First-time Home Buyer Credit – See accompanying article
Sales Tax Credit for New Vehicles – Buyers of new vehicles can deduct the sales tax paid on the purchase, even if they don’t claim sales tax as an itemized deduction.
Indexed Tax Brackets – Thanks to higher inflation in the past year, the 10%, 15%, 25%, 28%, 33% and 35% tax brackets all kick in at approximately 5% higher levels of income than in 2008.
Larger Personal Exemptions – For 2009, each personal exemption you can claim is worth $3,650, up by $150 from 2008.
Higher Standard Deductions – For 2009, the standard deduction for MFJ rises to $11,400, up by $500 from 2008. For single filers, the amount increases to $5,700 in 2009, up by $250 over 2008. Head of households can claim $8,350 in 2009, a jump of $350 from 2008. Non-itemizers who pay real estate taxes can claim even larger standard deductions.
Reduction in Itemized Deductions and Personal Exemptions for High AGI Taxpayers – 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 AGI reaches $166,800, regardless of your filing status. No matter what your AGI, you can never lose more than 80 percent of your itemized deductions. Personal exemptions are reduced by 2% for each $2,500 of AGI over $250,000 for MFJ, $208,500 for HOH and $166,800 for singles, but the reduction cannot exceed $1,217 per exemption.
- 7. Tax Credit for College Tuition – For 2009 and 2010, the Hope credit is replaced by a new credit of up to $2,500 per student a year for four (4) years of college, not just the first two years. It now also covers books and the AGI phase out limits are higher for 2009. Also, if the credit is more than your tax liability, 40% of it is refundable.
- 8. Earned Income Tax Credit – For families with three or more children, the maximum earned income tax credit for 2009 and 2010 rises by $628.50. Also, the phase out of the credit for joint filers starts at higher income levels in 2009 and 2010.
- 9.Child Tax Credit – If the credit exceeds the filer’s tax liability, all or part of the credit will be refunded if the filer earns more then $3,000 in 2009 and 2010, down from $12,550.
- 10. Higher Income Limits for Deductible IRAs and Roth IRAs – If you are covered by a retirement plan at work, you can make a full IRA deduction in 2009 if your modified AGI is less than $89,000 (MFJ) or $55,000 (single or HOH). The ability to contribute to a Roth IRA is easier this year with higher AGI phase outs ($166,000 to 176,00 for MFJ and $105,000 to 120,000 for single or HOH).
- 11.Increased Contribution Limit for 401(k) Plans – The maximum employee contribution rises to $16,500 from $15,500 in 2009 for these and similar workplace retirement plans. Workers 50 and older in 2009 can put an additional $5,500 this year, also a $500 increase.
- 12.Estate Tax Exemption – In 2009, the federal estate tax exemption rises to $3,500,000 from its 2008 level of $2,000,000.
- 13.Higher Annual Gift Tax Exemption – For 2009, you can give any individual up to $13,000 without owing any gift tax or having to file a gift tax return.
- 14.Credit for Energy Saving Home Improvements – 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, insulation, high-efficiency furnaces, water heaters and central air conditioners provided they meet certain standards.
- 15.Converting a Second Home to a Primary Home – If you convert a second home to a primary residence after 2008, you may not be able to exclude all of your gain. A portion of the gain on a subsequent sale of the home will be ineligible for the home-sale exclusion of up to $500,000, even if the seller meets the two-year ownership and use tests. The portion of the profit that is subject to tax is based on the ration of the time after 2008 when the house was a second home or a rental to the total time you used it.
- 16.Partial Exclusion for Unemployment Benefits – For 2009, the first $2,400 of unemployment benefits you received is tax free.
- 17.College Savings Plans – Beginning in 2009, 529 plans can be tapped tax free to pay for a computer or internet access.