Publication 17 (2006), Your Federal Income Tax

37. Other Credits

This is archived information that pertains only to the 2006 Tax Year. If you
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Table of Contents

Residential energy credits. You may be able to take the two new residential energy credits if you made energy saving improvements to your home in 2006. See Residential Energy Credits for more information.

Alternative motor vehicle and alternative fuel vehicle refueling property credits. You may be able to take a credit if you placed an alternative motor vehicle or alternative fuel vehicle refueling property in service in 2006. See Alternative Motor Vehicle Credit and Alternative Fuel Vehicle Refueling Property Credit for more information.

Qualified electric vehicle credit. The maximum qualified electric vehicle credit is reduced from $4,000 to $1,000 for any qualified vehicle placed in service in 2006. See Qualified Electric Vehicle Credit for more information.

Credit for clean renewable energy bonds or Gulf tax credit bonds. You may be able to take a credit if you are a holder of a clean renewable energy bond or Gulf tax credit bond during 2006. The amount of any credit figured before applying tax liability limits must be included as interest income on your tax return. See Credits for Clean Renewable Energy Bonds or Gulf Tax Credit Bonds for more information.

Adoption credit. The maximum adoption credit increases to $10,960. The adoption credit can no longer be claimed on Form 1040A. See Adoption Credit for more information.

Excess withholding of social security tax and railroad retirement tax. Social security tax and tier 1 railroad retirement tax (RRTA) are both withheld at a rate of 6.2% of wages. The maximum wages subject to these taxes increased to $94,200 in 2006. The withholding rate of tier 2 RRTA is 4.4% of wages in 2006. The maximum wages subject to this tax increased to $69,900 in 2006. If you had too much social security or RRTA tax withheld during 2006, you may be entitled to a credit of the excess withholding. For more information about the credit, see Credit for Excess Social Security Tax or Railroad Retirement Tax Withheld under Refundable Credits, later.

Credit for federal telephone excise tax paid. If you paid the federal telephone excise tax on certain long distance or bundled telephone service, you may be able to request a credit. See Credit for Federal Telephone Excise Tax Paid for more information.

This chapter discusses the following credits.

Adoption credit.
Foreign tax credit.
Mortgage interest credit.
Retirement savings contributions credit.
Credit for prior year minimum tax.
Alternative motor vehicle credit.
Alternative fuel vehicle refueling property credit.
Qualified electric vehicle credit.
Residential energy credits.
Credit for clean renewable energy bonds or Gulf tax credit bonds.
Credit for excess social security tax or railroad retirement tax withheld.
Credit for tax on undistributed capital gain.
Health coverage tax credit.
Credit for federal telephone excise tax paid.

Several other credits are discussed in other chapters in this publication.

Child and dependent care credit (chapter 32).
Credit for the elderly or the disabled (chapter 33).
Child tax credit (chapter 34).
Education credits (chapter 35).
Earned income credit (chapter 36).

Nonrefundable credits. The first part of this chapter, Nonrefundable Credits, covers ten credits that you subtract from your tax. These credits may reduce your tax to zero. If these credits are more than your tax, the excess is not refunded to you.

Refundable credits. The second part of this chapter, Refundable Credits, covers four credits that are treated as payments and are refundable to you. These credits are added to the federal income tax withheld and any estimated tax payments you made. If this total is more than your total tax, the excess will be refunded to you.

