|
| |


Tax Credit to Aid First-Time Homebuyers
2009 Credit Highlights:
·
Credit Amount:
10% of the purchase price with a maximum of $8,000 ($4,000 for those filing
married separate)
·
Repayment required:
If the home is sold or ceases to be the
taxpayer’s principal residence within 36 months of its purchase.
·
Purchased:
Between January 1, 2009 and before December 1, 2009.
·
Home Location:
Within the U.S.
·
Seller:
Cannot be purchased from a close relative
·
When Claimed:
Credit can be claimed in the taxpayer’s 2008 or 2009 tax return.
Definition of a First-Time
Homebuyer –
A taxpayer is considered a first-time homebuyer if he (or spouse, if
married) had no present ownership interest in a principal residence in the
U.S. during the three-year period before the purchase of the home to which the
credit applies. If the individual is married, neither the individual nor his
spouse may have had a present ownership interest in a principal residence
during that three-year period, even if they file as married taxpayers filing
separately. Ownership of a home outside the U.S. during the three-year period
will not disqualify the taxpayer.
When to Claim the Credit
- For an eligible purchase in 2009, the credit can be claimed on either
your 2008 (or amended 2008 return) or 2009 return.
Homes That Qualify
– Only the purchase of a main home located
in the United States qualifies. Vacation homes and rental property are not
eligible.
Income Limits
– The purpose of the
credit is to assist lower-income individuals in acquiring their own home.
Thus, the credit is reduced or eliminated for higher-income taxpayers. The
credit is phased out based on the modified adjusted gross income (MAGI). MAGI
is the adjusted gross income plus various amounts excluded from income-for
example, certain foreign income. For a married couple filing a joint return,
the phase-out range is $150,000 to $170,000. For other taxpayers, the
phase-out range is $75,000 to $95,000. This means that the full credit is
available for married couples filing a joint return whose MAGI is $150,000 or
less and for other taxpayers whose MAGI is $75,000 or less.
Who Cannot Take the
Credit – In addition to the other
qualifications and limitations discussed above, a taxpayer cannot take the
credit if the:
• Home is purchased from a close relative. This
includes a spouse, parent, grandparent, child or grandchild.
• Home is no longer used as the main home.
• Home is sold before the end of the year in which it
was purchased.
• Taxpayer is a nonresident alien.
• Taxpayer is, or was, eligible to claim the District of
Columbia first-time homebuyer credit for any taxable year.
• Home financing comes from tax-exempt mortgage revenue
bonds.
Special Vehicle Sales
Tax Deduction Not Limited to Cars
Taxpayers typically associate the special 2009
vehicle sales tax deduction with the purchase of a new car. However, this
deduction also applies to the purchase of new light trucks, motor homes,
motorcycles and motor scooters that meet the “motorcycle definition.” So if
you are in the market for any of the above, you could qualify for this
deduction.
Here are some things that you should know about
this new deduction:
·
State and local sales
taxes paid on up to $49,500 of the purchase price of qualifying vehicles can
be deducted.
·
Qualified motor vehicles
generally include new (not used) cars, light trucks, motor homes and
motorcycles.
·
Purchases must occur
after February 16, 2009 and before January 1, 2010.
·
This deduction can be
taken regardless of whether or not other deductions on your tax return are
itemized. If you claim the standard deduction, it is an addition to the
standard deduction amount.
·
This deduction is for
2009 only and you will get the tax benefit when your 2009 tax return is filed
in 2010.
·
The amount of the
deduction is phased out for higher-income taxpayers whose modified adjusted
gross income is between $125,000 and $135,000 for individual filers (between
$250,000 and $260,000 for joint filers).
The actual tax benefit generated by this deduction
will depend upon your individual tax bracket, which is based on your income.
Let’s say that you are in the 25% tax bracket and you purchased a $35,000
vehicle. If the sales tax was 8%, you would save $700 in taxes, determined as
follows:
The sales tax deduction is
$2,800 (8% of $35,000).
The tax benefit is $700 (25% of
$2,800).
Keep in mind that this deduction can only reduce
your tax liability to zero, so you may not receive the full benefit if you
already pay a minimal amount of tax.
If you have questions related to your specific tax
benefit or whether you qualify for this deduction, please give this office a
call.
