1) American Opportunity Tax Credit
§25A
Form 8863
2009 and 2010
The maximum credit has been increased to $2,500 (100% of first $2,000 expenses, 25% of next $2,000 expenses). This applies to the first four years of post-secondary education and is 40% refundable unless claimed by a child subject to kiddie tax. Your phase outs are as follows: Phases out at $80,000-$90,000 MAGI ($160,000-$180,000 MFJ). Other particulars are that students in Midwest Disaster Area may instead claim an enhanced Hope credit of up to $3,600 for 2009. For this and all the other specific changes check out the irs website.
2) AMT patch
§§ 55 and 26
Form 6251
For 2009 only, the AMT exemption increased to $46,700 ($70,950 MFJ). Also you will see that Nonrefundable personal credits allowed for AMT. Thank heaven for small favors, huh?
3) Bicycle commuting fringe benefit
For those of you fortunate enough to be able to bike ride to work and for their employers.
2009 and later years
Qualified tax-exempt transportation fringe benefit; NOT a tax credit-This means that it will help employers specifically.
The allowance is up to $20/month (maximum $240/year) to reimburse employees who regularly commute to work via bicycle. Keep on pedal pushing, people!
§165
Form 4684
Change for 2009 only
The $100 per casualty floor for individual casualty losses is temporarily raised to $500 per casualty. I think that is because there has been too darn many floods, hurricaines, tornadoes, etc.
Forms or Tax Laws Affected:
Form 8812
2009 and 2010
The Additional Child Tax Credit (ACTC) earned income threshold decreased to $3,000 (was $8,500 in 2008). That means you have a better shot for qualifying for it if you hit all the other marks for getting ACTC.
§24
6) COBRA subsidy
§§ 139C and 6432
Beginning with COBRA premiums paid after 2/16/09
COBRA premiums are 65% subsidized for up to 15 months
Jobless taxpayers who were involuntarily terminated 9/1/08 through 2/28/10
Recaptured dollar-for-dollar for taxpayers with MAGI over $125,000 ($250,000 MFJ)
2/18/09-12/31/11
Nonrefundable credit equal to 10% of the cost of converting to a plug-in electric drive motor vehicle. Make sure that the juice is flowing, party people.
Maximum credit is $4,000 and it may be claimed for a vehicle that also qualifies for the hybrid vehicle credit.
Depreciation
179
Form 4562
For property placed in service in 2009, there is a
Generally, any original use machinery used in farming business other than grain bin, cotton ginning asset, or other land improvements qualifies.
§§168(k), 168(e)(3)(b)(vii),50% bonus depreciation extended through 2009. Enhanced §179 deduction up to $250,000 extended through 2009. Qualified farm machinery eligible for 5-year MACRS depreciation – how many of you out there are farmers? Let me see by a show of hands, one, two, three..
One-time payment of $250 for recipients of SS, SSI, VA, or RRB benefits paid directly by the SSA, VA or RRB
Must have received a benefit 11/2008, 12/2008, or 1/2009
Reduces the Making Work Pay Credit
IRS will not provide verification regarding whether a taxpayer received the ERP but will reject return if ERP is missing. Basically a “bad news/good news” scenario for e-filing. The bad news is your return rejected, the good news is when we refile you will be getting back more money! Whoo hoo.
§32
2009 and 2010
Higher EITC for families with three or more children
Additional marriage penalty relief (phaseout threshold for MFJ increased an additional $5,000 over the range for unmarried filers)
§36
Form 5405 plus substantiation
Refundable credit equal to 10% of home purchase
$8,000 ($4,000 MFS) for taxpayers who did not own principal residence in previous 3 years
$6,500 ($3,250 MFS) for long-term homeowners who owned and lived in their principal residence 5 consecutive years out of 8 and who purchase a replacement home after 11/6/09
Maximum credit
No repayment unless the home is sold or not used as principal residence within 3 years of purchase
Must close on or before by 4/30/10 (or on or before 6/30/10 if there is a binding contract by 4/30/10)
Claim on current or prior year tax return
For purchases before 11/7/09—MAGI $75,000-$95,000
($150,000-$170,000 MFJ)
For purchases after 11/6/09—MAGI $125,000-$145,000
($225,000-$245,000 MFJ)
Purchase price capped at $800,000 for homes purchased after 11/6/09 only
Phaseout
Special provisions apply to military
12) Government Retiree Credit (GRC)
2009 only
One-time refundable credit of $250 ($500 if both spouses eligible)
For recipients of government pension based on employment that was not covered under Social Security
May not claim if taxpayer received Economic Recovery Payment Reduces the Making Work Pay Credit
13) Home sales
§121
Schedule D
2009 and later years
Gain on sale of principal residence may not be excluded for a period of
Does not apply to any period before 2009
Does not apply (up to 5 years) to periods after taxpayer moves out of the home
Non-excludable gain equals the ratio of nonqualified use over total use multiplied by gain on the sale
A period in which taxpayer owns home but does not use it as principal residence (e.g. uses it as a rental or vacation home)
14) Making Work Pay Credit (MWPC)
Schedule M (new)
2009 and 2010
Refundable credit equal to 6.2% of earned income
Maximum credit $400 ($800 MFJ)
Advanced to most taxpayers through reduced payroll withholding
Phases out at $75,000-$95,000 MAGI ($150,000-$190,000 MFJ)
