Here are the proposed tax changes for 2009. Some may not be finalized yet and more to come as Congress completes things.
- 1 UDC changes §§152, 24
(1/1/09 and ongoing)
- • Age requirement modification: QC must be
younger than taxpayer (exception if QC is
totally and permanently disabled)
- • CTC modification: QC must be taxpayer’s
dependent
- • Tie-breaker modification: If parent is in
home, other taxpayer for whom child is QC
may claim exemption only if other taxpayer’s
AGI is higher than parent’s AGI
- • Form 8901 now obsolete
- • Parent may no longer
choose to let household
member with lower AGI
claim exemption
2 EITC §32
(2009 and 2010)
- • Higher EITC for families with three or more
children
- • Additional marriage penalty relief (phaseout
threshold for MFJ increased to $5,000 over
unmarried filers)
families
- • More families qualify for
EITC
3 ACTC §24
(2009 and 2010)
Additional child tax credit threshold lowered to
$3,000
More families will be eligible
for the ACTC
4 MWPC §36A
(2009 and 2010)
- • 6.2% of earned income
- • Maximum $400 ($800 MFJ)
- • Advanced to most taxpayers via reduced
payroll withholding
- • Phaseout $75,000-$95,000 MAGI ($150,000
-$190,000 MFJ)
- • New Schedule M
- • Taxpayers with more than
one job, married taxpayers
with two working
spouses, taxpayers who
receive ERP or GRC, and
dependents may be underwithheld
5 Unemployment benefits
(2009 only)
First $2,400 of unemployment benefits per taxpayer
are not taxed
6 COBRA subsidy
(beginning with COBRA premiums
paid after 2/16/09)
- • COBRA premiums 65% subsidized for nine
months
- • Applies to involuntary terminations 9/1/08-
12/31/09
- • Subsidy is taxable dollar-for-dollar for MAGI
over $125,000 ($250,000 MFJ)
Any tax due (for higher income
taxpayers) will be added
to and paid with the taxpayer’s
tax return
The chart below and on the following pages shows the changes that will go into effect for 2009. With all of the changes
made by the American Recovery and Reinvestment Act of 2009, the Emergency Economic Stabilization Act of 2008, and
other changes that are first effective with this tax year, it’s likely that you’ll get questions well before the season starts.
Provision Description Notes
B. Homeowners
1 Nonbusiness energy property
credit §25C
(2009 and 2010)
- • Maximum for 2009 and 2010 is $1,500
- • Percentage increased to 30% of costs
- • No caps on individual property or improvements
- • Includes bio-fuel heat stoves
- • No reduction for previous
2006-2007 $500 maximum
the REEP because both
are now a 30% credit
2 Residential energy efficient
property credit “REEP” §25D
(2009-2016)
Caps on wind, solar, and geothermal heat pump
property are removed
3 First-time homebuyer credit
§36
(effective 1/1/09)
- • Maximum increased to $8,000
- • No repayment unless taxpayer moves out of
home within 3 years
- • For homes purchased 1/1/09-11/30/09
- • Can be used by IRS to
offset federal debts
- • Accelerated 2008 payment
and 2009 payment
will not be obvious
4 Principal residence sale
changes §121
- • Gain on sale of principal residence may not
be excluded for a period of nonqualified use
(even if the 2 out of 5 year ownership/use
requirement met).
- • Nonqualified use is a period starting 1/1/09
or later in which the taxpayer owns the home
but has not yet occupied it as principal residence.
- • Excludable gain is ratio of qualified use over
total ownership period.
- • Exceptions for military, unforeseen circumstances,
etc.
- • Once home occupied as principal residence,
qualified use continues up to 5 years after
taxpayer moves out.