American Opportunity Credit
The Hope education
credit has been enhanced and renamed for 2009 and 2010. For these two years,
it will be called the American Opportunity tax credit. Where the Hope credit
only applied to the first two years of post-secondary education, the American
Opportunity credit will be available for four years of college, and the
maximum credit per student increases to $2,500.
Applicable Years
- 2009 and 2010 Only
Eligible Student for the
American Opportunity Credit -
Generally, an eligible student can be the taxpayer and spouse and their
dependents that are enrolled at an eligible educational institution for at
least one academic period (semester, trimester, quarter) during the year. The
dependent is any person for whom the taxpayer claims a dependency exemption.
It generally includes the taxpayer’s qualified child who is under age 19 or
who is a full-time student under age 24. The
student must also meet all of the following requirements.
1) Had not completed the
first 4 years of postsecondary education before the tax year of the
credit.
2) For at least one
academic period beginning in the tax year of the credit, was
enrolled at least half-time in a program leading to a degree,
certificate, or other recognized educational credential.
3) An eligible student
is one that has no felony drug conviction. Having no felony drug conviction
means the student has not been convicted of a Federal or state felony offense
for possession or distribution of a controlled substance as of the end of the
taxable year for which the credit is claimed.
Allowance Period
- The American Opportunity credit is allowed with
respect to qualified tuition and related (QT&R)
expenses paid for the first four years of the
student's post-secondary education in a degree or certificate program, if
the student has not completed the first four years of post-secondary education
before the beginning of the fourth tax year. And, for each eligible student,
the American Opportunity credit may be claimed for four tax years
(Code Sec 25A(i)(2)).
This is true even if a taxpayer had claimed the Hope credit in prior years.

Credit Amount –
The American Opportunity Credit equals the sum of:
(a)
100% of the first
$2,000 of QT&R expenses plus
(b)
25% of the next
$2,000, of QT&R expenses.
Qualified Tuition
and Related (QT&R) Expenses - tuition, fees and course material (including
books) expenses paid during the tax year.

Credit Phase-Out
Provisions - For higher-income taxpayers, this credit begins to phase out
for AGI in excess of $80,000 ($160,000 for married couples filing jointly), an
increase from the previous phase out thresholds of $50,000/$100,000 for the
Hope credit.
Filing
Status 2009 – 2010 Phase-Out Range (1)
Unmarried Filing
Status $80,000 – $90,000
Joint Filing
Status $160,000 - $180,000
Married
Separate No Credit Allowed
(1)
There is no inflation adjustment for 2010.
Portion of the
Credit is Refundable - 40% of the credit (after application of the
phase-out limitation) is refundable (Code Sec 25A(a)). The refundable
provision does not apply to residents of a U.S. possession. However, the
refundable portion may be claimed as credit in the possession in which they
reside.

AMT – For 2009
and 2010 the American Opportunity credit is allowed against the AMT (IRC Sec
25A(i)(5)).
ALTERNATIVE
MINIMUM TAX
The 2009 Recovery Act provides a one-year patch for the
2009 AMT calculation, allows the alternative motor vehicle credit to be used
against AMT, and exempts certain private activity bond interest from AMT.
·
AMT Exemption Amount for 2009 Increased - The
AMT exemptions have been increased for 2009 to: $70,950 for married
individuals filing jointly, $46,700 for unmarried individuals and $35,475 for
married individuals filing separately. The AMT phase-out rules remain
unchanged.
·
AMT Relief for Nonrefundable Personal Credits -
Nonrefundable personal credits will continue to offset the AMT for 2009.
Those credits include:
o
Code Sec. 21
dependent care credit;
o
Code Sec. 22 credit
for the elderly and permanently and totally disabled;
o
Code Sec. 23
adoption credit;
o
Code Sec. 24 child
tax credit;
o
Code Sec. 25
mortgage credit;
o
Code Sec. 25A Hope,
American Opportunity and Lifetime Learning credits;
o
Code Sec. 25B lower
income saver's credit;
o
Code Sec. 25D
residential energy efficient property credit for solar electric, solar hot
water, and fuel cell property added to a residence; and
o
Code Sec. 1400C
first-time D.C. homebuyer credit (which was extended through 2009).
·
AMT Relief for Alternative Motor Vehicle
Credit - For tax years beginning after Dec. 31, 2008, the Recovery Act
provides that the alternative motor vehicle credit is a
personal credit allowed against the AMT.
