Wednesday, December 30, 2009

Sale of your home

As many people know, if you sell your home you may be able to exclude from taxable income up to $250,000 in gains for an individual or up to $500,000 for a married couple.
There has been a change in the rules about the usage of the home that could affect some taxpayers who have used the home at some point as a rental property or vacation property, second home, etc. This change does not apply to anything that happened before January 1, 2009. However, starting with that date, if the property is not used as your main home for some period of time, then the gain is allocated between what they call qualified and non-qualified use. The gain for the qualified-use period can be excluded from taxable income, but the gain from the non-qualified-use period cannot. You would have to pay tax on that part of the gain. Again, this only applies to you if the home was used as other than your main home during any time starting with January 1, 2009.

Monday, December 28, 2009

Not taxable in 2009

1. "Cash for Clunkers" payments are not taxable on your Federal income tax
2. Unemployment compensation up to $2,400 is not taxable, but anything over $2,400 is still taxable.
3. Economic recovery payments. In 2009, there were payments of $250 to Social Security recipients and certain others. These are not taxable.

Certain other payments continue to be non-taxable, as usual:
1. Expense sharing in a car pool.
2. A rebate from a car manufacturer when you buy a car.
3. Casualty insurance reimbursements (with some exceptions).
4. Court awards for personal injury.
5. Assistance from a non-profit organization to make a down payment on a home.
6. Subsidies and rebates from public utilities for purchasing energy conservation measures for a dwelling unit.
7. Child support payments.
8. Disaster relief payments.
9. A few other special circumstances.

If you have questions on other particular types of income, please contact our office.

Sunday, December 20, 2009

Home-Buyer Credits

There have been three different (yet similar) home-buyer credits since 2008. The first two were exclusively for first-time home-buyers, but the latest one, in effect for homes purchased after November 6, 2009, expands it to some people who already owned a home.
The first credit, in effect for 2008, was for a maximum of $7,500. It was not a no-strings-attached credit, because those who claimed it have to pay it back at $500 per year additional tax on their tax returns for fifteen years.
The credit that was in effect for most of 2009 was a maximum $8,000 refundable credit for first-time home-buyers only. It does not have to be repaid.
For homes purchased after 11/6/09, the same basic credit is in effect, but if the home is not the buyer's first home purchase, he/she/they may qualify for a $6,500 refundable credit.
(We always throw in the adjective "refundable," because some credits are not refundable, meaning that if you do not have enough tax to use them up, you lose them. In this case, even if you had no tax and bought a home that was your first home, the government would send you a refund check for $8,000.)
The credit is now good until May 1, 2010. For homes purchased in 2010, the credit can be claimed on either the 2010 or the 2009 tax return. So, for people still hoping to get a big refund on their 2009 tax return, if they enter into a binding contract before 5/1/2010, and close by 7/1/2010, they qualify.
The $6,500 credit for non-first-time home-buyers is limited to buyers who lived for a minimum of five of the last eight years in a home they owned.
In any case, the buyers must keep the home, and keep using it for their main home, for at least 36 months to avoid paying back the credit. Also if your income is too high (depending on the purchase date) the credit is reduced or eliminated.
As with any tax matter, there is plenty of complexity. If you have questions you can go to Publication 17 at www.irs.gov, or call me.

Saturday, December 19, 2009

Estate Tax, Part 3

The Senate is considering bills to change the estate tax. One bill would keep the 45% rate and the $3.5 million exemption, but would index the exemption to inflation each year.
Another bill being considered would raise the exemption to $5 million and lower the maximum tax rate to 35%.
Another thing they might do is just extend the 2009 provisions for one year, 2010, and then address the issue anew after the healthcare debate is over.

Friday, December 11, 2009

Estate tax, part 2

The Wall Street Journal reports that the House of Representatives voted recently to repeal the expiration of the Estate tax, which is scheduled for 2010, and keep the 2009 rates permanently. That means 45% of everything over $3.5 million. The Senate still has to vote on the matter, but they are pretty tied up with the health care debate at the moment. Again, it will be interesting to see what happens. Most of the prognosticators say that the likely outcome is the one the House just voted for.

Monday, December 7, 2009

Tax Planning and Estate Tax

Here are some things you might like to be aware of (or not care about) as you contemplate your tax situation for the end of 2009.
1. The first-time home-buyer tax credit has been extended and expanded.
2. Sales tax on a new vehicle is deductible even if you don't itemize. You can deduct the sales tax on the first $49,500 of your purchase. If you buy more than one car, you can deduct the sales tax on the second or third car, too.
3. As in 2008, non-itemizers can deduct some of their real estate taxes ($500 for single people and $1,000 for married filing jointly).
4. In fact, for 2009, there are so many things to account for for non-itemizers that they have to file a form as big as Schedule A to keep track of them.
4. Minimum Required Distributions from IRAs are NOT required for 2009 for those over 70 & 1/2.
5. New energy credits now at a rate of 30% and a maximum of $1,500, except on solar and wind, on which there is NO limit.

Looking forward into 2010, income tax rates are expected to stay the same as in 2009. However, in the area of the Estate Tax (also know as the Death Tax), there is no real certainty about what will happen for 2010. The best guesses throughout the year up to now have been that the 2009 estate tax rates and structure would be extended into 2010. However, Congress has been so tied up with health care that they have not gotten around to doing anything about the estate tax. Under existing law, there will be no estate tax at all in 2010. It has been phased down for the last few years, and next year it is scheduled to disappear. Unfortunately, if nothing is done before 2011, that year's estate tax will revert back to the old law, which taxed everything over $1,000,000 at 55%. Congress still has some time to change the 2010 law, since the estate tax returns are not due till nine months after the person dies. Therefore Congress could theoretically wait until September to change the law. At any rate it will be interesting to watch what happens.
Also in 2010, the restriction against converting a regular IRA to a Roth for people with income over $100,000 has been eliminated, and taxpayers are given two years to pay the resulting tax. However, because of the amount of taxes that will be generated by such a conversion, taxpayers are urged to exercise caution and consult carefully with their tax advisers before they make such a move.