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Wildly
popular 2008 first-time homebuyer tax credit has been extended and expanded to
existing homebuyers who are eligible to receive a tax credit of up to $6,500 if
they buy a replacement home by June 30, 2010. In addition, the income limits
have been increased, making even more people eligible for these credits.
The Worker, Homeownership,
and Business Assistance Act of 2009 extended the deadline for qualifying home
purchases from Nov. 30, 2009, to April 30, 2010. Additionally, if a buyer
enters into a binding contract by April 30, 2010, the buyer has until June 30,
2010, to settle on the purchase. The maximum credit amount remains at $8,000
for a first-time homebuyer –– that is, a buyer who has not owned a primary
residence during the three years up to the date of purchase.
The new law also provides a 'long-time resident' credit of up to $6,500 to others who do not qualify as 'first-time homebuyers.' To qualify this way, a buyer must have owned and used
the same home as a principal or primary residence for at least five consecutive
years of the eight-year period ending on the date of purchase of a new home as
a primary residence.
The new law raises the income limits
for people who purchase homes after Nov. 6. The full credit will be available
to taxpayers with modified adjusted gross incomes (MAGI) up to $125,000, or
$225,000 for joint filers. Those with MAGI between $125,000 and $145,000, or
$225,000 and $245,000 for joint filers, are eligible for a reduced credit.
Those with higher incomes do not qualify.
For homes purchased prior
to Nov. 7, 2009, existing MAGI limits remain in place. The full credit is
available to taxpayers with MAGI up to $75,000, or $150,000 for joint filers.
Those with MAGI between $75,000 and $95,000, or $150,000 and $170,000 for joint
filers, are eligible for a reduced credit. Those with higher incomes do not
qualify.
Several new restrictions on
purchases that occur after Nov. 6 go into effect with the new law:
· Dependents
are not eligible to claim the credit.
· No
credit is available if the purchase price of a home is more than $800,000.
· A
purchaser must be at least 18 years of age on the date of purchase.
For
more details on the credit, visit the First-Time Homebuyer
Credit page on IRS.gov.
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Making work pay credit.
You may be able to take this credit if you have earned income from work. Even
if your federal income tax withholding is reduced during 2009 because of the
credit, you must claim the credit on your return to benefit from it.
The credit is 6.2% of your
earned income but cannot be more than $400 ($800 if married filing jointly).
The credit will be reduced if:
- You receive a $250 economic
recovery payment (described below) during 2009,
- Your modified AGI is more than
$75,000 ($150,000 if married filing jointly), or
- You take the government retiree
credit .
You cannot take the credit if:
- Your modified AGI is $95,000
($190,000 if married filing jointly) or more,
- You are a nonresident alien, or
- You can be claimed as a dependent
on someone else's return.
Any Economic Recovery payment you may have received during 2009 is not
taxable. These $250 payments were made to most people who:
- Receive social security benefits,
supplemental security income (SSI), railroad retirement benefits, or
veterans disability compensation or pension benefits, and
- Live in a U.S. state, the District
of Columbia, Puerto Rico, Guam, the U.S. Virgin Islands, American Samoa,
or the Northern Mariana Islands.
Government retiree
credit. You can take this credit if you receive a pension or annuity
payment in 2009 for service performed for the U.S. Government or any U.S. state
or local government (or any instrumentality of one or more of these) and the
service was not covered by social security. The credit is $250 ($500 if married
filing jointly and both you and your spouse receive a qualifying pension or
annuity). However, you cannot take the credit if you receive a $250 economic
recovery payment during 2009. If you file a joint return, both you and your
spouse receive a qualifying pension or annuity, and both of you receive an
economic recovery payment, no government retiree credit is allowed; if only one
of you receives an economic recovery payment, the credit is $250.
Social security number. To take either credit,
you must include your social security number (if filing a joint return, the
number of either you or your spouse) on your return. A social security number
does not include an identification number issued by the IRS.
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Sales Tax Deduction for Vehicle Purchases
The American Recovery and
Reinvestment Act permits taxpayers to take a deduction for state and
local sales and excise taxes paid on the purchase of new cars, light trucks,
motor homes and motorcycles. The deduction is available on new
vehicles purchased from Feb. 17, 2009, through Dec. 31, 2009. In
states that don't have a sales tax, the law provides a
deduction for other taxes or fees paid. This deduction is available
whether or not a taxpayer itemizes deductions on Schedule A.
The deduction is limited to the
taxes and fees paid on up to $49,500 of the purchase price of an eligible
vehicle. The deduction is reduced for joint filers with modified adjusted
gross incomes (MAGI) between $250,000 and $260,000 and other taxpayers with MAGI
between $125,000 and $135,000. Taxpayers with higher incomes do not qualify.
