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10 smart year-end tax moves

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If you had a profitable investment year, you can reduce the associated tax cost by unloading any assets that have lost value and using that loss amount to offset capital gains. If you have more losers than gainers, you can use up to $3,000 of your capital losses to reduce your taxable ordinary income.

And if you have even larger losses, you can carry over the amount in excess of $3000 to future tax years. You also might consider hiring a new investment manager.

3. Let your home help you out
Homeownership offers many tax breaks, but you can boost them a bit in December.

Start with your next mortgage payment, due Jan. 1. This actually represents interest for the month of December, so if you accelerate a bit you'll get an additional deduction this tax year for the interest paid.

Some tax professionals say you can simply mail this extra mortgage payment by Dec. 31 and have it count. However, if you actually get your payment to the bank by the last business day of the year (or a day or two early), the extra interest will show up on the lender's official paperwork. That will eliminate any possible IRS questions about different amounts on your Schedule A and the Form 1098 that your lender will send you (and the IRS) early next year.

The same early payment approach also applies to deductible property taxes. If your county or municipal tax collector will take your payment (or part of it) in December, pay it now to accelerate the tax benefits.

4. Eliminate energy excesses
There's still time, but very little, to make some energy-efficient improvements to your house and get a tax gift from Uncle Sam for the effort.

For the last two years, homeowners have been able to claim tax credits under the Energy Tax Incentives Act of 2005. Credits, which reduce your tax bill dollar for dollar, range from $50 for the installation of a whole-house circulating fan to $2,000 for conversion to a solar water-heating system.

Many of the easiest improvements, such as adding insulation, applying window film or replacing drafty doors and windows, are capped; no more than $500 in credits can be claimed for 2006 and 2007 combined. Plus, this is the last year this credit is available.

If you haven't made any residential improvements yet this year or still have some room within the combined credit limit, check into what you can do by Dec. 31 to help improve your residential energy efficiency now and cut your tax bill in April.

5. Focus on fuel efficiency
Tax credits also are available for purchases of hybrid cars, ranging from $250 to $3,000, depending on the make and model. However, the credit phases out for the fuel-efficient vehicles once a carmaker sells 60,000 hybrids.

Honda hit that sales mark this fall, meaning that credits for all its hybrids will be cut in half on Jan. 1, 2008. So if you want one of these vehicles and the best tax benefit, act fast.

Next: "There's an added bonus for all car buyers ..."
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