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2009 TAX CODE CHANGES (CURRENTLY BEING UPDATED - PLEASE READ CAREFULLY) LAST UPDATED: DECEMBER 5TH 2009 FIRST-TIME HOMEBUYER TAX CREDIT First-time homebuyers should begin planning now to take advantage
of a new tax credit. Available for a limited time, the credit:
A new
law that went into effect Nov. 6 2009 extends the first-time homebuyer credit five months and expands the eligibility requirements
for purchasers.
The Worker, Homeownership, and Business Assistance Act of 2009 extends
the deadline for qualifying home purchases from Nov. 30, 2009, to April 30, 2010. Additionally, if a buyer enters into a binding
contract by April 30, 2010, the buyer has until June 30, 2010, to settle on the purchase.
The
maximum credit amount remains at $8,000 for a first-time homebuyer –– that is, a buyer who has not owned a primary
residence during the three years up to the date of purchase.
But the new law also
provides a “long-time resident” credit of up to $6,500 to others who do not qualify as “first-time homebuyers.”
To qualify this way, a buyer must have owned and used the same home as a principal or primary residence for at least five
consecutive years of the eight-year period ending on the date of purchase of a new home as a primary residence.
For all qualifying purchases in 2010, taxpayers have the option of claiming the credit on either their 2009 or 2010
tax returns.
A new version of Form 5405, First-Time Homebuyer Credit, will be available around late
December, 2009. A taxpayer who purchases a home after Nov. 6 must use this new version of the form to claim the credit. Likewise,
taxpayers claiming the credit on their 2009 returns, no matter when the house was purchased, must also use the new version
of Form 5405. Taxpayers who claim the credit on their 2009 tax return will not be able to file electronically but instead
will need to file a paper return.
A taxpayer who purchased a home on or before Nov. 6 and chooses to
claim the credit on an original or amended 2008 return may continue to use the 2008 Form 5405.
The new law raises the income limits for people who purchase homes
after Nov. 6. The full credit will be available to taxpayers with modified adjusted gross incomes (MAGI) up to $125,000, or
$225,000 for joint filers. Those with MAGI between $125,000 and $145,000, or $225,000 and $245,000 for joint filers, are eligible
for a reduced credit. Those with higher incomes do not qualify. For homes purchased prior to Nov.
7, 2009, existing MAGI limits remain in place. The full credit is available to taxpayers with MAGI up to $75,000, or $150,000
for joint filers. Those with MAGI between $75,000 and $95,000, or $150,000 and $170,000 for joint filers, are eligible for
a reduced credit. Those with higher incomes do not qualify. Several new restrictions on purchases
that occur after Nov. 6 go into effect with the new law: - Dependents are not eligible to claim
the credit.
- No credit is available if the purchase price of a home is more than $800,000.
- A purchaser must be at least 18 years of age on the date of purchase.
Members
of the Armed Forces and certain federal employees serving outside the U.S. have an extra year to buy a principal residence
in the U.S. and still qualify for the credit. An eligible taxpayer must buy or enter into a binding contract to buy a home
by April 30, 2011, and settle on the purchase by June 30, 2011.
2009 STANDARD
MILEAGE RATE DEDUCTIONS The following are
the standard mileage rate deductions for business, medical, and charitable functions: Business
related mileage: 55 cents per mile Charitable
related mileage: 14 cents per mile Medical-related
mileage: 24 cents per mile | | SALE
OF MAIN HOME | Gain
from the sale or exchange of the main home is no longer excludable from income if allocable to periods of nonqualified use. Generally, nonqualified use means any period after 2008 where neither you nor your spouse (or your former spouse)
used the property as a main home (with certain exceptions). A period of nonqualified
use does not include: Any portion of the 5-year period ending on the date of the sale
or exchange that is after the last date you (or your spouse) use the property as a main home; Any
period (not to exceed an aggregate period of 10 years) during which you or your spouse is serving on qualified official extended
duty: As a member of the uniformed services, As a member of the Foreign Service of the United States, or As
an employee of the intelligence community; and Any other period of temporary
absence (not to exceed an aggregate period of 2 years) due to change of employment, health conditions, or such other unforeseen
circumstances as may be specified by the IRS.
To figure the portion of the
gain that is allocated to the period of nonqualified use, multiply the gain by the following fraction: total nonqualified use during period of ownership after 2008
total period of ownership |
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REDUCTION IN
CAPITAL GAINS TAX RATES Prior to 2008, long-term
capital gains from the sale of assets held longer than one year were taxed at a maximum rate of five percent to the extent
the seller was in the 10 or 15 percent tax brackets. In 2008, the five percent maximum rate drops to zero percent through
2010. The 15 percent maximum tax rate on other long-term capital gains stays the same. REDUCTION IN DIVIDEND TAX RATES Similarly,
in 2008, the special five percent maximum rate on dividends of taxpayers in the 10 and 15 percent tax brackets drops to zero
percent through 2010. FEDERAL INCOME TAX FILING DEADLINES The tax filing deadline for the tax year 2008 is April 15,
2009 - which falls on a Wednesday. MEDICARE AND SOCIAL SECURITY For
2009, the Medicare tax will remain at 1.45% while Social Security remains at 6.2%. The wage limit, or Social Security maximum, has been raised to $106,800 - an
increase of $4,800 over last year's maximum. The
rate of increase continues to outpace inflation, or the cost of living increase in wage you might expect from your employer.
