Tax Changes You Need To Know for 2009, 2010 and Beyond

admin — Thu, 07 Jan 2010 22:09:13 +0000

Hi Gang. It’s me, Kim Isaac Greenblatt, with the incredibly dry (but highly accurate and useful) tax law changes that affect doing your 2009 tax returns (being done in 2010) and some other tax changes that will affect you for the upcoming years.

2009 PROVISIONS (tax year 2009—tax season 2010)

1) American Opportunity Tax Credit

Forms or Tax Laws Affected:

§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

Forms or Tax Laws Affected:

§§ 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

Forms or Tax Laws Affected:

§132(f)(1)

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!

4) Casualty losses

Forms or Tax Laws Affected:

§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.

5) Child Tax Credit

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

Forms or Tax Laws Affected:

§§ 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)

7) Conversion kits

Forms or Tax Laws Affected:

§30B(a)(5)

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

Forms or Tax Laws Affected:

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..

9) Economic Recovery Payment (ERP)

Forms or Tax Laws Affected:

2009 only

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.

10) EITC modifications

Forms or Tax Laws Affected:

§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)

11) First-Time Homebuyer Credit (FTHC)

Forms or Tax Laws Affected:

§36

Form 5405 plus substantiation

—May not e-file 2009 return with FTHC, but may e-file without the credit and later amend!Changes effective 2009

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)

Forms or Tax Laws Affected:

§36A(c)

Schedule M (new)

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

Forms or Tax Laws Affected:

§121

Schedule D

2009 and later years

Gain on sale of principal residence may not be excluded for a period of

nonqualified use

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)

Forms or Tax Laws Affected:

§36A

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

15) Net operating loss (NOL)

Forms or Tax Laws Affected:

§172(b)(1)(H)

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

Forms or Tax Laws Affected:

§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

o

No dollar cap for any type of improvement

Maximum credit is $1,500 for 2009 and 2010 combined

Not reduced by any previous credit claimed in 2006-2007

See www.energystar.gov for all specifications

17) Plug-in Electric Drive Motor Vehicle Credit

Forms or Tax Laws Affected:

§30D

Form 8936

New for 2009, modified

for 2010

2009 rules

o

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

o

For use on public streets or highways

o

on the gross vehicle weight rating (GVWR)

Credit maximum ranges from $7,500-$15,000 depending

o

Phaseout triggered at sale of 250,000th vehicle

Low speed vehicles (LSVs) qualify for credit in 2009, but not 2010

LSVs qualifying for credit can be found at the IRS website.

18) Plug-in Electric Vehicle Credit

Forms or Tax Laws Affected:

§30(a)

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

19) Residential Energy Efficient Property Credit (REEP)

Forms or Tax Laws Affected:

§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

o

$500 per 0.5/kW of capacity for fuel cells

o

No credit caps and no credit maximum

See www.energystar.gov for all specifications

20) RMD waiver

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

Forms or Tax Laws Affected:

§529(e)(3)(A)(iii)

2009 and 2010

Computer technology and equipment allowed as qualifying expense

22) UDC modifications

Forms or Tax Laws Affected:

§§ 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

Forms or Tax Laws Affected:

2009 only

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

Forms or Tax Laws Affected:

§164(a)(6)

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

2010 Provisions (tax year 2010—tax season 2011)

1) Estate tax repeal

Note: It is very likely that these statutes will be modified some time this year

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

2) Expiring provisions

Unless otherwise noted, all provisions expire after 12/31/09; may be extended by new legislation later this year

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)

3) Roth IRA conversions

Forms or Tax Laws Affected:

§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

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Tax Changes You Need To Know for 2009, 2010 and Beyond