Special 2009 Tax Items

2009 marks another year of major tax law changes. While too vast to mention them all, here are some that will impact many clients.

• $2,400 of unemployment benefits are not taxed this year.
• There is a one-year option to avoid the minimum retirement plan distribution rules for qualified accounts.
• The "cash for clunkers" vehicle benefit that many took advantage of is not taxable. Plus sales and use tax paid on the purchase of a new vehicle creates a potential tax break.
• Social Security benefits will NOT be going up next year so you need to plan accordingly.
• The Hope Credit education expense deduction has been increased and expanded from two to four years of post secondary education.
• The earned income and child tax credits have been changed and will likely benefit most clients (but not all).
• A personal casualty and theft loss must now exceed $500. This is up from $100.

As always, please feel free to bring up any questions or concerns that may impact your situation.

For 2009 Home Purchases

The American Recovery and Reinvestment Act of 2009 expanded the first-time homebuyer credit by increasing the credit amount to $8,000 for purchases made in 2009 before December 1. However, the new Worker, Homeownership and Business Assistance Act of 2009 has extended the deadline. Now, taxpayers who have a binding contract to purchase a home before May 1, 2010, are eligible for the credit. Buyers must close on the home before July 1, 2010.

For homes purchased in 2009, the credit does not have to be paid back unless the home ceases to be the taxpayer's main residence within a three-year period following the closing date.

First-time homebuyers who purchased a home in 2009 can claim the credit on their 2009 tax return, due April 15, 2010. The credit may not be claimed before the closing date.

Homebuyers who purchased a home in 2009 or 2010 may be able to take advantage of the first-time homebuyer credit. The credit:

• Applies to homes used as a taxpayer's principal residence.
• Reduces a taxpayer's tax bill or increases his or her refund, dollar for dollar.
• Is fully refundable, meaning the credit will be paid out to eligible taxpayers, even if they owe no tax or the credit is more than the tax owed.

Key 2009 Exemptions and Deductions

Listed here for your reference are key deduction rates for 2009.

Personal Exemptions
The personal exemption for each qualifying dependent increases by $150 for 2009.

The exemption phases out by 2% for each $2,500 ($1,250 for married filing separately) by which your income is over:

2009 ALERT: This phaseout may only reduce the exemption by 1/3 in 2009.

Standard Deductions
Standard deductions for those who do not itemize are as follows:

If 65 or over and/or blind add:

2009 ALERT: The real estate tax standard deduction is available again in 2009. It is up to $500 (single) and $1,000 (married).

Itemized Deduction Phaseout
Deductions are reduced by 3% of every dollar of Adjusted Gross Income over $166,800 ($83,400 if married filing separately) up to a maximum phaseout of 80% of your itemized deducations. Medical expenses, investment interest, casualty losses and gambling losses are excluded.

2009 ALERT: The phaseout may only reduce your itemized deducation by 1/3 in 2009.

Standard Mileage Rates
The standard mileage rates for 2009 are:

2009 Tax Rates

The 2009 income brackets for each tax rate are:

How can I check on my Electronic Refund?
Answer: Taxpayers should wait at least three weeks from the time the electronic return is accepted before logging on to the following web sites:

Federal Return: www.IRS.gov
Michigan Return: www.michigan.gov/treasury (click on the online services and then on self-service individual tax income tax)

You should have the following information handy when calling:
Primary Social Security Number listed on return
Filing Status
Exact amount of anticipated return