A: Hello Wayne,

For the benefit of other readers, you are referring to the Nonbusiness Energy Property Credit which was expanded and simplified by the Recovery Act earlier this year. This residential energy credit provides a 30 percent credit of the costs of installing energy-efficient improvements and property (such as qualified heating and air conditioning systems) in your existing main home, up to a maximum credit of $1,500.

Perhaps you or your sister misunderstood each other. A tax credit reduces your tax liability dollar-for-dollar, unlike tax deductions which reduce income subject to tax. However, this credit, like most credits, is limited to your tax liability. So for example, if you owe $1,000 in taxes, you would benefit from $1,000 of your residential energy credit. The remaining unused credit of $500 would not be a tax benefit to you.

FYI - a second credit for installing alternative energy involving solar, wind, geothermal and fuel cell property is called the Residential Energy Efficient Property Credit. This credit allows a carryover of the unused portion of the credit to future years when the credit amount is more than the filer's tax liability.

For more on these enhanced residential energy credits, please visit www.irs.gov/recovery.

Enjoy your new unit for both the energy and tax savings it provides!

A: Yes Shawn, it is true. The American Recovery and Reinvestment Act allows taxpayers to deduct the state and local sales and excise taxes paid on the purchase of most new cars, light trucks, motor homes and motorcycles.

The deduction can be claimed on brand new vehicles bought from Feb. 17, 2009, through Dec. 31, 2009. It is limited to the sales taxes paid on up to $49,500 of the purchase price, and the deduction is reduced for taxpayers with higher incomes.

Deducting the state license fee is not part of the new law, but if you do itemize deductions, you may be able to deduct a portion of the state vehicle license fee as a personal property tax. This is the part charged yearly that is based only on the value of the vehicle. In California, the DMV usually can verify this amount.

For more on the new law, visit the IRS Web site at www.irs.gov/recovery.

A: Hello Steve,

You should be aware that you and your Mom do have income if you trade stocks or other securities, or have taxable dividends or other earnings in the account, even if you have no other income.

You and the IRS usually get a report of the sales amounts of your transactions and other earnings on Form 1099 in January of next year. If the sales amounts and earnings require you to file a tax return, you will ordinarily complete a Form 1040 and a Schedule D to report your sales activity. This schedule is used to determine the amount of gains and losses from your sales activities.

Even if you do not have to file a return, you should file one to get a refund of any federal income tax withheld.

A person can generally give another person up to the annual exclusion amount in total gifts (no matter how many), and the giver avoids having to file a gift tax return. The 2009 annual gift tax exclusion amount is $13,000. Gifts are usually not taxable to the receiver regardless of the amount received. If you go over the annual exclusion, the lifetime gift tax exclusion is $1 million. This means you would file a gift tax return, but wouldn't pay gift tax until the $1 million is used up.

Ah, I envy you in your situation - brings me back to when I was your age, long ago...

A: [Update on 11/06/09 - The Worker, Homeownership And Business Assistance Act Of 2009 was signed into law by the President today. The new law extends and expands the first-time homebuyer credit. More to come on this new law in the coming days. Visit www.irs.gov for the latest information.]

Hello Chuck,

The bill you are referring to is not law as of this writing. The IRS usually does not comment about proposed or pending legislation.

Once a bill becomes law, it needs to be reviewed and analyzed before the IRS can provide accurate guidance. In my 32 years of experience at the IRS, the Agency has never done a better job responding to new legislation as it has in the past year. For example, the IRS provided significant guidance to implement the Making Work Pay Credit within a few days after passage of the American Recovery & Reinvestment Act of 2009. This allowed employers to quickly increase the take-home pay of millions of American workers as the law intended.

When new tax law is enacted, the best and fastest guidance the public can get is from the IRS web site at www.IRS.gov.

I applaud your eagerness to learn about new laws that may affect you. It is a character of being an informed citizen that we should all strive for, in my humble opinion.

A: Hi Ed,

The American Recovery and Reinvestment Act generally allows the deduction for state and local sales and excise taxes paid to taxpayers who buy most brand new cars, light trucks, motor homes and motorcycles through Dec. 31, 2009. Consumers buying in states that don't have a sales tax still may be able to deduct other taxes or fees paid.

The key in your case is the date of purchase. A purchase of a new motor vehicle occurs on the date you pay FOR, and pay sales taxes ON, the vehicle. The vehicle's purchase and the sales taxes can either be paid in cash or through financing. If this were to occur on or before Dec. 31, 2009, you may be eligible to deduct the sales taxes. However, if you were to merely order, or enter into a contract to purchase, a vehicle on or before Dec. 31 without actually paying the purchase price and sales taxes, you would not be eligible to deduct the sales taxes.

A major provision of this law is that the deduction is available whether or not a taxpayer itemizes deductions on Schedule A. That's a lot of folks, since about two-thirds of all taxpayers do not itemize and instead claim a standard deduction. This deduction will be claimed on 2009 tax returns as an additional standard deduction for those who don't itemize when filing next year.

The deduction can be claimed on the taxes and fees paid on up to $49,500 of the purchase price of an eligible vehicle. The deduction is reduced for joint filers with incomes between $250,000 and $260,000, and other taxpayers with incomes between $125,000 and $135,000. Taxpayers with higher incomes do not qualify.

With this new incentive, potential buyers may find that it is a good time to buy. For more on this and the many new tax breaks that are part of the Recovery Act visit the IRS Web site at www.irs.gov/recovery.

Enjoy your new car and the new deduction if you buy before the end-of-year deadline.