Publication

502 Medical and Dental Expenses
514 Foreign Tax Credit for
Individuals
530 Tax Information for First-Time Homeowners
535 Business Expenses
590 Individual Retirement Arrangements (IRAs)

Form (and Instructions)

1116
Foreign Tax Credit (Individual, Estate, or Trust)
2439
Notice to Shareholder of Undistributed Long-Term Capital Gains
5695
Residential Energy Credits
8396
Mortgage Interest Credit
8801
Credit For Prior Year Minimum Tax — Individuals, Estates, and Trusts
8828
Recapture of Federal Mortgage Subsidy
8834
Qualified Electric Vehicle Credit
8839
Qualified Adoption Expenses
8880
Credit for Qualified Retirement Savings Contributions
8885
Health Coverage Tax Credit
8910
Alternative Motor Vehicle Credit
8911
Alternative Fuel Vehicle Refueling Property Credit
8912
Credit for Clean Renewable Energy and Gulf Tax Credit Bonds
8913
Credit for Federal Telephone Excise Tax Paid

Nonrefundable Credits

The credits discussed in this part of the chapter can reduce your tax. However, if the total of these credits is more than your tax, the excess is not refunded to you.

Adoption Credit

You may be able to take a tax credit of up to $10,960 for qualified expenses paid to adopt an eligible child. The credit may be allowed for the adoption of a child with special needs even if you do not have any qualified expenses.

If your modified adjusted gross income (AGI) is more than $164,410, your credit is reduced. If your modified AGI is $204,410 or more, you cannot take the credit.

Qualified adoption expenses. Qualified adoption expenses are reasonable and necessary expenses directly related to, and whose principal purpose is for, the legal adoption of an eligible child. These expenses include:

Adoption fees,
Court costs,
Attorney fees,
Travel expenses (including amounts spent for meals and lodging) while away from home, and
Re-adoption expenses to adopt a foreign child.

Nonqualified expenses. Qualified adoption expenses do not include expenses:

That violate state or federal law,
For carrying out any surrogate parenting arrangement,
For the adoption of your spouse's child,
For which you received funds under any federal, state, or local program,
Allowed as a credit or deduction under any other federal income tax rule,
Paid or reimbursed by your employer or any other person or organization, or
Paid before 1997.

Eligible child. The term “eligible child” means any individual:

Under 18 years old, or
Physically or mentally incapable of caring for himself or herself.

Child with special needs. An eligible child is a child with special needs if all three of the following apply.

He or she was a citizen or resident of the United States (including U.S. possessions) at the time the adoption process began.
A state (including the District of Columbia) has determined that the child cannot or should not be returned to his or her parents' home.
The state has determined that the child will not be adopted unless assistance is provided to the adoptive parents. Factors used by states to make this determination include:
1. The child's ethnic background,
2. The child's age,
3. Whether the child is a member of a minority or sibling group, and
4. Whether the child has a medical condition or a physical, mental, or emotional handicap.

When to take the credit. Generally, until the adoption becomes final, you take the credit in the year after your qualified expenses were paid or incurred. If the adoption credit becomes final, you take the credit in the year your expenses were paid or incurred. See the instructions for Form 8839 for more specific information on when to take the credit.

Foreign child. If the child is not a U.S. citizen or resident at the time the adoption process began, you cannot take the credit unless the adoption becomes final. You treat all adoption expenses paid or incurred in years before the adoption becomes final as paid or incurred in the year it becomes final.

How to take the credit. To take the credit, you must complete Form 8839 and attach it to your Form 1040. Include the credit in your total for Form 1040, line 54, and check box b on that line.

Foreign Tax Credit

You generally can choose to take income taxes you paid or accrued during the year to a foreign country or U.S. possession as a credit against your U.S. income tax. Or, you can deduct them as an itemized deduction (see chapter 22).

You cannot take a credit (or deduction) for foreign income taxes paid on income that you exclude from U.S. tax under any of the following.

Foreign earned income exclusion.
Foreign housing exclusion.
Income from Puerto Rico exempt from U.S. tax.
Possession exclusion.
Extraterritorial income exclusion.

Limit on the credit. Unless you can elect not to file Form 1116 (see Exception, later), your foreign tax credit cannot be more than your U.S. tax liability (Form 1040, line 44), multiplied by a fraction. The numerator of the fraction is your taxable income from sources outside the United States. The denominator is your total taxable income from U.S. and foreign sources. See Publication 514 for more information.

