ROR Tax Professionals

2009 Tax Changes and Additions

First-Time Homebuyer Credit
Legislation has been extended and expanded!

On November 5th, the House of Representatives followed the Senate’s lead and voted to extend eligibility for the $8000 first-time homebuyers’ credit to homes purchased through April 30th of 2010. A “first-time homebuyer” is an individual who had no present ownership interest in a principal residence for the three years preceding the purchase of the new home.

In addition to extending the provision, Congress has also expanded the credit to include buyers who don’t meet the definition of a first-time homebuyer. This means, even if you’re not buying a house for the first time, you can qualify for a $6500 credit for buying a new primary residence.

The income limitation for receiving the credit was also increased to $225,000 for married couples.

There is one important limitation for receiving either tax credit: the new home purchased must be bought for $800,000 or less.

End of Reciprocity

The State of Minnesota is ending its income tax reciprocity agreement with the Wisconsin at the end of 2009. Until now, the agreement allowed taxpayers who crossed the state line for work to withhold and pay their income taxes in their home state. Starting at the beginning of 2010, taxpayers must withhold and pay state income taxes in the state where they work. For many, this will also mean having to file two state income tax returns, one where they live and one where they work.

Special Tax Break for 2009

Car Purchases Taxpayers who bought a vehicle between February 16 and December 31, 2009 can deduct state and local sales and excise taxes on up to $49,500 of the purchase price.

The special deduction is available regardless of whether you itemize deductions and is phased out for individuals who make over $135,000 and couples who make over $260,000.

Education Credit Change

For 2009 and 2010, the Hope credit is replaced by a new American Opportunity credit worth up to $2,500 per student and applies to all four years of college, not just the first two years. It now also covers the cost of books.

More 2009 Tax Changes and Additions

Income Restrictions Eliminated for Roth Conversions

For 2010 and beyond, the $100,000 modified Adjusted Gross Income limit on converting a traditional IRA to a Roth IRA has been eliminated. You can now convert that 2009 traditional IRA contribution to a Roth IRA in 2010 regardless of your AGI. You must recognize the amount converted, excluding any basis, as income. That taxable income from a 2010 Roth conversion will be included in gross income ratably over a two-year period beginning in 2011, unless you elect out of the two-year period and include all of it in 2010. This two-year rule only applies to 2010 conversions. We can help you analyze your tax situation to determine which year(s) to recognize any taxable income from a 2010 conversion.

Scam E-mails Can Contain Malicious Software

Several phony e-mails claiming to be from the IRS have been circulating in recent months. These e-mails often contain an attachment or a link to a bogus web page directing taxpayers to their “tax statement.” Once the recipient opens the attachment or clicks on the link, a Trojan-Horse type of virus is downloaded to their computer. The IRS does not send unsolicited e-mails to taxpayers about their accounts. Anyone who receives an unsolicited e-mail claiming to come from the IRS should avoid opening any attachments or clicking on any links and report the suspicious email to phishing@irs.gov. If you believe you’ve been a victim of identity theft as a result of any of these viruses, you can find out what to do by contacting the U.S. Federal Trade Commission’s website.

 

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