The Tax Attic with Jerry Coon — November 25, 2009

Jerry Coon, Enrolled AgentJerry Coon, Enrolled Agent

Five items most affect returns this year

Boy, there sure is a lot going on in the tax arena this year. I have written about this regularly and previously, but it bears repeating: virtually by the minute, our tax system is getting more complicated.

I attended a two-day seminar last week that was attended predominantly by Enrolled Agents, such as me, and Certified Public Accountants. In theory, and in my judgment, these tax professionals are the best informed and educated tax professionals in the market, but even these people were surprised when the manual of topics to be covered was handed out at the registration desk. It was over 800 pages long. The topics covered included not only the tax laws that were passed this year but also the tax laws passed last year that went into effect this year, as well as the myriad of courts cases and Internal Revenue Service rulings and publications that will affect returns prepared this coming tax season. Even to us veteran tax professionals, it’s mind-boggling.

What are some of the items that will affect the largest amount of returns we will file this year? Here is the list as I see it right now:

1. Residential Energy Credit. I wrote a few weeks ago about the energy credit that is available on purchases of golf carts. That was fun to write about, but it’s really important to remember that purchases of energy improvements made to our personal residences can result in a credit of up to $1,500. Remember to keep those receipts and take that credit on this year’s return.

2. Homebuyer’s $6,500 Tax Credit. Any taxpayer who owned and occupied a personal residence for five out of the last eight years and now buys a new personal residence will qualify for a refundable credit of $6,500. The closing has to have taken place after November 6, 2009. The previous residence doesn’t even have to be sold. Stay tuned for more clarifications, but this is a huge credit.

3. New Hope Tuition Credit. The Hope tuition credit was substantially expanded. The old Hope credit was up to $1,800 per year for up to two years, was non-refundable, and began to phase out at the relatively low income thresholds of $45,000 on a single return and $90,000 on a joint return. The new Hope credit can be affectionately called a Double-Double. The new credit is available for four years, double the number of years of the old credit. The new credit begins to phase out at $90,000 on single returns and $180,000 on joint returns, double the income of the old credit. In addition, the credit itself has been increased to $2,500 per year—not quite double, but still a nice increase. If taxpayers use the new Hope credit to wipe out all of their tax liability, up to 40% of the credit can be refundable. The old credit was not refundable. The new credit also expands the expenses that qualify for the credit. Now books and classroom fees will qualify for the credit.

4. Additional Child Tax Credit. The threshold at which the $1,000-per-child credit can be refundable was greatly reduced. Previously, the credit could be refundable only if the taxpayer had earned income in excess of $8,500. For 2009, the credit can be refundable if the taxpayer has earned income in excess of only $3,000. This has the potential to greatly increase refunds for taxpayers with children under the age of 17.

5. Sales Tax and Property Tax Deduction. Taxpayers who bought a brand-new automobile, truck of less than 8,500 gross vehicle weight, motor home or motorcycle after Feb. 16, 2009, and through Dec. 31 are eligible to claim the sales tax paid on the purchase whether or not they itemize. This takes in the time period that the “Cash for Clunkers” program existed. In addition, taxes paid on real property can be deducted whether or not the taxpayers itemize on their federal return. A large number of taxpayers should be taking advantage of these two deductions in particular and the many credits I discussed earlier.

It will be particularly important to go over these many items when preparing all tax returns this year. This is Jerry Coon signing off.

Jerry Coon is an Enrolled Agent. He owns
Action Tax Service on Northland Drive in Rockford.
His telephone number is (616) 866-4704 and his
e-mail address is jcoon@actiontaxservice.com.

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