How to take the credit. Complete Form 1116 and attach it to your Form 1040. Enter the credit on Form 1040, line 47.

Exception. You do not have to complete Form 1116 to take the credit if all of the following apply.

All of your foreign source gross income was from passive income, which generally includes interest and dividends.
All of your foreign source gross income and the foreign tax paid on it were reported to you on a qualified payee statement, which includes Form 1099-INT and Form 1099-DIV.
The total of your creditable foreign taxes was not more than $300 (not more than $600 if married filing jointly).
You elect this procedure for the tax year.

For more details on these requirements, see the instructions for Form 1116.

Mortgage Interest Credit

The mortgage interest credit is intended to help lower-income individuals own a home. If you qualify, you can take the credit each year for part of the home mortgage interest you pay.

Who qualifies. You may be eligible for the credit if you were issued a mortgage credit certificate (MCC) from your state or local government. Generally, an MCC is issued only in connection with a new mortgage for the purchase of your main home.

Amount of credit. Figure your credit on Form 8396. If your mortgage loan amount is equal to (or smaller than) the certified indebtedness amount (loan) shown on your MCC, enter on Form 8396, line 1, all the interest you paid on your mortgage during the year.

If your mortgage loan amount is larger than the certified indebtedness amount shown on your MCC, you can figure the credit on only part of the interest you paid. To find the amount to enter on line 1, multiply the total interest you paid during the year on your mortgage by the following fraction.

	Certified indebtedness amount on your MCC
	Original amount of your mortgage

If two or more persons (other than a married couple filing a joint return) hold an interest in the home to which the MCC relates, the credit must be divided based on the interest held by each person. See Publication 530 for more information.

If the certificate credit rate is more than 20%, the credit you are allowed cannot be more than $2,000.

Carryforward. If your allowable credit is reduced because of the limit based on your tax, you can carry forward the unused portion of the credit to the next 3 years or until used, whichever comes first.

If you are subject to the $2,000 limit because your certificate credit rate is more than 20%, you cannot carry forward any amount more than $2,000 (or your share of the $2,000 if you must divide the credit).

How to take the credit. Figure your 2006 credit and any carryforward to 2007 on Form 8396, and attach it to your Form 1040. Be sure to include any credit carryforward from 2003, 2004, and 2005.

Include the credit in your total for Form 1040, line 54, and check box a.

Reduced home mortgage interest deduction. If you itemize your deductions on Schedule A (Form 1040), you must reduce your home mortgage interest deduction by the amount of the mortgage interest credit shown on Form 8396, line 3. You must do this even if part of that amount is to be carried forward to 2007. For more information about the home mortgage interest deduction, see chapter 23.

Recapture of federal mortgage subsidy. If you received an MCC with your mortgage loan, you may have to recapture (pay back) all or part of the benefit you received from that program. The recapture may be required if you sell or dispose of your home at a gain during the first 9 years after the date you closed your mortgage loan. See Publication 523, Selling Your Home, for more information.

Retirement Savings Contributions Credit

You may be able to take this credit if you, or your spouse if filing jointly, made:

Contributions (other than rollover contributions) to a traditional or Roth IRA,
Elective deferrals to a 401(k) or 403(b) plan (including designated Roth contributions) or to a governmental 457, SEP, or SIMPLE plan,
Voluntary employee contributions to a qualified retirement plan (including the federal Thrift Savings Plan), or
Contributions to a 501(c)(18)(D) plan.

However, you cannot take the credit if either of the following applies.

The amount on Form 1040, line 38, or Form 1040A, line 22, is more than $25,000 ($37,500 if head of household; $50,000 if married filing jointly).
The person(s) who made the qualified contribution or elective deferral (a) was born after January 1, 1989, (b) is claimed as a dependent on someone else's 2006 tax return or (c) was a student (defined next).

Student. You were a student if during any part of 5 calendar months of 2006 you:

Were enrolled as a full-time student at a school, or
Took a full-time, on-farm training course given by a school or a state, county, or local government agency.

