Definition of "Tax credit"

Reduction in taxes payable to the IRS or local government. A tax credit is more beneficial to the taxpayer than an itemized deduction because it reduces taxes on a dollar-for-dollar basis. Assume a taxpayer's calculated tax is $25,000 before considering a tax creditor of $2,000. The tax due after the credit is $23,000. example of tax credits on real property are the low-income housing credit and the investment tax credit.

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