form 5695, Residential Energy Credits
Form 8910, Alternative Motor Vehicle Credit 
Teaching Tip:  Even though TaxWise will flow information to these forms, make sure that you check all tax forms for accuracy.

Each of these credits has certain requirements that must be met in order for the taxpayer to claim them.  Take the time to answer the taxpayers’ questions so that  they understand why they can or cannot claim the credit.

Progress to the next slide.

## Objectives

- Determine eligibility for the Credit for the Elderly or the Disabled
- Calculate the Credit for the Elderly or the Disabled
- Calculate the Credit for Qualified Retirement Savings Contributions – Form 8880
- Calculate the Residential Energy Credits for nonbusiness energy property and residential energy-efficient property using Form 5695.
- Calculate the Alternative Motor Vehicle Credit using Form 8910.
- Accurately report the Foreign Tax Credit if Form 1116 is not required
- Be aware of the Mortgage Interest Credit

**Notes:**
Read objectives. 
Determine and calculate the correct amounts of these tax credits.  
Point out that although the Mortgage Interest Credit is outside of the scope of the volunteer program, it is important to be aware of this credit in case a taxpayer comes to your site for assistance.
Remind volunteers to complete the supporting forms to 1040 and 1040A.

Note: This lesson contains basic and intermediate tax law course topics. The Credits for the Elderly or the Disabled and the Qualified Retirement Savings Contributions are included in the Basic course. The Residential Energy Credits, the Alternative Motor Vehicle Credit, the Mortgage Interest Credit, and the Foreign Tax Credit (if Form 1116 is not required) are covered in the Intermediate course. The International Segment of this lesson covers the Foreign Tax Credit in more detail.  

Progress to the next slide.

## Intake/Interview Process

- Form 13614 – Intake and Interview Sheet – Credits Section

**Notes:**
Use Form 13614, Intake and Interview Sheet, or approved alternative form to engage your taxpayer in preparing an accurate return. 
Use the Intake and Interview Sheet or approved alternative form as a starting point for a comprehensive interaction with the taxpayer, in combination with all the source documents provided by the taxpayer, to ensure quality and accuracy on each return.  
Confirm each item on Form 13614 (or approved alternative form used at your site) to make sure you and the taxpayer have considered all the necessary information. Ensure that all questions and issues have been addressed. If items are incorrect or incomplete, revisit the issue and make corrections to the return, as needed. 
The Retirement Savings Contribution Credit is covered in this lesson. To ensure accurate reporting of the Saver’s Credit, ask the taxpayer about contributions to a retirement plan or IRA. The amount of the credit is determined by the taxpayer’s filing status, adjusted gross income, and qualified contributions. There are also age and other requirements. 
You will learn more about how a taxpayer may be eligible for the Saver’s Credit later in this lesson. 
Other credits are also covered in this lesson. Although they are not specifically listed on Form 13614, you should ask probing questions to ensure the accurate reporting of all credits. 

Progress to the next slide.

## Credit – Elderly/DisabledQualifications

- U.S. citizen or resident
- At least age 65 or retired on permanent and total disability
- AGI is less than:
- Single, Head of Household, or Qualifying Widow(er) $17,500
- MFJ (both spouses qualified) $25,000
- MFJ (one spouse qualified) $20,000
- MFS (didn’t live together) $12,500

**Notes:**
Refer students to “Credit for the Elderly or the Disabled.”
Review requirements to claim this credit. The taxpayer must meet all three requirements.
Refer to the chart in the credits tab of Publication 4012, Volunteer Resource Guide to determine if a person qualifies for this credit and for the income limits for each filing status.
This information can also be found in the Instructions to Schedule R, Form 1040 and Schedule 3, Form 1040A.
Review Guided Questions:
What two criteria determine whether a taxpayer is permanently and  totally disabled?  (A taxpayer is permanently and totally disabled if he or she cannot engage in any substantial gainful activity because of a physical or mental condition, and a physician certifies that the disability has lasted, or is expected to last, continuously for one year or more, or is expected to result in death.)
How is disability income reported? (Before the taxpayer reaches mandatory retirement age, disability income is reported as normal wages on Form W-2.  After the taxpayer has reached retirement age, disability income is reported on Form 1099-R.)   

Progress to the next slide.