School. A school includes a technical, trade, or mechanical school. It does not include an on-the-job training course, correspondence school, or school offering courses only through the Internet.

How to take the credit. Figure the credit on Form 8880. Enter the credit on your Form 1040, line 51, or your Form 1040A, line 32, and attach Form 8880 to your return.

Credit for Prior Year Minimum Tax

The tax laws give special treatment to some kinds of income and allow special deductions and credits for some kinds of expenses. If you benefit from these laws, you may have to pay at least a minimum amount of tax in addition to any other tax on these items. This is called the alternative minimum tax.

The special treatment of some items of income and expenses only allows you to postpone paying tax until a later year. If in prior years you paid alternative minimum tax because of these tax postponement items, you may be able to take a credit for prior year minimum tax against your current year's regular tax. The amount of the credit cannot reduce your current year's tax below your current year's tentative alternative minimum tax.

You may be able to take a credit against your regular tax if for 2005 you had:

An alternative minimum tax liability and adjustments or preferences other than exclusion items,
A minimum tax credit that you are carrying forward to 2006, or
An unallowed nonconventional source fuel credit or qualified electric vehicle credit.

How to take the credit. Figure your 2006 credit and any carryforward to 2007 on Form 8801, and attach it to your Form 1040. Include the credit in your total for Form 1040, line 55, and check box b. You can carry forward any unused credit for prior year minimum tax to later years until it is completely used.

More information. For more information about the credit, see the instructions for Form 8801.

Alternative Motor Vehicle Credit

You may be able to take a credit if you place an alternative motor vehicle in service in 2006. You can no longer take a deduction for clean-fuel vehicles.

Alternative motor vehicle. An alternative motor vehicle is a new vehicle that qualifies as one of the following four types of vehicles.

Qualified hybrid vehicle.
Advanced lean burn technology vehicle.
Qualified alternative fuel vehicle.
Qualified fuel cell vehicle.

Amount of credit. Generally, for a passenger car or light duty truck that is either a qualified hybrid vehicle or an advanced lean burn technology vehicle, you can rely on the manufacturer's (or, in the case of a foreign manufacturer, its domestic distributor's) certification that a specific make, model, and model year vehicle qualifies for the credit and the maximum amount of the credit for which it qualifies. For an updated list of certified vehicles and the specific credit amounts for each model, go to www.irs.gov/newsroom/article/0,,id=157632,00.html on the Internet.

Additional requirements. In addition to the manufacturer's (or domestic distributor's) certification, the following requirements must be met to qualify for the credit:

You placed the vehicle in service after 2005;
The original use of the vehicle began with you;
You acquired the vehicle for your use or to lease to others, and not for resale; and
You use the vehicle primarily in the United States.

Phaseout of credit. Ordinarily the amount of the credit is 100% of the manufacturer's (or domestic distributor's) certification of the maximum credit allowable as explained above. However, if you purchased a qualified vehicle from a manufacturer who previously sold at least 60,000 qualified vehicles, the amount of your credit may be reduced. Your manufacturer should give you the information you need to figure your phaseout percentage. See the Form 8910 instructions

The phaseout period has begun for certain qualifying vehicles purchased for use or lease from Toyota Motor Corporation after September 30, 2006. See IRS news release IR 2006-145 on the Internet at www.irs.gov/newsroom/article/0,,id=162562,00.html.

Recapture of credit. If the vehicle no longer qualifies for the credit, you must recapture part or all of the credit.

How to take the credit. To take the credit, you must complete Form 8910 and attach it to your Form 1040. Include the credit in your total for Form 1040, line 55. Check box c and enter “8910” on the line next to box c.

More information. For more information on the credit, see the instructions for Form 8910.

Alternative Fuel Vehicle Refueling Property Credit

You may be able to take a credit if you place qualified alternative fuel vehicle refueling property in service in 2006. You can no longer take a deduction for clean fuel vehicle refueling property.