The maximum Social Security benefit was increased
to $2,399 per month in 2009, and the Cost of Living Adjustment (COLA) was 5.8%. Standard Deductions in 2009 STANDARD DEDUCTION
According to the IRS, around two out of every three taxpayers
claim the standard deduction on their income tax returns. Once again, the rates that apply to 2009 have increased from
their 2008 levels. The standard deductions that apply in 2009 include: Single - $5,700
Married filing separately - $5,700
Head of household - $8,350
Married taxpayers filing jointly / qualifying widow(er)s - $11,400
Married taxpayers filing separately - $5,700
EXEMPTION VALUES
The amount you can deduct for each exemption
you can claim on your federal income taxes has increased again in 2009. The 2008 value of $3,500 has increased to $3,650
in 2009. That's a total increase of $250 over the last two years. LIFETIME LEARNING & HOPE CREDITS
In
2009, tax law changes also apply to the Hope Credit. The maximum Hope Credit, available for the first two years of post-secondary
education, remained at $1,800. In 2009, the taxpayer's modified adjusted gross income will be used to determine the
reduction in the amount of the Hope Scholarship and Lifetime Learning Credits. Credit reductions start for taxpayers
with an AGI in excess of $50,000, or $100,000 for those filing joint returns. CONTRIBUTIONS TO RETIREMENT ACCOUNTS There was some good news in 2009 for those individuals willing to increase
the rate of savings into their retirement accounts. Contribution limits for 401k as well as 403b plans increased in
2009 from $15,500 to $16,500. Catch up contributions also increased by $500 to $5,500 in 2009. Contribution limits
to SIMPLE retirement plans also increased by $1,000 to $11,500, while the catch up contributions remained unchanged at $2,500. The income limits for those willing to contribute to traditional IRAs as well as Roth IRA plans
increased again in 2009. The income phase-out threshold for Roth IRAs now starts at $166,000 for those filing joint
returns, and $105,000 for taxpayers with a filing status of single or head of household. TRANSIT AND VANPOOLING PRETAX BENEFITS There was an increase in pretax combined transit
and vanpooling benefits from $120 to $230 per month. DEDUCTION FOR CREDIT CARD or DEBIT CARD CONVENIENCE
FEES
If you pay your income tax (including estimated tax payments) by credit or debit card, you can deduct the
convenience fee you are charged by the card processor to pay using your credit or debit card. The deduction is claimed for
the year in which the fee was charged to your card as a miscellaneous itemized deduction on line 23 of Schedule A (Form 1040)
(and is subject to the 2% of adjusted gross income floor).
PENALTY FOR FAILURE TO FILE INCOME TAX RETURN INCREASED
If you do not file your return by the
due date (including extensions) you may have to pay a failure-to-file penalty. For income tax returns required to be filed
after 2008, the failure-to-file penalty for returns filed more than 60 days after the due date (including extensions) is increased.
In this situation, the minimum penalty is the smaller of $135 or 100% of the unpaid tax. OUCH!!!!
ECONOMIC RECOVERY PAYMENT RECEIVED IN 2009 Any economic recovery payment you receive
during 2009 is not taxable. These $250 payments are being made to most people who: Receive social security
benefits, supplemental security income (SSI), railroad retirement benefits, or veterans disability compensation or pension
benefits, and Live in a U.S. state, the District of Columbia, Puerto Rico, Guam, the U.S. Virgin Islands,
American Samoa, or the Northern Mariana Islands.
If you are married and you and your spouse both meet these
requirements, each of you may get a $250 payment. If you are entitled to a payment, you will get it automatically. You do
not need to apply for it. STUDENT LOAN DEDUCTION For 2009, the amount of the student loan interest deduction is phased out (gradually reduced)
if your filing status is married filing jointly and your modified adjusted gross income (AGI) is between $120,000 and $150,000.
You cannot take the deduction if your modified AGI is $150,000 or more. For all other filing statuses,
your student loan interest deduction is phased out if your modified AGI is between $60,000 and $75,000. You cannot take
a deduction if your modified AGI is $75,000 or more. For more information, see chapter 5 in Publication 970 Tax Benefits
for Education.
FINALLY,
if you're covered by a retirement plan at work
and you are considering contributing to a tax-deductible traditional IRA, then the income phase-out limits start at $89,000
for joint filers, and increases to $55,000 for those with a filing status of single or head of household.
CHECK BACK FROM TIME TO TIME FOR MORE UPDATES TO THIS PAGE
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