1500 Tax Credit is Non-Refundable

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smwilliamson

smwilliamson

The Stove Guy
Dec 28, 2009
4,532
Southcoast, MA
www.pellet-stove-parts-4less.com
I searched the forum and did not see a post dedicated to this. Since it expires in 6 months I thought I'd write up what this thing does, which for the working man, isn't much. One thing to note, if you are expected to owe the feds cash, go ahead and spend some more and claim your credit...you may end being worse off financially than if you just paid the taxes.

A tax credit can be refundable or non-refundable.

THE BIO-MASS TAX CREDIT IS NON-REFUNDABLE

To better explain the difference, we have to start with an example:

* Let’s say you owe $500 in taxes before looking at any of your tax credits. Boo!
* You find that you are entitled to a tax credit of $1,500 for that fancy pellet stove you bought. Yay!
o If the tax credit is refundable, then the government would send you a $1000 check. You owe $500, you have a refundable $1500 credit, so you are entitled to the difference.
o If the tax credit non-refundable, then you get nothing. You owe $500, you have a non-refundable $1500 credit, but since it’s non-refundable, you don’t get the difference.

That’s why refundable tax credits are so awesome… unfortunately, there aren’t very many refundable tax credits. In fact, there are only five – the Additional Child Tax Credit, the Earned Income Credit, the Excess Social Security and RRTA Tax Withheld Credit, the First-time Homebuyer credit, and the Health Coverage Tax Credit. Every other credit is non-refundable.

Hope you were not misled by an uneducated stove dealer. I just recently started selling stoves and was humbly educated about this yesterday, to which I researched last night and found to be correct.

It's really unfortunate that our government is ALWAYS trying to screw the working man.
 
Yeah, I know someone who found this out the hard way when they did their taxes for 2010. A waste of a tax credit to the working class.

She also was caught in a tax issue by going back to school and trying to make herself better for supporting herself and her 4 children. Because she did not work, she lost the child earned income credit. Infortunately part of her income was taxable, but not qualified for refund or earned income credit. Final is that if she earned only 10,000 last year she would have gotten back almost 9,000 in a tax return. Instead, she got nothing back at all. This is a person who is not on any government programs.

Granted, she is doing OK (and gratefull for that), not extravigant in any way and attempting to provide better for the future. All good stuff. BUT, you got to love a system that will give someone 9000 when they pay in about 500, but try and better your situation the right way and you get screwed. Seems a bit unbalanced to me.
 
Let me get this straight, I Always get a refund, more than 1K. So if I buy my new stove, because I dont owe, i loose out on the refund ?
 
Might I ask who so humbly educated you on this cause they are wrong.

This is from the Energy Star website's FAQ's



Whether or not you are getting a refund does not matter. What matters is your "tax liability" - which is the total amount of federal income tax you are responsible for paying.

These energy efficiency tax credits are technically "non-refundable" which means you can't get more money back in tax credits than you pay in federal income taxes (your tax liability). Check your last year's tax return to get a sense of your tax liability (line 61 on the 2008 1040 form, called "total tax"). You can claim all of your tax credits as long as your tax liability, is greater than zero after all tax credits have been applied.

For example, say your Adjusted Gross Income (AGI) is $50,000, your tax liability is $10,000 (before you apply tax credits), and you've had $12,000 withheld from your paychecks. In this scenario you could claim up to $10,000 in tax credits. If you are eligible for the entire $1,500 tax credit, then your tax liability ($10,000) would be reduced to $8,500. Since you already had $12,000 withheld, you will get a tax refund of $3,500 ($12,000 - 8,5000 = $3,500).

If your AGI was $50,000, your tax liability $10,000 (before tax credits were applied), and you had $8,000 withheld from your pay checks, you would still have the ability to claim up to $10,000 in tax credits. If you are eligible for the entire $1,500 tax credit, your tax liability ($10,000)would be reduced to $8,500 and you would owe the government $500 at the end of the year ($8,000 already paid in taxes - $8,500 tax liability = $500 final payment).
 
My accountant attached a note to my tax return copy. It read:
John, This credit for the pellet stove is so deceptive-you are entitled to up to 30% but it is a non- refundable credit and is limited .
It can`t be more than your tax liability. (this is the tax you are assessed)which is $66.oo so that is all you get. It offsets what you would owe and you don`t get a refund of the difference.
Sorry, those are the IRS rules and not mine.
Linda XXXXXXXX
I`m not upset and wasn`t too surprised . My 30% credit was about $250 to begin with all the vent mat`l and since I purchased a brand new PDVC ( blemish) stove on Ebay from AM/FM. I saved plenty on that deal alone.
 
There should not have been a big surprise for regular forum readers. It has been explained that you could not save more than your tax liability many times here since the bill was passed.