Qualified alternative fuel refueling property. Qualified alternative fuel vehicle property is any property (other than a building or its structural components) used to do either of the following.

Store or dispense a clean-burning fuel into the fuel tank of a motor vehicle propelled by the fuel, but only if the storage or dispensing is at the point where the fuel is delivered into the tank.
Recharge motor vehicles propelled by electricity, but only if the property is located at the point where the vehicles are recharged.

Amount of the credit. For personal use property, the credit is generally the smaller of 30% of the property's cost or $1,000. For business use property, the credit is generally the smaller of 30% of the property's cost or $30,000. Each property's cost must first be reduced by any section 179 deduction before figuring the credit.

How to take the credit. To take the credit, you must complete Form 8911 and attach it to your Form 1040. Include the credit in your total for Form 1040, line 55. Check box c and enter “8911” on the line next to box c.

More information. For more information on the credit, see the instructions for Form 8911.

Qualified Electric Vehicle Credit

You may be allowed a tax credit if you placed a qualified electric vehicle in service during the year.

Qualified electric vehicle. Generally, this is a vehicle that:

Has at least four wheels and is manufactured primarily for use on public streets, roads, and highways,
Is powered primarily by an electric motor drawing current from rechargeable batteries, fuel cells, or other portable sources of electrical current,
Is originally used by you,
Is acquired for your own use and not for resale,
Has never been used as a nonelectric vehicle, and
Is used predominately in the United States.

Amount of credit. If you placed a qualified electric vehicle in service during 2006, the credit is generally 2.5% of the cost of the vehicle. However, if the vehicle is a depreciable business asset, you must reduce the cost of the vehicle by any section 179 deduction before figuring the credit. See Publication 463, Travel, Entertainment, Gift, and Car Expenses, for information on the section 179 deduction.

The credit is limited to $1,000 for each vehicle placed in service in 2006.

Recapture. If the vehicle no longer qualifies for the credit within 3 years of the date you placed it in service, you must recapture part or all of the credit. You recapture the credit by adding part or all of it to your income tax for the year in which the recapture event occurs.

The vehicle will no longer qualify if it is changed in either of the following ways.

The vehicle is modified so that it is no longer primarily powered by electricity.
It becomes nonqualifying property.

Sale or other disposition. Generally, no recapture occurs on the sale or other disposition of the vehicle. However, if the vehicle will be modified after you dispose of it so that it no longer qualifies for the credit, the credit may be subject to recapture.

See Publication 535, chapter 12, for more information.

How to take the credit. To take the credit, complete Form 8834 and attach it to your Form 1040. Include the credit in your total for Form 1040, line 55. Check box c and enter “8834” on the line next to box c.

Do not confuse this credit with the alternative motor vehicle credit which is discussed above.

Residential Energy Credits

You may be eligible for 2 credits, the nonbusiness energy property credit and the residential energy efficient property credit, if you made energy saving improvements to your home.

Nonbusiness energy property credit You may be able to take this credit for any of the following improvements to your main home located in the United States in 2006 if they are new and meet certain requirements for energy efficiency.

Any insulation material or system primarily designed to reduce heat gain or loss in your home.
Exterior windows (including skylights).
Exterior doors.
A metal roof with pigmented coatings primarily designed to reduce heat gain in your home.

You may also be able to claim this credit for the cost of any of the following items if the items meet certain performance and quality standards.

Certain electric heat pump water heaters, electric heat pumps, geothermal heat pumps, central air conditioners, and natural gas, propane, or oil water heaters.
A qualified natural gas, propane, or oil furnace or hot water boiler.
An advanced main air circulating fan used in a natural gas, propane, or oil furnace.

For more information about the nonbusiness energy property credit, see the Instructions for Form 5695.

Residential energy efficient property credit. You may be able to take this credit if you paid for any of the following during 2006.

