http://www.rhodesmurphy.com Tax Law Changes for RHODES-MURPHY customers Home Buyers Credit This is the header text If you purchased a primary residence in 2009 before December 1, 2009 and are a "first-time" home buyer, you can qualify for a tax credit equal to 10% of up to $80,000 of the purchase price. To be eligible, you must not have owned a residence in the U.S. in the previous three years. The credit phases out between $150,000 and $170,000 of adjusted gross income for joint filers and $75,000 to $95,000 for single filers. The credit is refundable to the extent it exceeds your regular tax liability -- which means that if it more than offsets your tax liability, you'll get a refund check -- but it does not offset the alternative minimum tax. You can even elect to claim the credit for a 2009 home purchase on your 2008 tax return. (If you filed for 2008 before buying -- but before the November 30 deadline – you can claim your credit by filing an amended return using Form 1040-X. Doing so will guarantee you a refund check.) Unlike the credit for 2008 purchases, the credit for 2009 purchases doesn’t have to be paid back ratably over 15 years. But you will have to repay the credit if you sell the house within three years of the date you bought it. 2009-11-17 09:01:00.000 Payroll Tax Credit for 2009. For 2009 and 2010, Congress gave workers a credit of 6.2% of their earned income, capped at $400 for single filers and $800 for joint filers. For single filers, it starts phasing out at $75,000 of adjusted gross income and dries up at $95,000. The phaseout zone for couples is $150,000 to $190,000. Employees will get the credit in advance via lower income tax withholding in each paycheck, not as a rebate check. Self-employed workers can reduce their quarterly estimated payments to get an advance benefit from the credit. The exact amount of the payroll tax credit for the year will be calculated on the filers' tax returns. Recipients of Social Security benefits, Railroad Retirement benefits, Supplemental Security Income or veterans disability pensions will get a one time $250 check instead for 2009. Federal retirees who don’t receive any Social Security will also get a $250 check. 2009-11-17 09:01:00.000 New Vehicle Tax Credit Buyers of new vehicles can deduct the sales tax paid on the purchase, even if they don’t claim sales taxes as itemized deductions. They can add the tax they pay to their standard deduction. This break applies to new cars, motor homes, light trucks and motorcycles purchased after February 16, 2009 and before January 1, 2010. Sales tax paid on the first $49,500 of cost qualifies. The benefit begins phasing out for married couples with AGIs over $250,000 and singles with adjusted gross incomes over $125,000, and is completely gone for single filers with adjusted gross income of $135,000 or more or joint filers with AGI of at least $260,000. Itemizers who elect to deduct state sales taxes in lieu of state income taxes get no benefit from this change because the auto sales tax is already included in the sales tax deduction. Itemizers who deduct state income taxes will get a separate deduction for auto sales taxes; non-itemizers will add the sales tax amount to their standard deduction amount. 2009-11-17 09:01:00.000 Reduction in Itemized Deductions Itemized deductions and personal exemptions are phased out as your income rises. In 2009, the reductions are a bit less painful. The cutback in itemized deductions occurs once your adjusted gross income exceeds $166,800, regardless of your filing status. Your itemized deductions are reduced by 1% of the amount by which your AGI exceeds $166,800, but you can never lose more than 80 percent of your itemized deductions. Also, your medical expenses, investment interest deduction, deductible gambling losses and any casualty and theft losses are not subject to the cut. Personal exemptions are reduced by 2% for each $2,500 of adjusted gross income over $250,200 for married filing jointly, $208,500 for heads of households and $166,800 for singles, but the reduction cannot exceed $1,217 per exemption. 