WASHINGTON
— With 2009 now half over, the Internal Revenue Service reminds taxpayers
to take advantage of the numerous tax breaks made available earlier this year
in the American Recovery and Reinvestment Act (ARRA).
The
recovery law provides tax incentives for first-time homebuyers, people purchasing
new cars, those interested in making their homes more energy efficient and parents
and students paying for college. But all of these incentives have expiration dates
so taxpayers should take advantage of them while they can.
First-Time
Homebuyer Credit
The Recovery Act extended
and expanded the first-time homebuyer tax credit for 2009.
Taxpayers
who didn’t own a principal residence during the past three years and purchase
a home this year before Dec. 1 can receive a credit of up to $8,000 on either
an original or amended 2008 tax return, or a 2009 return. But the purchase must
close before Dec. 1, 2009, and an eligible taxpayer cannot claim the credit until
after the closing date. This credit phases out at higher income levels, and different
rules apply to home purchases made in 2008.
New
Vehicle Purchase Incentive
ARRA also provides
a tax
break to taxpayers who make qualified new vehicle purchases after Feb. 16,
2009, and before Jan. 1, 2010.
Qualifying
taxpayers can deduct the state and local sales and excise taxes paid on the purchase
of new cars, light trucks, motor homes and motorcycles. There is no limit on the
number of vehicles that may be purchased, and you may claim the deduction for
taxes paid on multiple purchases. But the deduction per vehicle is limited to
the tax on up to $49,500 of the purchase price of each qualifying vehicle and
phases out for taxpayers at higher income levels. This deduction is available
regardless of whether a taxpayer itemizes deductions on Schedule A.
Energy-Efficient
Home Improvements
The Recovery Act also
encourages homeowners to make their homes more energy efficient. The credit for
nonbusiness energy property is increased for homeowners who make qualified energy-efficient
improvements to existing homes. The law increases the rate to 30 percent of the
cost of all qualifying improvements and raises the maximum credit limit to a total
of $1,500 for improvements placed in service in 2009 and 2010.
Qualifying improvements
include the addition of insulation, energy-efficient exterior windows and energy-efficient
heating and air conditioning systems.
Tax
Credit for First Four Years of College
The
American opportunity credit is designed to help parents and students pay part
of the cost of the first four years of college. The new credit modifies the existing
Hope credit for tax years 2009 and 2010, making it available to a broader range
of taxpayers, including many with higher incomes and those who owe no tax. Tuition,
related fees, books and other required course materials generally qualify. Many
of those eligible will qualify for the maximum annual credit of $2,500 per student.
Certain
Computer Technology Purchases Allowed for 529 Plans
ARRA
adds computer technology to the list of college expenses (tuition, books, etc.)
that can be paid for by a qualified tuition program (QTP), commonly referred to
as a 529 plan. For 2009 and 2010, the law expands the definition of qualified
higher education expenses to include expenses for computer technology and equipment
or Internet access and related services to be used by the designated beneficiary
of the QTP while enrolled at an eligible educational institution. Software designed
for sports, games or hobbies does not qualify, unless it is predominantly educational
in nature.
Making Work Pay and Withholding
The
Making Work Pay Credit lowered tax withholding rates this year for 120 million
American households. However, particular taxpayers who fall into any of the following
groups should review their tax withholding rates to ensure enough tax is withheld,
including multiple job holders, families in which both spouses work, workers who
can be claimed as dependents by other taxpayers and pensioners. Failure to adjust
your withholding could result in potentially smaller refunds or in limited instances
may cause you to owe tax rather than receive a refund next year. So far in 2009,
the average refund amount is $2,675, and 79 percent of all returns received a
refund.
Related Information
For
more on the Recovery provisions that may apply to individual taxpayers see the
ARRA
page on IRS.gov.