Qualified photovoltaic property for use in your home located in the United States.
Qualified solar water heating property for use in your home located in the United States.
Qualified fuel cell property installed on or in connection with your main home located in the United States.

For more information about the residential energy efficient property credit, see the instructions for Form 5695.

Condominiums and cooperative apartments. If you are a member of a condominium management association for a condominium you own or a tenant-stockholder in a cooperative housing corporation, you are treated as having paid your proportionate share of any costs of such association or corporation for purposes of these credits.

Basis reduction. You must reduce the basis of your home by the amount of any credits allowed.

How to take the credits. To take either of the credits, you must complete Form 5695 and attach it to your Form 1040. Enter the credit on Form 1040, line 52.

More information. For more information on these credits, see the instructions for Form 5695.

Credit for Clean Renewable Energy Bonds or Gulf Tax Credit Bonds

You may be able to take a credit if you are a holder of a clean renewable energy bond (CREB) or Gulf tax credit bond (GTCB). CREBs are tax credit bonds issued after 2005 by certain tax-exempt electricity providers to finance renewable energy projects. GTCBs are tax credit bonds issued after 2005 by the state of Alabama, Louisiana, or Mississippi that are designated by the governor of those states as GTCBs and that meet certain other requirements. The issuers do not pay interest on both types of bonds. Instead of receiving interest, the bondholders qualify to claim a tax credit.

Who can claim the credits. If you hold a CREB and/or a GTCB on 1 or more credit allowance dates, you can claim either the CREB credit or the GTCB credit by filing Form 8912. The credit allowance dates are:

March 15,
June 15,
September 15, and
December 15.

The credit allowance date also includes the last day on which the CREB or GTCB is outstanding.

Amount of credit. The amount of the credit with respect to each credit allowance date is generally equal to 25 percent of the annual credit for the bond. However, the 25% will be prorated for the quarters in which the bond is issued, redeemed or matures.

Interest income. The amount of any tax credit allowed (figured before applying tax liability limits) must be included as interest income on your tax return.

How to take the credit. To take either credit, you must complete Form 8912 and attach it to your Form 1040. Include the credit in your total for Form 1040, line 55. Check box c, and enter “8912” on the line next to box c.

More information. For more information on these credits, see the instructions for Form 8912.

Refundable Credits

The credits discussed in this part of the chapter are treated as payments of tax. If the total of these credits, withheld federal income tax, and estimated tax payments is more than your total tax, the excess can be refunded to you.

Credit for Excess Social Security Tax or Railroad Retirement Tax Withheld

Most employers must withhold social security tax from your wages. If you work for a railroad employer, that employer must withhold tier 1 railroad retirement (RRTA) tax and tier 2 RRTA tax.

If you worked for two or more employers in 2006, you may have had too much social security or RRTA tax withheld from your pay. You can claim the excess social security or RRTA tier 1 tax as a credit against your income tax. The following table shows the maximum amount of wages subject to tax and the maximum amount of tax that should have been withheld in 2006.

Type of tax	Maximum wages subject to tax	Maximum tax that should have been withheld
Social security or RRTA tier 1	$94,200	$5,840.40
RRTA tier 2	$69,900	$3,075.60

All wages are subject to Medicare tax withholding.

Use Form 843, Claim for Refund and Request for Abatement, to claim a refund of excess RRTA tier 2 tax. See Publication 505, Tax Withholding and Estimated Tax, for details.

Employer's error. If any one employer withheld too much social security or RRTA tax, you cannot take the excess as a credit against your income tax. The employer should adjust the tax for you. If the employer does not adjust the overcollection, you can file a claim for refund using Form 843.

Joint return. If you are filing a joint return, you cannot add the social security or RRTA tax withheld from your spouse's wages to the amount withheld from your wages. Figure the withholding separately for you and your spouse to determine if either of you has excess withholding.

