|
In 2009, numerous
new and expanded deductions and credits came into being for a broad
cross-section of taxpayers, including: college tax benefits for
parents and students; energy credits for homeowners who are going
green; and even tax breaks for home buyers and car buyers.
American
Opportunity Credit Helps Pay for First Four Years of College:
More parents and
students can use a federal education credit to offset part of the
cost of college under the new American Opportunity Credit. 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.
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.
Many Energy
Improvements Qualify for Expanded Tax Credits People who weatherize
their homes or purchase alternative energy equipment may qualify for
either of two expanded home energy tax credits: the non-business
energy property credit and the residential energy efficient property
credit.
Non-business 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. This
means that a homeowner can get the maximum credit by spending at
least $5,000 on qualifying improvements. Homeowners must make the
improvements to an existing principal residence; this tax credit is
not available for new construction. Due to limits based on tax
liability, other credits claimed by a particular taxpayer and other
factors, actual tax savings will vary. 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 are also eligible for the credit, though the cost
of installing these items does not count.
Residential Energy
Efficient Property Credit: Homeowners going green should also check
out a second tax credit designed to spur investment in alternative
energy equipment. 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. Qualifying
property purchased for new construction or an existing home is
eligible for the credit. 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 Web site or 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. Use Form 5695, Residential Energy
Credits, to figure and claim these credits.
New Vehicle
Purchase Incentive: New car buyers can deduct the state or local
sales or excise taxes paid on the purchase of new cars, light
trucks, motor homes, and motorcycles. There is no limit on the
number of vehicles that may be purchased, and eligible taxpayers may
claim the deduction for taxes paid on multiple purchases. However,
the deduction is limited to the tax on up to $49,500 of the purchase
price of each qualifying new vehicle. Qualifying new vehicles must
be purchased, not leased, after Feb. 16, 2009, and before Jan. 1,
2010.
Taxpayers who buy a
new vehicle may deduct state or local fees or taxes that are similar
to a sales tax whether or not their state imposes a sales tax. To
qualify, the fees or taxes must be assessed on the purchase of the
vehicle and must be based on the vehicle's sales price or as a
per-unit fee.
The amount of the
deduction is reduced for taxpayers whose modified adjusted gross
income is between $125,000 and $135,000 for individual filers and
between $250,000 and $260,000 for joint filers. This deduction is
available regardless of whether a taxpayer itemizes deductions on
Schedule A. Itemizers claim the deduction on either Line 5 or Line 7
of Schedule A. See the Schedule A instructions for details.
Non-itemizers claim the deduction on new Schedule L, Standard
Deduction for Certain Filers.
Tax Credits
Increased for Low and Moderate Income Workers
More workers and
working families are eligible for the Earned Income Tax Credit. In
particular, expanded benefits are now available for those with three
or more qualifying children and married couples. The EITC helps
taxpayers whose incomes are below certain income thresholds, which
in 2009 rise to:
-
$48,279 for
families with three or more qualifying children
-
$45,295 for those
with two or more children
-
$40,463 for
people with one child
-
$18,440 for those
with no children
One in six
taxpayers can claim the EITC, which, unlike most tax breaks, is
refundable, meaning that individuals can get it even if they owe no
tax and even if no tax is withheld from their paychecks.
In addition, the
earned income formula for the additional child tax credit is revised
for tax years 2009 and 2010. As a result, more low and moderate
income families qualify for the full $1,000 child tax credit. See
Form 8812 for more information.
Standard Deduction
Increases for Most Taxpayers: Nearly two out of three taxpayers
choose to take the standard deduction rather than itemizing
deductions such as mortgage interest and charitable contributions.
The basic standard deduction is:
-
$11,400 for
married couples filing a joint return and qualifying widows and
widowers, a $500 increase compared with 2008
-
$5,700 for
singles and married individuals filing separate returns, up $250
-
$8,350 for heads
of household, up $350.
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.
AMT Exemption
Increased for One Year:
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.
Other Changes:
The standard
mileage rate for business use of a car, van, pick-up or panel truck
is 55 cents for each mile driven. The standard mileage rate for the
cost of operating a vehicle for medical reasons or as part of a
deductible move is 24 cents per mile. The rate for using a car to
provide services to charitable organizations is set by law and
remains at 14 cents a mile.
The value of each
personal and dependency exemption is $3,650, up $150 from 2008. Most
taxpayers can take personal exemptions for themselves and an
additional exemption for each eligible dependent. This is one of
more than three dozen individual and business tax provisions that
are adjusted each year to keep pace with inflation. A complete
rundown of these changes can be found in 2009 Inflation Adjustments
Widen Tax Brackets, Change Tax Benefits.
The amount of
taxable investment income a child can have without it being taxed at
the parent's rate is $1,900, up $100 from 2008. For details, see
Form 8615.
There are several
modifications to the definition of a qualifying child. For example,
the child must be younger than the taxpayer, unless the child is
totally and permanently disabled. These changes affect who can claim
various tax benefits including the dependency exemption, child tax
credit, credit for child and dependent care expenses, head of
household filing status and the EITC. See the instructions for Forms
1040 or 1040a for more information.
A new rule applies
to the non-custodial parent in situations where a couple is divorced
or legally separated after 2008. To claim a child as a dependent,
the non-custodial parent must attach Form 8332 or a similar
statement to his or her tax return. For pre-2009 divorces and
separations, the non-custodial spouse still has the option of
attaching certain pages from the divorce decree or separation
agreement, instead of Form 8332. See Form 8332 for further details.
A $3,500 or $4,500
voucher or payment made for such a voucher under the CARS "cash for
clunkers" program is not taxable to the consumer buying or leasing a
new car.
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.
|