That is why I didn't get any benefit for the PDVC. My other deductions wiped out my tax liability. But like Gio said, since I only paid $699 for it new at season end at Lowe's and got the piping for a song that day too I wasn't crying.
 
CSCPeter said:
Might I ask who so humbly educated you on this cause they are wrong.

This is from the Energy Star website's FAQ's



Whether or not you are getting a refund does not matter. What matters is your "tax liability" - which is the total amount of federal income tax you are responsible for paying.

These energy efficiency tax credits are technically "non-refundable" which means you can't get more money back in tax credits than you pay in federal income taxes (your tax liability). Check your last year's tax return to get a sense of your tax liability (line 61 on the 2008 1040 form, called "total tax"). You can claim all of your tax credits as long as your tax liability, is greater than zero after all tax credits have been applied.

For example, say your Adjusted Gross Income (AGI) is $50,000, your tax liability is $10,000 (before you apply tax credits), and you've had $12,000 withheld from your paychecks. In this scenario you could claim up to $10,000 in tax credits. If you are eligible for the entire $1,500 tax credit, then your tax liability ($10,000) would be reduced to $8,500. Since you already had $12,000 withheld, you will get a tax refund of $3,500 ($12,000 - 8,5000 = $3,500).

If your AGI was $50,000, your tax liability $10,000 (before tax credits were applied), and you had $8,000 withheld from your pay checks, you would still have the ability to claim up to $10,000 in tax credits. If you are eligible for the entire $1,500 tax credit, your tax liability ($10,000)would be reduced to $8,500 and you would owe the government $500 at the end of the year ($8,000 already paid in taxes - $8,500 tax liability = $500 final payment).
Click to expand...

Good to know Energy Star is going to bat for me when the IRS comes knocking
 
smwilliamson said:
iron stove said:
Let me get this straight, I Always get a refund, more than 1K. So if I buy my new stove, because I dont owe, i loose out on the refund ?
Click to expand...

Correct.
Click to expand...

Ouch. Now im not sure if I want to drop 2K on a NEw Harman and loose the rebate. Having a reativly new home, and all the Interest credit, I cant make any adjustment to the point that I would owe the Goverment. :( :( :(
 
iron stove said:
smwilliamson said:
iron stove said:
Let me get this straight, I Always get a refund, more than 1K. So if I buy my new stove, because I dont owe, i loose out on the refund ?
Click to expand...

Correct.
Click to expand...

Ouch. Now im not sure if I want to drop 2K on a NEw Harman and loose the rebate. Having a reativly new home, and all the Interest credit, I cant make any adjustment to the point that I would owe the Goverment. :( :( :(
Click to expand...

Its not a rebate, its a feel good scam...or so it would seem. A rebate would be awesome.
 
smwilliamson said:
iron stove said:
smwilliamson said:
iron stove said:
Let me get this straight, I Always get a refund, more than 1K. So if I buy my new stove, because I dont owe, i loose out on the refund ?
Click to expand...

Correct.
Click to expand...

Ouch. Now im not sure if I want to drop 2K on a NEw Harman and loose the rebate. Having a reativly new home, and all the Interest credit, I cant make any adjustment to the point that I would owe the Goverment. :( :( :(
Click to expand...

Its not a rebate, its a feel good scam...or so it would seem. A rebate would be awesome.
Click to expand...


Its 0:38 in the Am, and I cant tell you how pissed I am at this right now......................
 
I think theres a misunderstanding going on here. If you make 30k and had no taxes withheld and after deductions you owed $1000. Then you would lose out. $1000 owed - $1500 tax credit, you owe nothing but dont get the $500.
But if you made 30k and has $5000 withheld and you owed $4000 you would get $1000 back. Now add the $1500 and you would get $2500 back. Thats the way I understood it. Essentially you payed taxes because they withheld money. Its the same as if you made 30k and had nothing withheld, so instead of paying $4000 in, your paying $2500, its just that you prepaid.
 
TAx ACt program must be wrong then because I just checked it and it gave me the tax credit for 2009. Am I missing something here? This is about form 5695 correct? Or am I way off base....

The credit, according to my 1040, was taken from my tax liability (which is not the amount you owe at the end of your return), it is what you are required to pay on you income. If I did not owe any taxes because my deductions did not leave me with a "taxable Income" which is line 43 on 2009 1040, then I would not get a credit. However my "taxable liability" is mucho grande and therefor the credit is applied in line 52c along with my educational credits line 49, which is totalled on line 54. It then subtracts line 54 from 46 and gives me the balance to carry on to part 61 through 71 which is payments.

So I am confused why some of the posts indicate that if you get a refund then your not entitled to the tax credit.
 
Ok, after a decent nights sleep, ill look for the ACTUAL FORM and have my TAX GUY give me the final answer............
 