How to figure the credit if you did not work for a railroad. If you did not work for a railroad during 2006, figure the credit as follows:

1.	Add all social security tax withheld (but not more than $5,840.40 for each employer). Enter the total here
2.	Enter any uncollected social security tax on tips or group-term life insurance included in the total on Form 1040, line 63
3.	Add lines 1 and 2. If $5,840.40 or less, stop here. You cannot take the credit
4.	Social security tax limit	5,840.40
5.	Credit. Subtract line 4 from line 3. Enter the result here and on Form 1040, line 67 (or Form 1040A, line 43)

Example.

You are married and file a joint return with your spouse who had no gross income in 2006. During 2006, you worked for the Brown Shoe Company and earned $58,000 in wages. Social security tax of $3,596 was withheld. You also worked for another employer in 2006 and earned $47,000 in wages. $2,914 of social security tax was withheld from these wages. Because you worked for more than one employer and your total wages were more than $94,200, you can take a credit of $669.60 for the excess social security tax withheld.

1.	Add all social security tax withheld (but not more than $5,840.40 for each employer). Enter the total here	$6,510.00
2.	Enter any uncollected social security tax on tips or group-term life insurance included in the total on Form 1040, line 63	-0-
3.	Add lines 1 and 2. If $5,840.40 or less, stop here. You cannot take the credit	6,510.00
4.	Social security tax limit	5,840.40
5.	Credit. Subtract line 4 from line 3. Enter the result here and on Form 1040, line 67 (or Form 1040A, line 43)	$669.60

How to figure the credit if you worked for a railroad. If you were a railroad employee at any time during 2006, figure the credit as follows:

1.	Add all social security and tier 1 RRTA tax withheld (but not more than $5,840.40 for each employer). Enter the total here
2.	Enter any uncollected social security and tier 1 RRTA tax on tips or group-term life insurance included in the total on Form 1040, line 63
3.	Add lines 1 and 2. If $5,840.40 or less, stop here. You cannot take the credit
4.	Social security and tier 1 RRTA tax limit	5,840.40
5.	Credit. Subtract line 4 from line 3. Enter the result here and on Form 1040, line 67 (or Form 1040A, line 43)

How to take the credit. Enter the credit on Form 1040, line 67, or include it in the total for Form 1040A, line 43.

Credit for Tax on Undistributed Capital Gain

You must include in your income any amounts that regulated investment companies (commonly called mutual funds) or real estate investment trusts (REITs) allocated to you as capital gain distributions, even if you did not actually receive them. If the mutual fund or REIT paid a tax on the capital gain, you are allowed a credit for the tax since it is considered paid by you. The mutual fund or REIT will send you Form 2439, Notice to Shareholder of Undistributed Long-Term Capital Gains, showing the undistributed capital gains and the tax paid, if any. Take the credit for the tax paid by entering the amount on Form 1040, line 70, and checking box a. Attach Copy B of Form 2439 to your return. See Capital Gain Distributions in chapter 8 for more information on undistributed capital gains.

Health Coverage Tax Credit

You may be able to take this credit for any month in which all the following statements were true on the first day of the month.

You were an eligible trade adjustment assistance (TAA) recipient, alternative TAA recipient, or Pension Benefit Guaranty Corporation (PBGC) pension recipient (defined later).
You were covered by a qualified health insurance plan for which you paid the premiums.
You were not entitled to Medicare Part A or enrolled in Medicare Part B.
You were not enrolled in Medicaid or State Children's Health Insurance Program (SCHIP).
You were not enrolled in the Federal Employees Health Benefits Program or eligible to receive benefits under the U.S. military health system (TRICARE).
You were not covered by, or eligible for coverage under, any employer-sponsored health insurance plan (including any employer-sponsored health insurance plan of your spouse).
You were not imprisoned under federal, state, or local authority.

But, you cannot take the credit if you can be claimed as a dependent on someone else's 2006 tax return. If you meet all of these conditions, you may be able to take a credit of up to 65% of the amount you paid for qualified health insurance coverage. The amount you paid for qualified health insurance coverage must be reduced by any (a) Archer MSA and health savings account distributions used to pay for the coverage, and (b) National Emergency Grants you received for health insurance in 2006.