## Credit – Elderly/DisabledComputation

- Nontaxable Social Security or nontaxable pension(s) must be less than:
- Single, Head of Household, or Qualifying Widow(er) $5,000
- –	MFJ (both spouses qualify) $7,500
- MFJ (one spouse qualifies) $5,000
- MFS (didn’t live together) $3,750
- Use Schedule 3 if filing Form 1040A; use Schedule R if filing Form 1040
- Substantial Gainful Activity

**Notes:**
Tell the students that the taxpayer must complete either Schedule R or Schedule 3 in order to receive the credit.
Volunteers should make sure that they use the nontaxable portion of the taxpayer’s Social Security. 
Explain that after completing the appropriate schedule, the volunteer should enter the number on Line 48 (Form 1040) or Line 30 (Form 1040A). If you are using TaxWise, much of the information will flow to the schedule.  
Review Schedule R (Form 1040) and Schedule 3 (Form 1040A).
Review the Example 1. 
Review Teaching Tip:
A substantial gainful activity consists of the performance of significant duties over a reasonable period of time for pay or for profit, or performance of such duties which generally are done for pay or profit. Full-time or part-time work done at the employer’s  convenience, in a competitive work situation for at least the minimum wage, shows that a taxpayer is able to engage in a substantial gainful activity. The fact that a taxpayer has not worked for an extended period of time is not conclusive evidence that the taxpayer cannot engage in substantial gainful activity.

Progress to the next slide.

## Credit for Qualified Retirement Savings Contributions

- Contributions to a retirement plan or IRA may be eligible for a tax credit
- Non-refundable credit
- Maximum credit is $1,000 (up to $2,000 if MFJ)
- Limitations based on:
- Filing status
- Adjusted Gross Income
- Qualified contributions

**Notes:**
Introduce the “Credit for Qualified Retirement Savings Contributions,” a non-refundable tax credit meant to encourage taxpayers to save. 
Point out the chart in Publication 4012.
Discuss eligibility—To be eligible for this saver’s credit, a taxpayer:
  Must be age 18 or older by the end of the tax year,
  Cannot be claimed on another person’s tax return, and
  Cannot be a full-time student.
Refer to Exhibit 6 (Form 8880) that has a table for the credit rate based upon Filing Status and AGI.
The Credit for Qualified Retirement Savings Contributions is figured by multiplying the credit rate by the lesser of the:
  Maximum allowable contribution ($2,000), or
  Eligible contributions.
If the taxpayer is filing Married Filing Jointly, both the taxpayer and the spouse are eligible for a credit on the maximum annual contribution amount of $2,000. 

Progress to the next slide.

## Credit for Qualified Retirement Savings Contributions 

- Form 8880 is used to calculate the credit
- Chart for the applicable percentage is part of the form
- If the taxpayer has received any distributions from a retirement plan, you may need to complete line 4 on Form 8880

**Notes:**
Remind students that TaxWise will do all the calculations and transfer the information to Form 8880. If you are filing a paper return, make sure all information is placed on Form 8880. 
Advise students to carefully look at the taxpayer’s Form(s) W-2.  An entry in box 12 or an “X” in the retirement box is an indicator the taxpayer is eligible for the retirement savings contribution credit.  Advise students to research Publication 17 for more information.
Caution the taxpayer that if a distribution is received during this period, the taxpayer may be ineligible for the credit.
The testing period includes:
The tax year,
The two preceding tax years, and
The period between the end of the tax year and the due date of the return (including extensions).
Review Examples 2 and 3.
Complete Exercises 1 and 2. Then review.

Progress to Lesson 9 Summary Slide to complete the basic course; otherwise progress to the next slide.

## Residential Energy Credits

- Nonbusiness Energy Property Credit
- Residential Energy Efficient Property Credit
- Form 5695

**Notes:**
Energy Credits are the Nonbusiness Energy Property Credit and the Residential Energy Efficient Property Credit. Taxpayers who made energy savings improvements in 2007 to their home may qualify.
Manufacturers offering energy-efficient items can assure their customers that their energy-efficient items will qualify for the tax credit by providing the customer with a certification statement. The certification statement may be provided by including a written copy of the statement with the packaging of the item, in printable form on the manufacturer’s web site, or in any other manner that will permit the taxpayer to retain the certification statement for tax recordkeeping purposes. 
Form 5695, Residential Energy Credits, is used to claim the credit. 
Review qualifications.
Note: Installation costs for insulation, storm windows, and storm doors is not included in the amount eligible for the credit. (See Form 5695 Instructions.) 
Review Example 4.

        Progress to the next slide.

## Alternative Motor Vehicle Credit

- Requirements – Alternative Motor Vehicle
- Form 8910

**Notes:**
Taxpayers may be able to claim a credit for an alternative motor vehicle placed in service for business or personal use after 2005. An alternative motor vehicle must meet certain requirements and be new.
Generally, for a passenger car or light duty truck that is either a qualified hybrid vehicle or an advanced lean burn technology vehicle, taxpayers can rely on the manufacturer’s (or, in the case of a foreign manufacturer, its domestic distributor’s) certification that a specific make, model, and model year vehicle qualifies for the credit, and the maximum amount of the credit, for which it qualifies. 
If the taxpayer purchased a qualified vehicle from a manufacturer that previously sold at least 60,000 qualified vehicles, the phaseout percentage may be reduced below 100 percent. The manufacturer should give the taxpayer the information needed to figure the phaseout percentage. 
If a taxpayer cannot use part of the personal portion of the credit because of the tax liability limit, the unused credit is lost. The unused personal portion of the credit cannot be carried back or forward to other tax years.
Form 8910, Alternative Motor Vehicle Credit, is used to claim the credit.
Review qualifications.
Review Example 5.

