Reduce your quarterly estimated tax
payments IMMEDIATELY
INDIVIDUAL USE OF TAX CREDITS
WHY YOU USE THEM
Tax Credits are the only investment that a taxpayer is paying for, regardless of whether or not they take advantage of it. When you pay your taxes you have nothing but a canceled check, with Tax Credits you have an investment. It's the best way to put your tax dollars to work for you. With Tax Credits you will be able to:
Reasons to take advantage of Tax Credits include, among others:
Other reasons individuals invest in Tax Credits:
HOW YOU USE THEM
Since Tax Credit developments generate large volumes of annual credits, multiple taxpayers are required in order to use the credits on an annual basis. As a result, Tax Credit investments are primarily structured as Limited Partnerships in order to meet the requirements of the Internal Revenue Service. Through a Limited Partnership, individual taxpayers can use the Tax Credits to offset not only their taxes due on their income, but also the portion of their income tax liability that is attributable to passive income.
On investments made after 1989, regardless of their Adjusted Gross Income, taxpayers can offset a portion of their income tax liability that is attributable to portfolio or active income. This special rule is a modification to the General Rental Real Estate Exception to the Passive Loss Rule. Using this Rule, your ability to use Tax Credits against active income is not affected by your passive losses.
The General Rental Real Estate Exception is the primary reason individuals invest in Tax Credit developments. When calculating the Credits allowed under this Rule, a taxpayer multiplies their top marginal rate times $25,000. For most taxpayers this exception translates into the ability to use $7,750 (31% of $25,000) of Tax Credits annually. The maximum Tax Credits will be $10,750 (43% of $25,000) for a taxpayer in the 43 percent bracket.
However, the use of Tax Credits may be limited if:
You have more Credits than you have taxes due.* Tax Credits may not be used to reduce your tax liability past $0.
You must pay the Alternative Minimum Tax.* Tax Credits may not be used to reduce your AMT. However it is important to note that Tax Credits do not trigger the AMT Tax.
You use losses from real estate that you actively manage, that are less than $25,000, and your adjusted gross income is under $150,000.* The amount of Tax Credits you can use is calculated by:
First, taking your tax bracket percentage times your first $25,000 of income, which equals the total tax reduction you are allowed. For Investors with Adjusted Gross Incomes between $100,000 and $150,000, the total tax reduction, and therefore Tax Credits allowed, is reduced by the following method: For every dollar of income over $100,000 you reduce your first $25,000 of income by 50 cents. This number, smaller than $25,000, is then used with your tax bracket percentage to calculate your total tax reduction allowed.
Second, you take your active real estate losses times your tax bracket percentage, which equals the tax dollars saved from your active real estate losses.
Third, you subtract the tax dollars saved from your total tax reduction allowed and the difference is the amount of Tax Credits you are allowed that particular year.
Or you may be unable to use Tax Credits immediately if:
You use losses from real estate you actively manage that exceed $25,000, and your adjusted gross income is less than $150,000.* For taxpayers above $150,000, this ruling does not apply because your losses from your actively managed real estate cannot be deducted as a business expense from your tax liability. Instead, the losses are applied against passive income.
*If you are unable to use all Tax Credits as a result of these restrictions, you can carry Tax Credits back one year or forward twenty years.