2009 TAX LAW CHANGES

With each New Year come changes to the current tax laws. Here are a number of tax law changes for 2009:

Tuition and Fees Deduction. Taxpayers can deduct up to $4,000 for qualified tuition and required enrollment fees paid for yourself, your spouse or a dependent. This deduction does have income limitations, but it is more advantageous then both the Hope and Life Time Learning Credits.

Tax-Free Distributions from IRAs for Charitable Purposes. Taxpayers can continue to make tax free distributions from IRAs for charitable purposes through December 31, 2009. This contribution option had expired January 1, 2008. The maximum contribution limit for 2008 and 2009 is $100,000.

Real Estate Tax Deduction for Non-Itemizers. For tax years 2008 and 2009, homeowners who pay real estate taxes but cannot itemized deductions can now deduct those real estate taxes as an additional standard deduction of up to $500 ($1,000 if married filing jointly.)

New Refundable Tax Credit for First-Time Homebuyers. Defined as those who have not owned a home in the three years prior to a home purchase, first-time homebuyers who purchase residences between April 9, 2008 and July 1, 2009 can receive an “interest-free loan” of up to $7,500.00. Because this credit functions as a loan, taxpayers must pay this back in equal installment payments over 15 years. The credit must be claimed on your 2008 or 2009 tax return.

Recovery Rebate Credit. If you did not qualify or receive the maximum amount for the 2008 economic stimulus payment, you may be entitled to a recovery rebate credit when you file your 2008 income tax return.

Section 179 Expense. The maximum Section 179 deduction starting in 2008 is $250,000. A phase out of this amount starts when more than $800,000 of qualifying property is placed in service during the tax year. Special rules apply to certain disaster areas. This only affects businesses that place a large amount of assets into service in one year and have sufficient income that allows the deduction.

Alternative Minimum Tax. Initially created to ensure that high income taxpayers couldn't avoid taxes, the alternative minimum tax (AMT) was again "patched" to prevent it from catching more middle income taxpayers. The higher exemption amount may help you to avoid the AMT and enable you to take advantage of deductions that the AMT disallows.

Sales Tax Deduction. The deduction for state and local sales taxes in lieu of state and local income taxes was extended through December 31, 2009.

Teachers Credit. The deduction for teachers who spend up to $250 out-of-pocket for classroom supplies was extended for 2008 and 2009.

Energy Credit. If you were considering installing energy efficient windows and doors or adding insulation, you may want to wait until 2009. This popular tax credit of up to $500 for energy-efficient items was reinstated for 2009, but not for 2008. The 2009 credit includes biomass (corn, wood pellet, etc.) heating systems.

PMI Deduction. The deduction for mortgage insurance premiums paid on a qualified residence has been extended through December 31, 2010.

Higher Standard Deductions. For 2009, the standard deduction for married couples filing a joint return rises to $11,400, up $500 from 2008. For single filers, the amount increases to $5,700, up $250 over 2008. Heads of households can claim $8,350, up $350 from 2008. Non-itemizers who pay real estate taxes can claim even larger standard deductions. Joint filers can include up to $1,000 of property taxes paid. Singles can include up to $500 of real estate tax payments.

401(k) Plans. The maximum employee contribution rises in 2009 to $16,500 from $15,500 for these and similar workplace retirement plans including 403(b) plans and the Federal Thrift Savings Plan. Workers age 50 and older in 2009 can contribute an additional $5,500 this year, a $500 increase from 2007, bringing the maximum contribution to $22,000.

Minimum Distribution. Taxpayers age 70 ½ and older can decline taking distributions from IRAs and certain other retirement plans during 2009. The new law does not have any provisions for 2008.

Estate Tax Exemption. In 2009, the Federal estate tax exemption increases to $3,500,000, up from $2,000,000 in 2008. Higher Annual Gift Tax Exemption. In 2009, you can “gift” any individual up to $13,000 with avoiding gift tax, which is a $1,000 increase from 2008. There is no impact on the lifetime gift tax exclusion of $1,000,000.

New Mileage Rates. New rates include: 55 cents per mile for business miles driven, 24 cents per mile driven for medical or moving purposes, and 14 cents per mile driven in service of charitable organizations.

Roth IRA Conversions. Beginning in 2010, individuals with more than $100,000 of modified adjusted gross income can convert a traditional IRA to a Roth IRA. Taxpayers who convert in 2010 can spread the tax due over two years (half due in 2011 and the remaining half due in 2012.)