Tax News for 2009

Making Work Pay Credit

Individuals with earned income in 2009 may be able to claim a tax credit of up to $400, $800 if married filing jointly. The credit is phased out if modified adjusted gross income exceeds $75,000 or $150,000 on a joint return. The Making Work Pay credit is also reduced if a $250 economic recovery payment was received during 2009 or if the $250 government retiree credit is allowed.

First-time homebuyer credit

For a purchase in 2009 before December 1, 2009, eligible homebuyers may qualify for a tax credit of $8,000 ($4,000 if married filing separately) or, if less, 10% of the purchase price. The taxpayer (and his or her spouse if married) must not have owned another principal residence in the prior three years. The credit begins to phase out if modified adjusted gross income exceeds $75,000 or $150,000 on a joint return.

Hope education credit expanded

The Hope credit for 2009 and 2010 has been expanded and renamed the American Opportunity credit. The maximum credit is generally $2,500 per student and it is allowed for the first four years of post-secondary education. The phaseout of the credit applies if modified adjusted gross income is between $80,000 and $90,000, or between $160,000 and $180,000 on a joint return.

Unemployment compensation partially untaxed

Recipients of unemployment compensation in 2009 may exclude from income the first $2,400 of benefits received. Proposals have been made to extend the exclusion to 2010.

Deduction for sales and excise taxes on new motor vehicle

A deduction is allowed for sales/excise taxes on a qualifying new motor vehicle or motor home purchased after February 16, 2009 and before January 1, 2010. Used vehicles do not qualify. The deduction applies to the taxes on the first $49,500 of the purchase price. The deduction is phased out if modified adjusted gross income exceeds $125,000, or $250,000 on a joint return. The deduction increases the standard deduction on Schedule L for those who do not itemize. For taxpayers who itemize deductions, the deduction may be claimed in addition to the deduction for state and local income taxes.

Residential energy credits

Prior dollar limits have been removed on the 30% credit for solar panels, solar water heating equipment and other alternative energy improvements.

Expanded standard deduction

Extra standard deduction amounts may be claimed by taxpayers who paid state and local real estate taxes, had a net disaster loss, or paid sales/excise taxes on qualifying new motor vehicles (see above). Schedule L must be used to claim the additional standard deduction amounts.

Qualified tuition plan distributions

For purposes of figuring if a distribution from a qualified tuition plan (Section 529 plan) is tax free, the cost of a computer, software and Internet access that will be used while the student is enrolled is considered a qualified expense.

Higher floor for personal casualty and theft losses

Each 2009 casualty or theft loss on personal-use property must exceed $500 to be allowed. This is in addition to the 10% of adjusted gross income floor on the net loss for personal use assets, other than losses attributable to federally declared disasters.

Self-employment tax

Net self-employment earnings of up to $106,800 are subject to the 12.4% Social Security rate for 2009.

IRS mileage rates

For 2009, the IRS standard business mileage rate is 55 cents per mile. For medical and moving expenses, the rate is 24 cents per mile for the first six months and the rate for charitable volunteers is 14 cents per mile.