Home Heating Fuel Deduction for

Home Heating Fuel Deduction for Certain Taxpayers

Certain owners and renters of residential property located in Massachusetts may claim a home heating fuel deduction up to a maximum of $800 for the cost of home heating oil, natural gas, and propane purchased between November 1, 2005 and March 31, 2006. A taxpayer who qualifies for the deduction may apply the deduction in taxable year 2005 for purchases made between November 1, 2005 and December 31, 2005.

If the taxpayer does not take the full $800 deduction in taxable year 2005, the taxpayer may take the remainder in taxable year 2006 for purchases made in between January 1, 2006 and March 31, 2006.

The deduction is available to:

· single persons whose adjusted gross income is $50,000 or less; and

· joint filers and heads of household filers whose adjusted gross income is $75,000 or less.

Married filing separate taxpayers do not qualify for the home heating fuel deduction.

Qualifying Expenses:

· Monthly Budget Fuel Plan. A monthly budget fuel plan spreads the cost of fuel over 12 months; the monthly budget payment is calculated based on estimated usage and expected average fuel price for the upcoming heating season. Only the payments made during the period November 1, 2005 through December 31, 2005 qualify for the deduction in 2005, and payments made during the period January 1, 2006 through March 31, 2006 qualify for the deduction in 2006.

· Credit Card Payments. Where a taxpayer purchases fuel using a credit card to make payments, the transaction dates relating to fuel purchases must fall during the period November 1, 2005 through December 31, 2005, for the 2005 deduction, and during the period January 1, 2006 through March 31, 2006 for the 2006 deduction. The dates on which the taxpayer pays the credit card bills for fuel do not control.

Qualifying taxpayers are those who:

· own a single-family home may claim the amount of qualified expenses for home heating fuel;

· own a multiple-unit dwelling (multifamily residence that includes taxpayer's residence) may only claim his or her proportional share of qualified expenses for home heating fuel;

· own a condominium or cooperative dwelling and for whom heat purchases are accounted for in a common area fee or special assessment for such costs may claim the amount of qualified expenses for home heating fuel as may be reasonably attributed to the percentage ownership share of the condominium or cooperative dwelling (e.g., the condominium owner's percentage interest in the undivided interest of common areas and facilities); and

· dwell in a multi-purpose building, e.g., a storefront with an apartment above, may only claim the proportional share of the qualified expenses for home heating fuel that corresponds to the portion of the building used and occupied as a residence.

Qualifying Taxpayers Who Rent:

A qualifying taxpayer who rents a residential dwelling and who pays his or her own separate heating bill may claim the amount of qualified expenses for home heating fuel.

If, however, a qualifying taxpayer who rents a residential dwelling that is not individually metered, and where heating expenses are included in the rent, 20% of rent actually paid is considered attributable to heat. Computation of the amount of the deduction is a two-step process:

1. for tax year 2005, the taxpayer must determine the amount of rent actually paid by the taxpayer for rent for November 1, 2005 through December 31, 2005. (In the case of multiple renters in a residential dwelling, the taxpayer uses only the amount of rent paid by him or her, not the total rent for the unit.) ;

2. the amount of actual rent paid (for November and December) is multiplied by 20% to determine the amount of the deduction. However, the deduction as calculated is subject to a maximum of $800.

Example. Mary, a single taxpayer with $45,000 in adjusted gross income, pays rent of $600 per month for November and December 2005, or $1,200 for the two-month period. Mary has a lease where heating expenses are included in rent. For purposes of the deduction, the amount of rent considered attributable to heat is $1,200 multiplied by 20% (.20), or $240. Mary’s deduction for home heating fuel is $240 for 2005.

Also, since Mary’s allowable deduction was less than $800, Mary will be able to deduct an additional amount for the rent paid for the period from January 1 through March 31, 2006. In 2006, Mary has $47,000 in adjusted gross income and pays monthly rent of $610 per month for January 1 through March 31, 2006, or $1,830 for the three-month period. Mary’s deduction for home heating fuel is $366 for 2006.

Qualification for Home Heating Fuel Deduction is determined by completing the following worksheet:

· for residents, the Schedule Y, Line 14 Worksheet;

· for part-year residents, the Schedule Y, Line 14 Worksheet. The amount of the home heating fuel deduction allowable is based on the actual amounts that were paid during the period while a Massachusetts resident, i.e., amounts purchased while a resident between November 1, 2005 and December 31, 2005;

· for nonresidents, the Schedule Y, Line 14 Worksheet. To determine the amount allowable, they must multiply the amount heating payments by Form 1-NR/PY, Line 14g, Nonresident Deduction and Exemption Ratio, since this deduction must be prorated based upon the amount of taxpayer's Massachusetts source income to his/her total income.

Home Heating Fuel Deduction Worksheet Example

Excess Qualified Expenses for Home Heating Fuel Incurred from November 1, 2005 and December 31, 2005:

A qualifying taxpayer may deduct the amount of qualified expenses for home heating fuel against Form 1, Line 10 or Form 1-NR/PY, Line 12 income. Any excess of the allowable deduction over Form 1, Line 10 or Form 1-NR/PY, Line 12 income may be deducted against Schedule B and D income.

The order in which the exemptions may be claimed is as follows:

1. against Schedule B income after deductions for allowable excess trade or business deductions, short-term capital losses, unused long-term capital losses and 50% long-term capital gains deduction (for collectibles and pre-1996 installment sales);

2. against Schedule D income after netting long-term gains and losses, applying any excess Schedule D losses against Schedule B income, deducting excess Schedule B losses and deducting allowable excess trade or business deductions.

Any remaining excess exemptions may not to be carried forward to subsequent tax year.

Excess Home Heating Fuel Deduction Worksheet Example

Prior Law:

The deduction was not allowed.

Where to Report on Original Tax Return; What to Enclose:

· Residents must complete the Schedule Y, Line 14 - Home Heating Fuel Deduction Worksheet, page 21 in the Massachusetts Resident Income Tax Form 1 instruction booklet (PDF) and enter the amount from Line 8 of the Home Heating Fuel Deduction Worksheet on Form 1, Schedule Y, Line 14.

· Part-year residents and nonresidents must complete the Schedule Y, Line 14 - Home Heating Fuel Deduction Worksheet, page 26 in the Massachusetts Nonresident or Part-Year Resident Income Tax Form 1-NR/PY instruction booklet (PDF).

· Part-year residents. The amount of the home heating fuel deduction allowable is based on the actual amounts that were paid during the period while a Massachusetts resident. If qualified, they enter the lesser of the amount paid for home heating oil, natural gas or propane purchased while a resident between November 1, 2005 and December 31, 2005 or $800 on Schedule Y, line 14.

· Nonresidents, to determine the amount allowable, multiply the lesser of the amount paid for home heating oil, natural gas or propane purchases between November 1, 2005 and December 31, 2005 or $800 by Form 1-NR/PY, line 14g and if qualified, enter the result in Schedule Y, line 14.

· If excess home heating fuel deductions apply: complete the Schedule B, Line 36 and Schedule D, Line 19 Worksheet, page 14 in the Massachusetts Resident Income Tax Form 1 instruction booklet (PDF); or page 17 in the Massachusetts Nonresident or Part-Year Resident Income Tax Form 1-NR/PY instruction booklet (PDF)

Documentation to Submit with Abatement/Amended Tax Return:

· Documentation for home heating fuel purchases.

Massachusetts References:

· M.G.L. Chapter 62, Sections

· TIR 05-18: Tax Changes Contained in "An Act Relative to Heating Energy Assistance and Tax Relief"