Opportunities for Tax Breaks for the 2009 Tax Year Published Aug. 17, 2009 By Dick Brock Base Legal Office KEESLER AIR FORCE BASE, Miss. -- American Recovery and Reinvestment Act of 2009 On February 17, 2009, the American Recovery and Reinvestment Act of 2009 (ARRA), was signed into law. ARRA includes key provisions that impact individuals and families. The bulk of the tax provisions affect tax year 2009 -- individual tax returns due April 15, 2010 and tax year 2010 -- individual tax returns due April 15, 2011. First-time Homebuyer Credit Amended This ARRA provision extends the existing homebuyer credit for qualifying home purchases to purchases before December 1, 2009. For purchases in 2009, taxpayers can qualify for a refundable credit of 10 percent of the purchase price up to $8,000 ($4,000 for taxpayers who are married filing separately). Generally, you do not have to repay the credit for qualifying home purchases after December 31, 2008, and before December 1, 2009, provided the home remains your main home for 36 months after the purchase date. The amount of the credit begins to phase out for taxpayers whose modified adjusted gross income is more than $75,000 or $150,000 for taxpayers who are married and file a joint return. For purposes of the credit, you are considered to be a first-time homebuyer if you, or your spouse if you are married, did not own any other main home during the three-year period ending on the date of purchase. Special Tax Break for Purchase of a New Vehicle For 2009, there is an additional deduction for state and local sales and excise tax, including certain fees in states that do not have a sales tax, on the purchase of qualified motor vehicles. A qualified motor vehicle must be new and includes a passenger automobile or light truck, a motorcycle, or a motor home. Taxes and fees paid on vehicles purchased before February 17, 2009, are not eligible for this special deduction. The deduction is limited to the eligible taxes and fees paid on the first $49,500 of the purchase price of the vehicle. The deduction phases out for taxpayers with modified adjusted gross income of more than $125,000 ($250,000 on a joint return). The deduction is available to taxpayers who claim the standard deduction as well as to taxpayers who itemize deductions on Schedule A (Form 1040), Itemized Deductions. Temporary Increase in Earned Income Tax Credit For tax years 2009 and 2010, ARRA temporarily increases the income limits and earned income tax credit percentage allowed for working families with three or more qualifying children. For e nformation, see Publication 596, Earned Inc Earned Incme Credit (Qualifying Child Information). Temporary Increase in Refundable Portion of Child Tax Credit ARRA reduces the minimum earned income amount used to calculate the additional child tax credit to $3,000. Reducing the amount to $3,000 allows more taxpayers to claim the additional child tax credit and increases the amount of the payments they may receive. It is a refundable credit, which means taxpayers may receive refunds even when they do not owe any tax. This change applies to tax years 2009 and 2010. For more information, see Publication 972, Child Tax COBRA Health Insurance Continuation Premium Subsidy Workers who have lost their jobs may qualify for a 65 percent subsidy for Consolidated Omnibus Budget Reconciliation Act (COBRA) continuation premiums for themselves and their families for up to nine months. Eligible workers will have to pay 35 percent of the premium to their former employers. To qualify, a worker must have been involuntarily separated between September 1, 2008, and December 31, 2009. This subsidy phases out for individuals whose modified adjusted gross income exceeds $125,000 or $250,000 for individuals who are married and file joint returns. Taxpayers with modified adjusted gross income exceeding $145,000, or $290,000 for those filing joint returns, do not qualify for the subsidy. American Opportunity Tax Credit For tax years 2009 and 2010, the American Opportunity Tax Credit makes temporary changes to the education credit known as the Hope Credit. It adds required course materials to the list of qualifying expenses and allows the credit to be claimed for four years of post-secondary education instead of two. In addition, a portion of the credit may be refundable. For ore information, see Publication 970, Tax Benefits for Education, and Form 8863, Education Credits. Qualified Higher Education Expense For tax years 2009 and 2010, the definition of qualified higher education expenses for tax-free distributions from a qualified tuition program is expanded to include the purchase of computer technology, equipment, or Internet access and related services. For more information, including restrictions, see Publication 970, Tax Benefits for Education. Residential Energy Credits ARRA provides numerous tax incentives for individuals to invest in energy-efficient products. Extension and modification of credit for nonbusiness energy property: The new law reinstates and increases the tax credit for homeowners who make energy efficient improvements to their existing homes. The law increases the credit rate to 30 percent of the cost of all qualifying improvements and raises the maximum credit limit to $1,500 for improvements placed in service in 2009 and 2010. The credit applies to improvements such as adding insulation, energy efficient exterior windows, and energy-efficient heating and air conditioning systems. Generally, homeowners can rely on manufacturers' certifications in determining whether property purchased qualifies for the credit. Modification of credit for residential energy efficient property: This nonrefundable energy tax credit will help individual taxpayers pay for qualified residential energy efficient property, such as solar hot water heaters, geothermal heat pumps, and wind turbines. The new law removes most of the previously imposed maximum amounts and maintains the 30 percent credit for the purchase of qualified property.andFor