By Robert Steere, Toolkit Staff Writer

With the current condition of our economy, you may be more concerned than ever about minimizing your income tax bill when it comes time to file returns again. Be sure you remain alert to the possibilities of reducing your tax bill by taking advantage of the tax credits authorized in the American Recovery and Reinvestment Act (the Recovery Act) earlier this year. It provides tax incentives for first-time homebuyers, people purchasing new cars, those interested in making their homes more energy efficient, and parents and students paying for college.

The IRS recently highlighted six different tax breaks that are available to individual taxpayers under the Recovery Act. Each one can provide important savings to those taxpayers who are eligible to take advantage of them. Take a look and see if you can use any of these tax reduction opportunities.

First-Time Homebuyer Credit. Taxpayers who haven't owned a principal residence during the past three years may be eligible to receive a credit of up to $8,000 if they purchase a home before December 1, 2009. The credit can be claimed immediately on an original or amended 2008 tax return or it can be claimed on a 2009 return due in 2010. The credit phases out for single individuals with income levels above $75,000 (above $150,000 for married couples filing jointly).

New Vehicle Purchase Incentive. Qualifying taxpayers can deduct the state and local sales and excise taxes paid on the purchase of new cars, light trucks, motor homes and motorcycles. The deduction per vehicle is limited to the tax on up to $49,500 of the purchase price of each qualifying vehicle. The deduction phases out for single individuals with income levels above $125,000 (above $250,000 for married couples filing jointly).

Making Work Pay Credit. The $400 Making Work Pay Credit lowered employees' tax withholding rates this year and is already putting more money into the pockets of wage earners. Self-employed individuals will have an opportunity to claim this credit when they file their 2009 return. Taxpayers who fall into certain categories should review their tax withholding to ensure that enough tax is currently being withheld: multiple job holders, families in which both spouses work, workers who can be claimed as dependents by other taxpayers, workers without a valid social security number, some social security recipients who work and pensioners. Failure to adjust the withholding in these situations could result in smaller refunds or, in limited instances, may cause tax to be due with the 2009 income tax return.

Tax Credit for First Four Years of College. The American Opportunity Credit can help parents and students pay part of the cost of the first four years of college. The new credit modifies the pre-existing Hope Credit for tax years 2009 and 2010, making it available to a broader range of taxpayers. Eligible taxpayers may qualify for the maximum annual credit of $2,500 per student. The credit phases out for single individuals with income levels above $80,000 (above $160,000 for married couples filing jointly).

Computer Purchases Allowed for 529 Plans. The Recovery Act adds computer technology to the list of college expenses that can be paid for by a qualified tuition program, commonly referred to as a 529 plan. For 2009 and 2010, the law expands the definition of qualified higher education expenses to include expenses for computer technology and equipment or Internet access and related services.

Energy-Efficient Home Improvements. The credit for nonbusiness energy-efficient improvements is increased for homeowners who make qualified improvements to existing homes. Qualifying improvements include the addition of insulation, energy-efficient exterior windows and energy-efficient heating and air conditioning systems. The Recovery Act increased the credit rate to 30 percent of the cost of all qualifying improvements and raises the maximum credit limit to $1,500 for improvements placed in service in 2009 and 2010.

If you want more information regarding these or other key tax provisions of the Recovery Act, visit the IRS Recovery Act Information Center.

Related items:

Posted October 3, 2009.