·
Part of Standard Deduction Deductible for AMT
– The 2009 Recovery Act allows nonitemizers to include the state and local
sales taxes paid on the purchase of a new motor vehicle from February 16
through December 31, 2009, as part of the standard deduction for both regular
tax and AMT. Taxpayers who have federal disaster losses in 2008 or 2009
may include the loss amount as part of their standard deduction, and it is
deductible for both regular tax and AMT purposes.
·
Private Activity Bonds - The 2009 Recovery
Act (the Act) provides an exception for bonds issued in 2009 and
2010 by providing that bonds issued after Dec. 31, 2008 and before Jan. 1,
2011 are not “specified private activity bonds.” In other words, tax-exempt
interest on private activity bonds issued in 2009 and 2010 is not an item of
tax preference for AMT purposes. (Code Sec.
57(a)(5)(C)(vi) as amended by 2009 Recovery Act §1503(a))
ESTIMATED TAX
SAFE HARBOR – SMALL BUSINESS OWNERS – 2009 ONLY
for any tax year beginning in
2009, in computing the amount of the required annual installments of estimated
income tax of any qualified individual, “required annual payment” means the
lesser of:
(1) 90% of the tax shown on the return for the tax
year, or
(2) 90% of the tax shown on the
return of the individual for the preceding tax year. (Code
Sec. 6654(d)(1)(D), as amended by Act Sec. 1212; Committee Report)
A qualified individual means
any individual if:
·
The AGI on the tax return
for the preceding tax year is less than $500,000 ($250,000 if married filing
separately) and
·
The individual certifies
that at least 50% of the gross income shown on the return for the preceding
tax year was income from a small trade or business.
A small trade or
business is one that employed no more than 500 persons, on average,
during the calendar year ending in or with the preceding tax year. (Code
Sec. 6654(d)(1)(D))
Certification
Procedure – Based on the draft version of 2009 Form 2210, certification
that the taxpayer meets the 2008 AGI and gross business income requirements
for the small business exception will be accomplished by checking box F in
Part II of Form 2210.
WORK MOPPORTUNITY CREDIT
Under
Code Sec. 51 employers may elect to claim a
WOTC for a percentage of first-year wages, generally up to $6,000 per
employee, for hiring workers from one of several targeted groups. First-year
wages are wages paid during the tax year for work performed during the
one-year period beginning on the date the target group member begins work for
the employer.
o
Generally, the credit is
40% of first-year wages (but not exceeding $6,000), for a maximum credit of
$2,400 (.4 × $6,000);
o
The credit is reduced to
25% for employees who have completed at least 120 hours, but less than 400
hours of service for the employer. No credit is allowed for an employee who
has worked fewer than 120 hours.
No Double Benefit
– The employer’s deduction for compensation must be reduced by the amount of
the credit claimed.
Certification Process
- To be eligible to claim a WOTC, an employer files Form 8850 (Pre-Screening
Notice and Certification Request for the Work Opportunity Credit) with the
State Workforce Agency no later than the 28th day after the potentially
eligible employee begins work. Then, after the worker is state-certified as
being a member of a targeted group and puts in sufficient hours, the employer
claims the WOTC on Form 5884 (Work Opportunity Credit). For California, the
Employment Development Department is the certifying agency: http://www.edd.ca.gov/wotcind.htm
Qualified first-year Wages
- are certain wages attributable to service during the one-year period
beginning with the day the individual begins work for the employer.
1. “Unemployed veteran"
- is any veteran who is certified by the designated local agency (such as a
state workforce agency) as having been discharged or released from active duty
in the Armed Forces at any time during the five-year period ending on the
hiring date, and as being in receipt of unemployment compensation under state
or federal law for not less than four weeks during the one-year period ending
on the hiring date. A "veteran" is any individual who is certified by the
designated local agency as having served on active duty (other than active
duty for training) in the Armed Forces of the United States for a period of
more than 180 days or as having been discharged or released from active duty
in the Armed Forces for a service-connected disability.
MAKING WORK PAY CREDIT
The amount of this refundable
credit is the lesser of:
(1) 6.2% of the taxpayer's earned income, or
(2) $400 ($800 for a joint return, even if only one
has earned income).
Thus, a taxpayer with $6,451.61
of earned income ($12,903.22 on a joint return) would get the maximum credit.
