Some stimulating tax changes for 2009
- November 19, 2009
- 0 comments
- Posted in Latest Posts, Taxes
Don’t miss the tax cuts and credits offered under President Obama’s stimulus plan. Here’s a brief roundup:
Cars: If you bought a car under the Cash for Clunkers program, you received a voucher worth $3,500 or $4,500. That amount was deducted from the price. No federal income tax is due.
Deductions are also available for state and local sales and excise taxes on any cars, light trucks, motorcycles, and motor homes. It applies to the first $49,500 of the price you paid for each vehicle. Take this write-off, for sure, if you don’t otherwise itemize on your return (use Schedule L). If you do itemize, and live in a state where you can deduct either your state income taxes or your state sales taxes on your federal return, you have a choice. If you write off the sales taxes, you can’t deduct any excise taxes or fees that you paid when you bought the car. If you write off your state income taxes, however, you can take the full deduction for the car as well. You qualify for this tax break if you’re married with a joint income of $260,000 or less, or single on an income of $135,000 or less.
Unemployment compensation: Normally, it’s all taxable. This year, the first $2,400 per recipient is tax free.
COBRA subsidy: This helps workers who lost their jobs between September 1, 2008, and December 31, 2009, and who chose to continue their company group health insurance at their own expense. Since February 17, you’ve paid 35 percent of the normal COBRA premium. The government paid the rest and it’s not treated as taxable income. High earners, however, will have to repay the subsidy they received. That’s you, if you’re married with a gross income higher than $250,000 or single and higher than $125,000.
The first-time homebuyer credit: You can write off up to $8,000 of the price of a home purchased in 2009. You’re considered “first time” if you hadn’t owned a home for at least three years prior to the purchase. Long-time homeowners get a credit of $6,500, on a home purchased after November 6, 2009. You’re “long-time” if your old house was your principal residence for at least five consecutive years during the eight years prior to the time you sold it. Both credits have been extended to homes purchased before May 1, 2010, so you’ll be able to use it next year, too. Any purchase made next year can go on your 2009 return.
You have to meet income limits to qualify. For home purchases on or before November 6, 2009, married couples get the full credit on joint incomes of $150,000, phasing out at $170,000; for singles, the phase-out range is $75,000 to $95,000. For purchases after November 6, the phase-out range runs from $225,000 to $245,000 for couples and from $125,000 to $145,000 for singles. Claim the credit on Form 5405. You’ll have to repay the credit if you sell the house or move to a different principal residence during the 36-month period after you bought.
The Making Work Pay credit: Most working people received a credit worth up to $800 for couples and $400 for singles this year. Employees saw it in the form of reduced tax withholding from their paychecks. The self-employed can take it as a credit on their tax returns. The credit phases out for couples with joint incomes higher than $150,000 and for singles, higher than $75,000. This credit applies to your 2010 income, too.
Not in the stimulus act but worth a special mention:
The Hope Scholarship credit for higher education: This tax break saves most families up to $2,500 per student this year on higher education expenses. The full credit is available to marrieds with incomes up to $160,000, phasing out at $180,000, and singles up to $80,000, phasing out at $90,000. Low-income families that owe little or no income tax can claim a refund of up to $1,000. The Hope now bears a new name—the American Opportunity Tax Credit. It’s available for all four years of undergraduate education, up from just two years previously.
U.S. Savings Bonds: If you have a refund coming, you can have it paid in Series I U.S. Savings Bonds—the bonds whose interest rate adjusts with inflation. Maximum purchase: $5,000. You can also ask for part of the refund to be paid in Savings Bonds and part in cash. Put in your order by filing Form 8888 with your tax return.
Saving energy: They’re ba-a-a-ck—tax credits and deductions for the various ways that you can save energy in the home. They apply to the cost of adding insulation, replacing leaky windows and doors, adding heat pumps, and so on. The incentives are even better than they were in 2007, the last time the credits were in force.
Tax-free capital gains: Will you be in the 10 or 15 percent federal tax bracket this year? If so, and you’re holding investments with long-term capital gains, you can sell them entirely tax free. You qualify if your taxable income doesn’t exceed $67,900 for couples and $33,950 for singles. In short, middle-income earners and workers who lost their jobs or whose pay was cut. This tax break will also apply to some well-do-do older people who, as the law allows, chose not to take the required distribution from their Individual Retirement Account this year. This holiday from the capital gains tax applies next year, too.
Finally, my thanks to Mark Luscombe, the principal analyst for the tax and accounting group at CCH in Chicago. His tax-eagle eye checked everything.
Tags: 2009 tax changes, income taxes, stimulus tax cuts, tax credits, tax tips