2009-11-17 09:01:00.000 College Credit For 2009 and 2010, the Hope credit is replaced by a new credit of up to $2,500 per student a year for four years of college, not just the first two years. It now also covers the cost of books and begins to phase out at $80,000 of adjusted gross income for single filers and $160,000 for joint filers. If the credit is more than your income tax liability, 40% of it is refundable. Also, the full credit is allowed against the alternative minimum tax. 2009-11-17 09:01:00.000 MHigher Income Limits If you are covered by a retirement plan at work, you can take a full IRA deduction in 2009 if your modified adjusted gross income is less than $89,000 (married filing jointly) or $55,000 (single or head of household). A partial deduction is allowed until your adjusted gross income reaches $109,000 if you are married filing jointly or $75,000 if you are single or a head of household. Also, the opportunity to contribute to a Roth IRA is now phased out as your modified adjusted gross income rises between $166,000 and $176,000 if you are married filing jointly or $105,000 to $120,000 if you are single or a head of household. 2009-11-17 09:01:00.000 Increased Contribution Limit The maximum employee contribution rises to $16,500 from $15,500 in 2009 for these and similar workplace retirement plans including 403(b)s and the federal Thrift Savings Plan. Workers age 50 and older in 2009 can put in an additional $5,500 this year, also a $500 increase from 2007. Thus, their maximum contribution is $22,000. 2009-11-17 09:01:00.000 Exemptions for AMT For 2009, the exemption levels rise to $70,950 for married filing jointly, $46,700 for singles and heads of household, and $35,475 for married couples filing separately. Congress is likely to act in 2009 to prevent this from happening. Otherwise, more than 20 million filers will be added to the AMT rolls. Also, interest on private-activity bonds issued in 2009 and 2010 is exempt from the alternative minimum tax. 2009-11-17 09:01:00.000 Credit for Residential Energy The old 10% tax credit of the cost of energy saving home improvements is increased to 30% for 2009 and 2010, up to a maximum of $1,500 in the two-year period. It applies to skylights, windows, outside doors, biomass fuel stoves and high-efficiency furnaces, water heaters and central air conditioners. In addition, the dollar limits on the particular type of improvement, such as a $200 cap on the credit for windows, are repealed. 2009-11-17 09:01:00.000 Small Businesses If an individual’s adjusted gross income for 2008 was less than $500,000 and more than half of his or her gross income was from a business with fewer than 500 workers, their estimated income taxes for 2009 estimates can be based on the lesser of 90% of their tax liability for 2008 or 2009. The usual estimated tax benchmarks of 100% or 110% of tax liability do not apply. 2009-11-17 09:01:00.000 IRA Conversions Starting in 2010, individuals with more than $100,000 of modified adjusted gross income are free to switch a traditional IRA to a Roth IRA. For conversions in 2010, taxpayers can spread the tax due over two years. Half the tax will be due in 2011, and the remaining half will be payable in 2012. Removing the limit on conversions effectively eliminates the income limit on contributions to Roth IRAs. A taxpayer with income too high to use a Roth will be able to contribute to a traditional IRA (which have not income limits for contributions) and immediately convert to a Roth. http://kb.taxslayer.com/article.php?id=685 2009-11-17 09:01:00.000 Combat Pay Allowed for Earned Income Credit The election to include nontaxable combat pay in the calculation of earned income for the earned income credit is not available after 2009, unless Congress acts to extend it. 2009-11-17 09:01:00.000 Child Tax Credit. The $8,500 income threshold needed to qualify to claim the child tax credit if it exceeds your regular income tax bill decreases to $3,000 for 2009. 2009-11-17 09:01:00.000 Tax Deduction for New Vehicles Beginning in 2010, buyers of new vehicles no longer get a tax benefit for sales tax paid on new vehicles unless they itemize and elect to deduct sates taxes in lieu of state income taxes. 2009-11-17 09:01:00.000 Deducting Farm Losses Beginning in 2010, the amount of farm losses you can use to offset nonfarm income is capped at the greater of $300,000 or your net farm income over the past five years. But this limit will apply only if you get federal farm payments or CCC loans. You can take suspended losses in later years. The caps will also apply to partners and S firm owners. 2009-11-17 09:01:00.000 Home Improvements Credit The tax credit for 10% of the cost of energy saving home improvements ends for tax years after 2009, unless Congress acts to extend it. 2009-11-17 09:01:00.000