Taxpayers
who make qualifying new vehicle purchases this year can estimate the deduction
with the help of IRS Publication 919, How Do I Adjust My Withholding? Lines 10a to
10k on Worksheet 10 take into account purchases above the $49,500 limit, as
well as the reduced deductions for taxpayers at higher income levels.
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Non-business
energy property credit and the residential energy efficient property credit.
Nonbusiness Energy Property
Credit
This credit equals 30 percent of
what a homeowner spends on eligible energy-saving improvements, up to a maximum
tax credit of $1,500 for the combined 2009 and 2010 tax years. The cost of certain
high-efficiency heating and air conditioning systems, water heaters and stoves
that burn biomass all qualify, along with labor costs for installing these
items. In addition, the cost of energy-efficient windows and skylights,
energy-efficient doors, qualifying insulation and certain roofs also qualify
for the credit, though the cost of installing these items does not count.
A homeowner can save as much as
$1,500 on his or her 2009 federal income tax return. Due to limits based on tax
liability, other credits claimed by a particular taxpayer and other factors,
actual tax savings will vary. These tax savings are on top of any energy
savings that may result.
Residential Energy
Efficient Property Credit
The residential energy efficient
property credit, equals 30 percent of what a homeowner spends on qualifying
property such as solar electric systems, solar hot water heaters, geothermal
heat pumps, wind turbines, and fuel cell property. Generally, labor costs are
included when calculating this credit. Also, no cap exists on the amount
of credit available except in the case of fuel cell property.
Not all energy-efficient
improvements qualify for these tax credits. For that reason, homeowners should
check the manufacturer’s tax credit certification statement before purchasing
or installing any of these improvements. The certification statement can
usually be found on the manufacturer’s website or with the product packaging.
Normally, a homeowner can rely on this certification. The IRS cautions
that the manufacturer’s certification is different from the Department of
Energy’s Energy Star label, and not all Energy Star labeled products qualify
for the tax credits.
Eligible homeowners can claim both
of these credits when they file their 2009 federal income tax return. Because
these are credits, not deductions, they increase a taxpayer’s refund or reduce
the tax he or she owes. An eligible taxpayer can claim these credits,
regardless of whether he or she itemizes deductions on Schedule A. Use Form
5695, Residential Energy Credits, to figure and claim these credits. The form
is expected to be available by Jan. 15, 2010. A draft version of this form is available now on
IRS.gov.
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The maximum employee
contribution rises to $16,500 in 2009 from $15,500 for 401(k) and similar
workplace retirement plans, including 403(b)s and the federal Thrift Savings
Plan. Workers age 50 and older in 2009 can put in an additional $5,500, making
their maximum $22,000. These limits remain the same in 2010.
If you are covered by a
retirement plan at work, you can take a full IRA deduction in 2009 if your
modified Adjusted Gross Income is less than $89,000 (married filing jointly) or
$55,000 (single or head of household). A
partial deduction is allowed until your Adjusted Gross Income reaches $109,000
if you are married filing jointly or $75,000 if you are single or a head of
household. Also, the opportunity to contribute to a Roth IRA is now phased out
as your modified Adjusted Gross Income rises between $166,000 and $176,000 if
you are married filing jointly or $105,000 to $120,000 if you are single or a
head of household.
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More parents and students can use a federal education credit
to offset part of the cost of college under the new American
Opportunity Credit. This
credit modifies the existing Hope credit for tax years 2009 and 2010, making it
available to a broader range of taxpayers. The credit is only allowed for the
first four years of a post-secondary education. Income guidelines are expanded
and required course materials are added to the list of qualified expenses. Many
of those eligible will qualify for the maximum annual credit of $2,500 per
student.
In many cases, the American Opportunity Credit offers
greater tax savings than existing education tax breaks. Here are some of its
key features:
- Tuition,
related fees and required course materials, such as books, generally
qualify. In the past, books usually were not eligible for education-related
credits and deductions.
- The
credit is equal to 100 percent of the first $2,000 spent and 25 percent of
the next $2,000. That means the full $2,500 credit may be available to a
taxpayer who pays $4,000 or more in qualified expenses for an eligible student.
- The
full credit is available for taxpayers whose modified adjusted gross
income (MAGI) is $80,000 or less ($160,000 or less for filers of a joint
return). The credit is reduced or eliminated for taxpayers with incomes
above these levels. These income limits are higher than under the existing
Hope and lifetime learning credits.
- Forty
percent of the American opportunity credit is refundable. This means that
even people who owe no tax can get an annual payment of the credit of up
to $1,000 for each eligible student. Existing education-related credits
and deductions do not provide a benefit to people who owe no tax. The
refundable portion of the credit is not available to any student whose
investment income is taxed, or may be taxed, at the parent’s rate,
commonly referred to as the kiddie tax. See Publication
929,
Tax Rules for Children and Dependents, for details.
