Please tell me about the new child tax credit'Who gets to take it, and which children qualify? I’ve heard that the credit is $400 and I’ve heard that it is $500'Which is right? Is it so much per child, or is it one credit per family? O.H., Indianapolis
New to our tax returns this year is a sweet credit for parents of children who are under age 17 as of December 31'The Child Tax Credit is a $400 credit on your 1998 return (it will be $500 starting in 1999)'The credit is $400 for each child you claim as a dependent, as long as the child is under age 17, and is a son or daughter, grandchild, stepchild, or eligible foster child'A worksheet that comes with your instructions will help you figure the credit, but it’s a pretty straightforward calculation of $400 per eligible child'
In the case of divorced parents, the credit goes with the dependency exemption, no matter in which home the child resides'
There is a phase-out of the credit for "high-income" taxpayers'(The IRS comes up with a new definition of "high-income" for almost every situation, so don’t rely on other phase-out rules to apply to this situation.) The phase-out rule for the Child Tax Credit is that the credit will be reduced for joint filers with income above $110,000, for single and head of household filers with income above $75,000, and for married filing separately filers with income above $55,000'
The phase-out rules reduce the amount of the credit by $50 for each $1,000 (or fraction of $1,000) that your income surpasses the phase-out limit for your tax status'So if you are married filing jointly and your adjusted gross income is $115,400, your credit will be reduced by $300 or 6 times $50'
This credit is not refundable, nor can it be carried forward'This means that if your tax is less than the amount of credit to which you are entitled, your credit is only allowed to the extent of your tax'So, if your total tax is $600 and you are entitled to a credit of $800, you only get a $600 credit'The remaining $200 is lost'
There is an additional child tax credit for taxpayers who have three or more qualifying children'This credit is refundable, so even if the credit exceeds your tax, you may be entitled to a refund'Taxpayers will fill out Form 8812 to see if they qualify for this additional credit'
Indiana taxpayers also need to be aware of a new exemption that first appeared on our 1997 Indiana tax returns called the Additional Exemption for Dependent Child'Most children who are dependents on your federal tax return will qualify for this $500 per child Indiana exemption'This is not a credit, but a reduction of your Indiana taxable income'
Last summer my mother-in-law was short of cash, so my wife and I helped out by making two of her mortgage payments'Can we deduct the interest on these payments as part of our itemized deductions? I.G., Indianapolis
Any mother would be proud to have you as a son-in-law! Unfortunately, the IRS feels the sense of inner satisfaction you get from coming to the aid of your mother-in-law is more than enough compensation for your efforts'You only get to take a deduction for interest paid on a loan if you are legally liable on the debt'Since this mortgage is your mother-in-law’s debt, you get no deduction'Furthermore, your mother-in-law cannot take a deduction for the interest on those two payments since she didn’t make the payments herself'The deduction for the interest on the two payments you made is completely lost'The next time you’re feeling generous, give your mother-in-law the money as a gift and let her make her own payments'That way she gets to use the deduction (assuming she has enough deductions to itemize)'