- • Determining “nonqualified
use,” especially if there
are intermittent periods of
qualified and nonqualified
use (i.e. taxpayer moves
in, moves out, moves in
again, etc.) could be
problematic
- • Effect of law change will
be minimal for the first
year but will increase
each year
5 Casualty losses §165
(2009 only)
The $100 per casualty floor is temporarily raised
to $500
Applies to personal casualty
losses
C. Education
1 Hope credit §25A
(2009 and 2010)
- • Maximum increased to $2,500
- • 40% refundable (up to $1,000) unless
claimed by a child subject to kiddie tax
- • First four years of college
- • Phaseout increased to $80,000-$90,000
($160,000-180,000 MFJ)
- • Allows textbooks and other course materials
as qualifying expenses
For 2009, students in Midwestern
Disaster Area may
opt for enhanced credit of
$3,600 instead
2 Section 529 plans
(2009 and 2010)
Computer technology and equipment allowed as
qualifying expense
D. Vehicles
1 Vehicle sales tax deduction
§164(a)(6)
- • Deduction for state and local sales and excise
tax for vehicles purchased after 2/16/09
through 12/31/09
- • May be claimed as an itemized deduction or
as an additional standard deduction
- • Maximum deduction is the tax on a vehicle
costing $49,500
additional standard deduction
around “original use” requirement
2 Bicycle commuting §132(f)(1)
(D)
(effective 1/1/09 and ongoing)
Qualified transportation fringe benefit up to $20/
month (maximum $240/year) to reimburse employees
who regularly commute via bicycle
Often mistakenly described as
a credit; Clients may be confused
3 Conversion kits §30B(a)(5)
(2/18/09-12/31/11)
- • Credit is 10% of cost of converting to plug-in
electric drive vehicle (see #5)
- • Maximum $4,000
- • May be claimed for vehicle that also qualifies
for hybrid vehicle credit
Expect confusion regarding
what qualifies as a conversion
kit
4 Plug-in electric vehicle credit
§30(a)
(2/18/09-12/31/11)
- • Low speed 4-wheel electric vehicles with
maximum speed 25 mph
- • 2- and 3-wheeled electric vehicles
- • 10% of cost to maximum of $2,500
- • Must be powered by electric motor that
draws electricity from a battery
- • For use on street or highway
Expect confusion between this
credit and the §30D credit
(see below); many questions
about whether various types
of vehicles qualify
5 Plug-in electric drive motor vehicle
credit modifications §30D
(after 2009)
- • Newly purchased vehicle with GVWR of less
than 14,000 lbs which draw propulsion from
a battery with at least 4 KW hours of capacity
and that can be recharged from external
source or electricity
- • For use on street or highway
- • Credit ranges from $2,500-$7,500
- • Phaseout triggered at 200,000th vehicle
- • Credit was introduced in
2009 by EESA and expanded
for 2010 by ARRA
- • To date, no qualifying vehicles
produced
E. Retirement
1 RMD waiver §401(a)
(2009 only)
- • RMDs not required for 2009
- • Taxpayer turning 70½ in 2009 need not take
RMD by 4/1/10
Taxpayer turning 70½ in 2008
must take RMD by 4/1/09
2 Economic Recovery Payment
(ERP)
(2009 only)
- • One-time payment of $250 for recipients of
SS, SSI, VA, and RRB
- • Must have received SS, SSI, VA or RRB
benefit 11/08, 12/08, or 1/09
No action required but reduces
MWPC (see above)
3 Government Retirees Credit
(GRC)
(2009 only)
- • $250 ($500 MFJ if both spouses eligible)
- • For taxpayers who receive government pension
in 2009
- • Credit claimed on 2009 tax return
- • May not claim if ERP received
- • Reduces MWPC (see
above)
F. AMT
1 AMT patch §55
(2009 only)
- • AMT exemption increased to $46,700
($70,950 MFJ)
- • Nonrefundable personal credits allowed for
AMT
Patch was put in place early in
the year, which removes the
usual uncertainty about forms,
credits, etc.
G. Business
1 Depreciation
(2009 only)
50% bonus depreciation and enhanced §179
deduction of $250,000 extended through 2009
Some states do not allow bonus
depreciation or the enhanced
§179 deduction
2 Farms §168(e)(3)(b)(vii)
(property placed in service in
2009)
- • Qualified farm machinery eligible for 5-year
MACRS depreciation
- • Generally, any original use machinery used
in farming business other than grain bin,
cotton ginning asset, land, or other land improvements
H. Expiring provisions
In addition to the provisions cited above that do not apply after 2009, the following provisions are slated to expire after
12/31/09. However, it is certainly possible that many of them will be extended by legislation enacted later in the year and,
as always, we will keep you posted:
1. Casualty losses in federal disaster area not subject to 10% of AGI limitation §165
2. Educator’s expense deduction §62(a)(2)(D)
3. Qualified charitable distributions from IRAs §408(d)(8)
4. Standard deduction for federal disaster losses §63(c)
5. Standard deduction for real property taxes §63(c)
6. State and local sales deduction in lieu of income tax deduction §164
7. Tuition and fees deduction §222
More as it develops. In the meantime, go to my home page and order some books. My library of non-fiction books help you deal with daily life!
Thanks for being there and be well.
October 04 2009
Kim Isaac Greenblatt
Proposed New Tax Law Changes for 2009 Taxes