A: Hi Jean,

I believe the ruling you received is correct, and here is why:

The general rule is: when a person retires on disability they must include their taxable disability retirement income as wages, not pension income, until they reach minimum retirement age. However, when some workers are injured on the job, the disability retirement payments they receive are in the nature of, and in lieu of, workmen's compensation, and such payments are not taxable under section 104(a)(1) of the Internal Revenue Code.

Amounts you receive as workers' compensation for an occupational sickness or injury are fully exempt from tax if they are paid under a workers' compensation act, OR a statute in the nature of a workers' compensation act.

For example, Revenue Ruling 68-10 permits some payments made because of an occupational injury or illness arising out of, and in the course of, the employee's duties to be nontaxable because the payments are in the nature of and in lieu of workmen's compensation. These payments are made by a California county to an employee under section 4850 and pursuant to section 4853 of the California Labor Code.

The exemption from tax however, does not apply to retirement plan benefits you receive based on your age, length of service, or prior contributions to the plan, even if you retired because of an occupational sickness or injury. Beginning on the day after you reach minimum retirement age, payments you receive are taxable as a pension or annuity.

A: Hi Bart,

The personal representative of your estate would usually be responsible for taking care of federal tax liabilities from your estate after your passing. The personal representative is an executor, administrator, or anyone who is in charge of the decedent's property.

Different factors can affect federal tax liability. For example, a federal tax lien on property owned by both spouses would be affected by how the property is held. Generally, if a husband and wife took title to property as joint tenancy, and the obligation is the husband's alone, then the lien would attach only to his half of the property and not the wife's half. If they took title to the property as community property, then the lien would attach to the entirety.

I suggest you talk to an estate tax attorney for specific advice about this tax-planning issue.

Here's hoping you live long and prosper so you can see the back-taxes paid.

A: Hello Louise,

The issue of spousal liability for federal income tax can be complex. Liability can be affected by the state you live in - for example California is a community property state - and other factors.

The law makes both spouses responsible for the entire tax liability when they file a joint income tax return. This is called joint and several liability, and it applies to the tax liability on the return, and also generally to any additional tax liability due to unreported income by a spouse.

In some cases, under the Innocent Spouse relief rules, one spouse will be relieved of the tax, interest, and penalties on a joint tax return. Three types of relief are available to married couples who filed joint returns:

-- Innocent spouse relief for additional tax you owe because your spouse failed to report income, reported income improperly or claimed improper deductions or credits.

-- Separation of liability relief provides for the allocation of the additional tax owed because an item was not reported properly on a joint return.

-- Equitable relief applies when a spouse does not qualify for innocent spouse relief or relief by separation of liability. To qualify for equitable relief you must establish, under all the facts and circumstances that it would be unfair to hold you liable for the tax on your joint return, and you must meet other requirements.

Married persons who did not file joint returns, but who live in community property states like California may also qualify for relief. You must request relief no later than 2 years after the date the IRS first attempted to collect the tax from you, regardless of the type of relief you are seeking.

I can't address the bankruptcy's affect on credit, since that is not a tax issue. The best advice I can give is for you to ask a bankruptcy attorney who can also give you advice about your individual tax liability.

Visit www.IRS.gov and check IRS Publication 971, "Innocent Spouse Relief" and Form 8857, "Request for Innocent Spouse Relief," for more information about the Innocent Spouse rules. You can also order the publication and form by mail at 1-800-TAX-FORM (1-800-829-3676).

Good luck to you.

A: Hello Doug,

First, you should immediately contact the Taxpayer Advocate Service (TAS) to let the IRS know of your Mother's condition and circumstances. My guess is the IRS is unaware of the situation, since it is extremely unlikely that such a seizure would occur if all the information was known to the IRS. TAS may be able to stop further enforcement until the matter is resolved.

It is always a good idea to legally use all the tax laws that can benefit you. Innocent spouse relief is one avenue that may help, and another that may apply is an Offer in Compromise. You can find more information about the Collection Appeals Program in IRS Publication 594, "The IRS Collection Process," and Publication 1660, "Collection Appeal Rights."

You might also consider getting help from a tax professional like an Enrolled Agent or CPA. If your Mother cannot afford professional tax assistance, she may qualify for help from Low Income Taxpayer Clinics (LITCs) or other organizations that provide free assistance in tax disputes. LITCs represent low income taxpayers before the Internal Revenue Service in audit, appeals, and collection issues, for free or for a nominal charge.

Contact TAS at 1-877-777-4778, or visit www.IRS.gov to find the local TAS office or for more information about the LITC program in your Mother's area. You can also download IRS Publication 971, "Innocent Spouse Relief" and the other publications I mentioned, or you can order them by mail at 1-800-TAX-FORM (1-800-829-3676).

Good luck resolving this and helping your Mom.

A: Hello Doreen,

I would need to be a tax wizard to say you could definitely claim head of household (HOH) filing status for 2010, and I am not. The best I can do is point you in the right direction.

If you are still unmarried and your grandchild remains a "qualified person" for HOH status in 2010, you may qualify. Usually the qualifying person has to be a qualifying child or qualifying relative who lived in your home for more than half the year (except for temporary absences such as school).

The general age requirement for a qualifying child is under 19 at the end of the year, or a full-time student under age 24 (or any age if the child is permanently and totally disabled). A full-time student for these rules means enrolled full-time during some part of five months of the year.

For more information, see IRS Publication 501, "Exemptions, Standard Deduction, and Filing Information" at IRS.gov or order it by mail at 1-800-TAX-FORM (1-800-829-1040).

I hope this helps.