Progress to the next slide.

## Mortgage Interest Credit

- Hold a qualified Mortgage Interest Credit Certificate on main home
- Must reduce mortgage interest deduction on Schedule A (if itemizing)
- Use Form 8396 to figure credit on mortgage interest paid
- May carry forward unused credit for up to three years

**Notes:**
Read Mortgage Interest Credit.
This credit does not fall within the scope of VITA/TCE.  It is introduced here only as an awareness topic.
Tell students that taxpayers who hold Mortgage Interest Credit Certificates under a qualified state or local government program may claim a credit for mortgage interest paid. The certificate must be for the taxpayer’s main home. If the interest is paid to certain related parties (such as relatives), the credit cannot be claimed.  If this credit is used, then the mortgage interest deduction on Schedule A must be  reduced.  The credit is figured on Form 8396, Mortgage Interest Credit.  The taxpayer might want to seek the assistance of a paid tax preparer.

Progress to the next slide.

## Foreign Tax Credit

- Created to avoid double taxation.
- If the Taxpayer paid income, war profits, excess profit taxes to any:
- Foreign country, U.S. possession, political subdivision, or agency of the country or possession.
- May need to consult paid tax preparer to determine if the tax paid is eligible for the foreign tax credit.

**Notes:**
U.S. taxpayers are taxed on their worldwide income. This tax credit can be used to avoid double taxation if all the requirements are met.
Discuss types of taxes that may qualify for a foreign tax credit.
Restricted countries—A taxpayer cannot claim the foreign tax credit paid to certain restricted countries.  
Caution students that this credit can be quite complicated. On domestic returns, students are not to complete Form 1116, but only handle amounts that can be entered directly on line 51 (up to $300 or $600 for MFJ). Be aware that you must  line 51, Form 1040; link to Form 1116; click Simplified Limitation Election; and enter the amount.
Make students aware that when using TaxWise® to link to Form 1116. TaxWise ® will carry the amount to Form 1040 and will generate Form 1116 only if it is required.

Progress to the next slide.

## Foreign Tax Credit–cont’d

- If all of the following requirements are met, Form 1116 is **not **required:
- Foreign-source income is from interest and dividends only
- The total of the foreign taxes does not exceed $300 ($600 for MFJ)
- All of the foreign taxes were legally owed and paid to countries recognized by the U.S. as eligible for the credit

**Notes:**
Generally, to claim the Foreign Tax Credit, a taxpayer is required to file Form 1116 unless all of the above exceptions are met.
Note: If dividend income—shares must have been held for at least 16 days.
Point out that if the taxpayer meets all of the requirements (refer to slide) and does not file Form 4563, Exclusion for Bona Fide Residents of American Samoa, or excludes income from sources within Puerto Rico, the taxpayer can enter the credit directly on Form 1040, by linking from Line 51 to create the entry on Form 1116.
Review Example 6. 
Complete Exercise 3.

Progress to the next slide.

## Quality Review (QR)

- Form 8158 – Quality Review Sheet
- Adjustments, Deductions and Credits Section
-            Yes       No

**Notes:**
Use Form 8158, Quality Review Sheet or your site’s approved alternative form to review all returns prepared.  
Apply the quality review tools in combination with the Intake/Interview Sheet and all the source documents to the returns you prepare to ensure quality and accuracy for every taxpayer.  
Consider each box on the Quality Review Sheet that applies to your taxpayer’s situation to confirm that all the necessary questions and issues have been addressed. If items are incorrect or incomplete, revisit the issue and make corrections to the return, as needed.
To ensure accurate reporting of adjustments, deductions, and credits, verify that the information on the Intake/Interview Sheet and on the taxpayer’s supporting documents is included on the return.
Confirm that all potential adjustments, deductions, and credits have been discussed with the taxpayer and shown on the return, if applicable.

Progress to the next lesson.