Example 1:
Marty, a single individual, has $5,700 of
earned income for 2009. Marty’s credit is $353.40 ($5,700 × 6.2%). If Marty
had $10,000 of earned income his credit would be limited to $400 since 6.2% of
$10,000 exceeds the maximum allowed
The term “earned income” has the
meaning given that term for the earned income credit, with the following
modifications:
·
Earned income doesn't
include net earnings from self-employment that aren't taken into account in
computing taxable income (such as a parsonage allowance), and
·
Earned income does
include combat pay excluded from gross income.
MAGI Phaseout -
The credit may be reduced or totally eliminated
depending on the taxpayer’s modified adjusted gross income (MAGI), which is
defined for purposes of this credit as the taxpayer's AGI for the tax year
increased by any amount excluded from gross income under the foreign earned
income exclusion, the exclusion of income from American Samoa or Puerto Rico.
The credit reduction is $2 for every $100 by which the taxpayer’s MAGI exceeds
$75,000 ($150,000 for joint filers). The credit is totally phased out when
MAGI is $95,000 or more ($190,000 joint).
Example 2:
Leo, a single individual, had wages of $76,000 and taxable interest income of
$4,000 for 2009. Thus his MAGI is $80,000. The maximum Making Work Pay Credit
he’s entitled to is $400, but after the MAGI phaseout his credit is reduced to
$300: MAGI $80,000 – Phaseout threshold $75,000 = Excess $5,000 ÷ 100 = 50 x
$2 = $100 reduction. $400 – 100 = $300 credit allowed.
Reduction for $250
One-Time Payments
As part of the ARRA, the
Treasury is directed to make a $250 payment to each individual who, for any
month during the three-month period ending with the month which ends before
the month that includes the date of enactment (February 2009), is entitled to
a social security Title II benefit, railroad retirement benefit, veterans
benefit, or is eligible for an SSI cash benefit.
(2009 Recovery Act §2201(a)(1)(A)) This payment, referred to as an
economic recovery payment, is non-taxable to the recipient. This was to make
up for the Making Work Pay credit being paid to those with earned income.
However, Congress included a
provision that taxpayer’s cannot receive benefit from both. Since the
one-time $250 payments were made in May 2009, without regard to whether an
individual will benefit from the Making Work Pay credit, the otherwise
allowable Making Work Pay credit must be reduced by the amount of the $250
economic recovery payments to recipients of social security, supplemental
security income (SSI), railroad retirement, and veterans disability
compensation benefits.
An individual's failure to make
this reduction is treated as a mathematical or clerical error. This allows the
IRS to assess any tax resulting from that failure without the IRS having to
send the taxpayer a notice of deficiency that allows the taxpayer to file a
petition with the Tax Court.
Who is Eligible for Credit?
An “eligible individual” for
purposes of the making work pay credit is any individual, except for:
·
A nonresident alien;
·
An individual who can be
claimed as a dependent by another taxpayer for a tax year beginning in the
calendar year in which the individual's tax year begins; and
·
An estate or trust.
Social security number
requirement -
The term “eligible individual” doesn't include any
individual who doesn't include on the tax return for the tax year the
individual's social security number, and
for a joint return, the social
security number of one of the taxpayers on the return. For this purpose, a
social security number doesn't include a taxpayer identification number (TIN)
issued by IRS.
Other Issues
Treatment of U.S. possessions
- Special credit rules are provided for
residents of U.S. possessions. The Commonwealth of Puerto Rico and the
Commonwealth of the Northern Mariana Islands are treated as U.S. possessions
for this purpose. These special rules are not included in this text.
Credit disregarded for
federal programs – The credit isn't
taken into account as income and isn't taken into account as resources for the
month of receipt and the following two months for purposes of determining the
eligibility of the recipient or any other individual for benefits under any
federal program or any state or local program financed in whole or in part
with federal funds.
Special credit for government
retirees – Certain government retirees
will be allowed to claim a refundable credit of $250 ($500 on a joint return
if both spouses are eligible) on their 2009 tax return. An eligible government
retiree is an individual who:
·
Does not receive a $250
one-time payment to Social Security, VA, etc. recipients (an economic recovery
payment), and
·
Receives any amount of
pension or annuity for service performed as an employee of the United States
or any state or local government (or any instrumentality) and the service was
not covered for FICA (Social Security) purposes, and
New Schedule M –
The IRS has indicated that a new form, Schedule M,
will be used to figure both the Making Work Pay and Government Retirees
credits.
|
|