taxpayers who both work) may be underwithheld for the year
Some taxpayers (those with more than one job, and married
Credit (GRC) reduce the MWPC – the IRS will reject returns if the taxpayer received an ERP and does not report it on Schedule M
Economic Recovery Payment (ERP) and the Government Retiree
Form 1045 or 1040-X
New for 2008; rules
modified for 2009
provision)
NOL for year beginning or ending in 2009 may be carried back 3, 4, or 5 years instead of the default 2 years (extension of 2008
2009 election is not limited to small business
Extended carryback election is limited to one tax year
Certain NOL elections (such as waiving carryback period) may be amended
2009 NOL carried back to 5th preceding year is limited to 50% of taxable income for that year
16) Nonbusiness Energy Property Credit
§25C
Form 5695
2009 and 2010
principal residence is reinstated for 2009 and 2010 (no credit for
2008)
The nonrefundable credit for energy efficient improvements to a
Credit equal to 30% of cost of improvements
No dollar cap for any type of improvement
Maximum credit is $1,500 for 2009 and 2010 combined
See www.energystar.gov for all specifications
17) Plug-in Electric Drive Motor Vehicle Credit
Form 8936
New for 2009, modified
for 2010
2009 rules
from a battery with at least 4 kW hours of capacity and is
rechargeable from an external source
Newly purchased vehicle with which draws propulsion
For use on public streets or highways
on the gross vehicle weight rating (GVWR)
Credit maximum ranges from $7,500-$15,000 depending
Phaseout triggered at sale of 250,000th vehicle
Low speed vehicles (LSVs) qualify for credit in 2009, but not 2010
18) Plug-in Electric Vehicle Credit
Form 8834
2/18/09-12/31/11
Nonrefundable credit equal to 10% of cost of a “neighborhood” vehicle manufactured for use on public streets
Maximum credit is $2,500
Low-speed 4-wheeled vehicles with maximum speed 25 mph
For 2009, LSVs may qualify for §30D credit plug-in electric drive motor vehicle credit
2- and 3-wheeled vehicles
Must be powered by electric motor that draws electricity from battery that is rechargeable from an external source
§25D
Form 5695
Available through 2016
Nonrefundable credit for residential energy and hot water generated via alternative sources
Includes certain solar, small wind, fuel cell, and geothermal energy property
Credit equal to 30% of the cost of the equipment
$500 per 0.5/kW of capacity for fuel cells
No credit caps and no credit maximum
See www.energystar.gov for all specifications
Forms or Tax Laws Affected:
2009 only
§401(a)
2009 at taxpayer’s option
Required minimum distributions from IRAs, 401(k)s, etc. waived for
4/1/10 (but a taxpayer turning 70½ in 2008 must take the 2008
RMD by 4/1/09)
Taxpayer turning 70½ in 2009 need not take the 2009 RMD by
21) Section 529 plans
§529(e)(3)(A)(iii)
2009 and 2010
Computer technology and equipment allowed as qualifying expense
§§ 152 and 24
First effective in 2009
Also see “EITC” and
“Child Tax Credit”
Age requirement modification: Qualifying child (QC) must be younger than taxpayer (exception if QC is totally and permanently disabled)
Child tax credit modification: QC must be taxpayer’s dependent (Form 8901 now obsolete) in order to claim the CTC
Tie-breaker modification: If parent is eligible to claim QC, but does not do so, another taxpayer may claim the child only if the other taxpayer’s AGI is higher than that of any parent eligible to claim QC
23) Unemployment benefits
First $2,400 of unemployment benefits paid in 2009 are tax-exempt
Form 1099-G will show gross unemployment benefits paid
24) Vehicle sales tax deduction
Schedule L (new)
2/17/09-12/31/09
Deduction for state and local sales and excise tax for new vehicles purchased 2/17/09 through 12/31/09
May be claimed as an itemized deduction or added to standard deduction
Maximum per vehicle deduction is the tax on a vehicle costing $49,500
1) Estate tax repeal
Estate tax and generation skipping tax (GST) are scheduled to be repealed for 2010
Gift tax exemption is $1 million
Limited step-up basis (to $1.3 million)
After 2010, gift, estate, and GST rules schedule to return to pre-2001 law
a) AMT patch §55
b) Casualty losses in federal disaster area not subject to 10% of AGI
limitation §165
c) Educator’s expense deduction §62(a)(2)(D)
d) Qualified charitable distributions from IRAs §408(d)(8)
e) Standard deduction for federal disaster losses §63(c)
f) Standard deduction for real property taxes §63(c)
g) State and local sales tax deduction in lieu of income tax
deduction §164
h) Tuition and fees deduction §222
i) COBRA subsidy (must be involuntarily terminated by 2/28/10)
j) Depreciation incentives (bonus depreciation and enhanced §179)
k) RMD waiver
l) Tax-free unemployment up to $2,400
m) Economic recovery payment
n) Government retirees credit
o) First-time homebuyer credit §36 (generally, expires after 4/30/10)
p) New vehicle sales tax deduction §164(a)(6)
§408A(c)(3)(B)
First effective in 2010
IRA no longer applies
$100,000 MAGI limitation on converting traditional IRA to Roth
Tax on 2010 conversion is spread over a two-year period (2011-2012)
Taxpayer may elect to tax all in 2010
No other elections available
Drop me a line if you have more questions and as I get California changes I will try to get them up.
Thanks!
Kim Isaac Greenblatt
Tax Changes You Need To Know for 2009, 2010 and Beyond