## Lesson Summary

- Credit for the Elderly or the Disabled
- Credit for Qualified Retirement Savings
-  	Contributions
- Residential Energy Credits
- Alternative Motor Vehicle Credit
- Foreign Tax Credit
- Mortgage Interest Credit

**Notes:**
Review the miscellaneous credits covered in the lesson. 

This lesson contains basic and intermediate tax law course topics. 
Basic—The Credits for the Elderly or the Disabled and the Qualified Retirement Savings Contributions are included in the Basic course. 
Intermediate—The Residential Energy Credits, the Alternative Motor Vehicle Credit, the Foreign Tax Credit (if Form 1116 not required), and the Mortgage Interest Credit are covered in the Intermediate course. 

Progress to Lesson 14 to complete the Basic course; the next slide for the 
International Segment of Lesson 9; all others proceed to Lesson 10.

## Lesson 9 

**International Segment**
**Foreign Tax Credit**

**Notes:**
This lesson contains information for the International Course and has been updated for Tax Year 2007.
References:
Form 1116, Foreign Tax Credit 
Form 1116, Instructions
Publication 514, Foreign Tax Credit for Individuals

Progress to the next slide.

## Objectives

- Determine which taxes are eligible for the Foreign Tax Credit
- Apply the criteria for claiming the Foreign Tax Credit
- Accurately compute the Foreign Tax Credit using Form 1116 or tax preparation software
- Assist the taxpayer in compiling the documents necessary for a tax professional to complete the return

**Notes:**
Read the objectives. 

Progress to the next slide.

## Intake and Interview Process

- Form 13614 - Intake and Interview Sheet Credits Section

**Notes:**
Use Form 13614, Intake and Interview Sheet, to engage the taxpayer in preparing an accurate return. 
Use the Intake/Interview Sheet as a starting point for a comprehensive interaction with the taxpayer, in combination with all the source documents provided by the taxpayer, to ensure quality and accuracy on each return.  
Confirm each item on Form 13614 (or similar approved alternative form) to make sure you and the taxpayer have considered all the necessary information. Ensure that all questions and issues have been addressed. If items are incorrect or incomplete, revisit the issue and make corrections to the return, as needed. 
The Foreign Tax Credit is covered in this lesson. Although it is not specifically listed on Form 13614, you should ask probing questions to ensure the accurate reporting of all credits.
You will learn more about what taxes qualify for the Foreign Tax Credit later in this lesson. 

Progress to the next slide.

## What Taxes Qualify

**Foreign Source Income – Taxed by Foreign Country**
**The following are the basic requirements:**
** ****	****– ****Tax imposed must be similar to income ****	****tax imposed in the U.S.**
** ****	****– ****Taxpayer must not receive any kind of ****	****specific economic benefit from the payment ****	****of the tax**
**	****– ****Tax must be imposed by “eligible foreign ****	****country”**

**Notes:**
Review Examples.
Complete the Exercises.
Review the list of ineligible countries.

Progress to the next lesson.

## Types of Income

- Passive Category Income
- General Category Income

**Notes:**
A separate Form 1116 must be completed for each different type of income. This lesson will cover only two of the income categories—Passive Category Income and General Category Income.
Discuss the two income categories. 
Review Examples.

Progress to the next slide.

## Form 1116

- Part I – Used to report the taxable income or loss from sources outside the United States
- Part II – Used to report foreign taxes paid or accrued
- Part III – Used to compute the amount of the Foreign Tax Credit

**Notes:**
Part I is used to figure the taxable income from foreign sources in each income category.
Review Examples.
Part II is used to report the amount of foreign taxes paid or accrued.
Review Examples.
Foreign Exchange Rate—Complete the Exercise. 
Part III is used to compute the amount of the Foreign Tax Credit.
Review Examples.

Progress to the next slide.

## Quality Review (QR)

- Form 8158 – Quality Review Sheet
- Adjustments, Deductions and Credits Section

**Notes:**
Use Form 8158, Quality Review Sheet or an approved alternative form to review all returns prepared.  
Apply the Quality Review tools in combination with the Intake/Interview Sheet and all the source documents to the returns you prepare to ensure quality and accuracy for each taxpayer.  
Consider each box on the Quality Review sheet that applies to the  taxpayer’s situation to confirm that all the necessary questions and issues have been addressed. If items are incorrect or incomplete, revisit the issue and make corrections to the return, as needed.
To ensure accurate reporting of adjustments, deductions, and credits, verify that the information on the Intake/Interview Sheet and on the taxpayer’s supporting documents is included on the return.
Confirm that all potential adjustments, deductions, and credits have been discussed with the taxpayer and shown on the return, if applicable.

Progress to the next lesson.

## International Summary

- To be eligible for the Foreign Tax Credit,
-     foreign taxes must be:
- 	 – Based on foreign sourced income
- 	 – Similar to U.S. income tax
- 	 – Free of any specific economic benefit
- 	 – Paid to an “eligible foreign country”
- The Foreign Tax Credit is computed using
-     Form 1116

**Notes:**
Review the Summary Slide.

Progress to the next slide.