You can take this credit on your tax return or have it paid on your behalf in advance to your insurance company. If the credit is paid on your behalf in advance, that amount will reduce the amount of the credit you can take on your tax return.

For definitions and special rules including those relating to qualified health insurance plans and employer-sponsored health insurance plans, see Publication 502 and the instructions for Form 8885.

TAA Recipient

You were an eligible TAA recipient on the first day of the month if, for any day in that month or the prior month, you:

Received a trade readjustment allowance, or
Would have been entitled to receive such an allowance except that you had not exhausted all rights to any unemployment insurance (except additional compensation that is funded by a state and is not reimbursed from any federal funds) to which you were entitled (or would be entitled if you applied).

Example. You received a trade adjustment allowance for January 2006. You were an eligible TAA recipient on the first day of January and February.

Alternative TAA Recipient

You were an eligible alternative TAA recipient on the first day of the month if, for that month or the prior month, you received benefits under an alternative trade adjustment assistance program for older workers established by the Department of Labor.

Example. You received benefits under an alternative trade adjustment assistance program for older workers for October 2006. The program was established by the Department of Labor. You were an eligible alternative TAA recipient on the first day of October and November.

PBGC Pension Recipient

You were an eligible PBGC pension recipient on the first day of the month, if both of the following apply.

You were age 55 or older on the first day of the month.
You received a benefit for that month that was paid by the PBGC under title IV of the Employee Retirement Income Security Act of 1974 (ERISA).

If you received a lump-sum payment from the PBGC after August 5, 2002, you meet item (2) above for any month that you would have received a PBGC benefit if you had not received the lump-sum payment.

How To Take the Credit

To take the credit, complete Form 8885 and attach it to your Form 1040. Include your credit in the total for Form 1040, line 70, and check box c.

You must attach invoices and proof of payment for any amounts you include on Form 8885, line 2, for which you did not receive an advance payment. For details, see Publication 502 or Form 8885.

Credit for Federal Telephone Excise Tax Paid

If you were billed after February 28, 2003, and before August 1, 2006, for the federal telephone excise tax on long distance or bundled service, you may be able to request a credit for the tax paid. You had bundled service if your local and long distance service was provided under a plan that does not separately state the charge for local service.

You cannot request the credit if you have already received a credit or refund from your service provider. If you request the credit, you cannot ask your service provider for a credit or refund and must withdraw any request previously submitted to your provider.

You can request a credit for either the actual amount of tax paid or a standard amount.

It usually will be to your benefit to request the actual amount if it is larger than the standard amount.

Actual amount. If you request the actual amount paid, you must attach Form 8913 showing the amount paid and keep records to substantiate the amount. See the Form 8913 instructions for details.

Standard amount. The standard amount depends on the number of exemptions claimed on your return. If you are not required to file a tax return, the standard amount depends on the number of exemptions you would be allowed to claim if you were required to file. See chapter 3 for information on exemptions. The standard amounts, which include both the tax paid and interest owed on that tax, are shown in the following table.

IF the number of exemptions claimed is ...	THEN the standard amount is ...
0	$ 0*
1	30
2	40
3	50
4 or more	60
* Even though your standard amount is zero, you can request the actual amount paid on Form 8913.

If you request the standard amount and you later want to change it to the actual amount, file an amended return. See Amended Returns and Claims for Refund in chapter 1 for information on amended returns.

If you request the standard amount, you do not have to include the credit in income for any tax year.

How to request the credit. To request this credit, enter the amount on Form 1040, line 71; Form 1040A, line 42; or Form 1040-EZ, line 9. Attach Form 8913 if requesting the actual amount. If you are not otherwise required to file a federal income tax return, you must nevertheless file Form 1040EZ-T, Request for Refund of Federal Telephone Excise Tax, to request the credit.

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