What you are getting for a refund has absolutely nothing to do with it. How much you paid in taxes does. If $7,000 was withheld from your paychecks during the year but your taxes only come to $6,000 then you get a $1,000 refund. If you also bought a $5,000 combination of stove, installation and piping the credit is $1,500 for that so your total refund you would receive would be $2,500.

If that does not make sense to you, head immediately to a tax preparer.
 
Last year I got back $900 of my supposed $1,500 After doing some research I found out I only get back what my liability is. In my case $900 I was P'oed since I bought a more expensive stove hoping the tax credit would offset it.
 
I'm not a tax expert, but reading the info mentioned in the link by CSCPeter, it looks like if you couldn't claim the whole credit in 2009, it can be carried over to next year. I do think people are confused, or maybe I am. I see it the same way as mralias and Brother Bart. In order to NOT get any benefit from your pellet stove purchase, the amount of taxes that you owed the government based on what your earned income was, minus all credits, would have to be less than $1500. It's how much tax you owe the government based on how much money you earned after all other credits. You'd either have to be making almost no money (which unfortunately is possible with the current economy) or have a boatload of credits so you don't have to pay taxes. Not likely. The other way to not get the credit is to have your stove installed Dec. 2008. 3 more weeks and i could have claimed it. grrrrr.
 
newf lover said:
I'm not a tax expert, but reading the info mentioned in the link by CSCPeter, it looks like if you couldn't claim the whole credit in 2009, it can be carried over to next year. I do think people are confused, or maybe I am. I see it the same way as mralias and Brother Bart. In order to NOT get any benefit from your pellet stove purchase, the amount of taxes that you owed the government based on what your earned income was, minus all credits, would have to be less than $1500. It's how much tax you owe the government based on how much money you earned after all other credits. You'd either have to be making almost no money (which unfortunately is possible with the current economy) or have a boatload of credits so you don't have to pay taxes. Not likely. The other way to not get the credit is to have your stove installed Dec. 2008. 3 more weeks and i could have claimed it. grrrrr.
Click to expand...

Yes but when was it placed in service. Seems to me it was January 2009 before the finshing touches were complete. Soooooo....ummm....well.....you know.
 
Well I just started selling stoves. ever really wanted much to do with it..all that lifting and hauling, permitting and scheduling, seemed like so much more effort than just cleaning and repairing. Then I sold a few stoves and WOW, this is much easier than driving around and working on problems...cause you never know what you're up against till you get there. Then people start asking questions about the tax thing. I had a guy sort of put me into my place..it seems possibly he was wrong...the loud mouths often are.

the American tax code is ****ed. Seems like I'll spend whatever savings there might have been on an accountant just to figure out whether I qualify. Hmm.
 
BrotherBart said:
What you are getting for a refund has absolutely nothing to do with it. How much you paid in taxes does. If $7,000 was withheld from your paychecks during the year but your taxes only come to $6,000 then you get a $1,000 refund. If you also bought a $5,000 combination of stove, installation and piping the credit is $1,500 for that so your total refund you would receive would be $2,500.

If that does not make sense to you, head immediately to a tax preparer.
Click to expand...

Thats almost exactly my scenario. I use a Tax prep guy, but I do understatnd this. Thanks, im breathing much easier !
 
BrotherBart said:
What you are getting for a refund has absolutely nothing to do with it. How much you paid in taxes does. If $7,000 was withheld from your paychecks during the year but your taxes only come to $6,000 then you get a $1,000 refund. If you also bought a $5,000 combination of stove, installation and piping the credit is $1,500 for that so your total refund you would receive would be $2,500.

If that does not make sense to you, head immediately to a tax preparer.
Click to expand...


This is correct.
It's not "free money", you had to pay or owe taxes to get any benefit from the credit.
 
smwilliamson said:
iron stove said:
Let me get this straight, I Always get a refund, more than 1K. So if I buy my new stove, because I dont owe, i loose out on the refund ?
Click to expand...

Correct.
Click to expand...

NOT CORRECT! What you get back as a refund has NO bearing on what your tax liability was. You may be overpaying your taxes throughout the year and overcompensating for your liabilities. Like others have said, look to see what your true liability was. A $66 total liability??? How did you manage that? Amazing bit of creativity!
 
weatherguy said:
I think theres a misunderstanding going on here. If you make 30k and had no taxes withheld and after deductions you owed $1000. Then you would lose out. $1000 owed - $1500 tax credit, you owe nothing but dont get the $500.
But if you made 30k and has $5000 withheld and you owed $4000 you would get $1000 back. Now add the $1500 and you would get $2500 back. Thats the way I understood it. Essentially you payed taxes because they withheld money. Its the same as if you made 30k and had nothing withheld, so instead of paying $4000 in, your paying $2500, its just that you prepaid.
Click to expand...

Weatherguy has it correct. That's the way it worked for me. As long as you owe at least $1500 in taxes, you will use the $1500 credit to wipe out that much tax.
 
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