Though most taxpayers who pay for post-secondary education
qualify for the American Opportunity Credit, some do not. The limitations
include a married person filing a separate return, regardless of income, joint
filers whose MAGI is $180,000 or more and, finally, single taxpayers, heads of
household and some widows and widowers whose MAGI is $90,000 or more.
There are some post-secondary education expenses that do not
qualify for the American Opportunity Credit. They include expenses paid for a
student who, as of the beginning of the tax year, has already completed the
first four years of college. That’s because the credit is only allowed for the
first four years of a post-secondary education.
Students with more than four years
of post-secondary education still qualify for the lifetime learning credit and
the tuition and fees deduction.
For details on these and other
education-related tax benefits, see Publication
970, Tax Benefits for Education.
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Standard Deduction rates that apply to 2009 have increased
from their 2008 levels. The standard deductions that apply in 2009
include:
- Single
- $5,700 è
a $250 increase compared to 2008
- Married
filing separately - $5,700 è
up $250
- Head
of household - $8,350 è
up $350
- Married
taxpayers filing jointly / qualifying widow(er)s - $11,400 è
up $500
Higher amounts apply to blind people and senior citizens.
The standard deduction is often reduced for a taxpayer who qualifies as someone
else’s dependent.
In addition, eligible taxpayers can further increase their
standard deduction by any of the following three deductions:
- State
or local real estate taxes paid in 2009
- A
net disaster loss reported on Form 4684 and
- State
or local sales or excise taxes on the purchase of a qualifying new motor
vehicle.
Use new Schedule L, Standard Deduction for Certain Filers,
to claim these additional deductions.
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For
tax-year 2009, Congress raised the alternative minimum tax exemption to the
following levels:
- $70,950 for a married couple
filing a joint return and qualifying widows and widowers, up from $69,950
in 2008
- $35,475 for a married person
filing separately, up from $34,975
- $46,700 for singles and heads
of household, up from $46,200
Under
current law, these exemption amounts will drop to $45,000, $22,500 and $33,750,
respectively, in 2010. Form 6251 and the AMT calculator provide more
information.
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The amount you can deduct for each exemption you can claim
on federal income taxes has increased again in 2009. The 2008 value of
$3,500 has increased to $3,650 in 2009
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Beginning
on Jan. 1, 2009, the standard mileage rates for the use of a car (also vans,
pickups or panel trucks) are as follows:
Mileage Deduction Rates 2009
|
Category
|
Rate
|
|
Business
miles
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55.0
cents per mile
|
|
Charitable
Services
|
14.0
cents per mile
|
|
Medical
Travel
|
24.0
cents per mile
|
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Unemployment
benefits up to $2,400 received in 2009 are tax free for unemployed workers.
Every person who receives unemployment benefits can exclude the first $2,400 of
these benefits on their return. Unemployment benefit amounts over $2,400 are
taxed.
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Earned income amount increased.
The maximum amount of income you can earn and still get the credit has
increased for 2009. You may be able to take the credit if:
- You
have three or more qualifying children and you earn less than $43,279
($48,279 if married filing jointly)
- You
have two qualifying children and you earn less than $40,295 ($45,295 if
married filing jointly),
- You
have one qualifying child and you earn less than $35,463 ($40,463 if
married filing jointly), or
- You
do not have a qualifying child and you earn less than $13,440 ($18,440 if
married filing jointly).
The maximum amount of adjusted gross income
(AGI) you can have and still get the credit also has increased. You may be able
to take the credit if your AGI is less than the amount in the above list that
applies to you.
The maximum amount of the credit has
increased:
- $3,043
if you have one qualifying child,
- $5,028
if you have two qualifying children,
- $5,657
if you have three or more qualifying children, or
- $457
if you do not have a qualifying child.
Investment income amount increased.The
maximum amount of investment income you can have and still get the credit has
increased to $3,100 for 2009.
Advance payment of the credit. If you get advance payments of the
credit from your employer with your pay, the total advance payments you get
during 2009 can be as much as $1,826.
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The tax rate on capital gains from
the sale of assets held longer than one year remains at 0% for people in the 10
percent or 15 percent tax brackets. The 15 percent maximum tax rate on
long-term capital gains for taxpayers in higher brackets also remains the same.
Similarly,
the special 5 percent maximum rate on dividends of taxpayers in the 10 percent
and 15 percent tax brackets remains at zero percent through 2010.
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If you do not file your return by the
due date (including extensions) you may have to pay a failure-to-file
penalty. For income tax returns required to be filed after 2008, the
failure-to-file penalty for returns filed more than 60 days after the due
date (including extensions) is increased. In this situation, the minimum
penalty is the smaller of $135 or 100% of the unpaid tax. |
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