Tax Deduction vs. Tax Credit

A tax credit tax is much more advantageous for you than a tax deduction.  

• Tax deduction: subtracted from income before total tax liability is computed.
• Tax credit: subtracted directly from the total tax liability.

This means a tax credit can be three or more times more valuable than a tax deduction. For example, a tax credit of $500 for someone in the 28 percent tax bracket is equivalent to a tax deduction of $1,700. These energy tax credits are non-refundable: The credits may only be used to reduce your 2006 or 2007 tax liability. If you have no tax liability in either year, you will receive no benefit from the credits.

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Tax Advice Disclaimer: To ensure compliance with requirements imposed by the IRS under Circular 230, we inform you that if there was any tax advice contained on this Web site, it was not intended or written to be used, and cannot be used, for the purpose of avoiding penalties under the Internal Revenue Code or promoting, marketing or recommending to another party any transactions or matters addressed herein.