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The bright spot of the dreary 2009 economy: savings for everyone.
1 . You bought a house
Late last year, Congress extended the valuable homebuyer break beyond first-timers. So if you already owned a home but bought a new one after Nov. 6, 2009, you may be entitled to a credit worth 10% of the purchase price, up to $6,500.
Even if you buy in 2010 — you have until April 30 to sign a contract and until June 30 to close — you can claim the credit on your 2009 return, says Mark Luscombe, a principal analyst with tax research firm CCH. (You may need to file an extension or amended return if you sign after April 15.)
The fine print: You have to have lived in your old home for five consecutive years of the past eight. Plus, the new home must be your principal residence and must have cost $800,000 or less. Of course, first-time homebuyers also benefit, with a credit of 10% of the price up to $8,000. So if a child or someone else you know finally kicked the renting habit in 2009 — or plans to in early 2010 — have him or her check irs.gov for dates and income restrictions.
Income Limits (for repeat homebuyers)
Full credit up to $225,000
Partial credit up to $245,000
Potential savings: $6,500 for a repeat homebuyer on a house worth $65,000 or more
2. You’ve got a kid in college
New for 2009 and 2010, the American Opportunity Tax Credit “will typically be the most generous of the education credits,” says John Roth, a senior analyst with CCH. With it, you can claim $2,500 per student per year for the first four years of college.
Still on the books are the Hope Credit, which provides $1,800 per student for the first two years of college, and the Lifetime Learning Credit, which offers up to $2,000 per return. But you can’t take more than one of them in any given year for any one student. So most people should go with the more valuable AOTC, which also has higher income caps.
Income Limits
Full credit up to $160,000
Partial credit up to $180,000
Potential savings: $2,500 per student
3. You got a new set of wheels
If you bought a new car, light truck, motor home, or motorcycle after Feb. 16, 2009, you can deduct the sales taxes you paid on up to $49,500 of the vehicle’s price. You don’t need to itemize to take this special one-year write-off — making it especially valuable for high earners who typically have their itemized deductions clipped or who might otherwise get hit by the alternative minimum tax (AMT). Traded in a junker through the Cash for Clunkers program? Lucky you, you can take this break too.
If you normally opt to deduct your sales taxes in lieu of state and local taxes on your Schedule A — a choice made by many people in low-income tax states — you would have been allowed to write off auto sales taxes anyway. But you should run the numbers to see if you’d be better off using this new provision vs. itemizing, as many itemized deductions are subject to being added back in with the AMT.
Income Limits
Full break up to $250,000
Partial break up to $260,000
Potential savings: $420 on a $30,000 car in a state with a sales tax of 5%
4. You were out of work
More than 5 million U.S. jobs disappeared in 2009, according to the Bureau of Labor Statistics. Yours was one of them? You can use your 1040 to soften the hard times if …
You collected unemployment: This income is usually taxable, but for 2009 only, the first $2,400 of it is tax-free, says Mark Steber of Jackson Hewitt. Households in which both spouses collected unemployment can exclude $4,800. So if you chose to have taxes taken out of your weekly benefits, you “may end up getting a better-than-expected refund,” says CCH’s Luscombe.
Potential savings: $672 per recipient
You looked for a job: As long as you’ve been seeking work in the same field as your last position, your expenses — including those for travel, career coaching, and résumé services — qualify as miscellaneous deductions, and you can write them off to the extent that they (combined with other deductions like safe-deposit fees) exceed 2% of your adjusted gross income (AGI). You can take this break even if you weren’t out of work.
Potential savings: $840 if you had a $140,000 income and $5,800 in these and other miscellaneous expenses
You paid the full tab for health insurance: Most taxpayers don’t have enough out-of-pocket medical expenses to meet the steep threshold for deducting them: You can write off these costs only to the extent that they exceed 7.5% of your AGI. But if you were out of work last year and had to pay for COBRA or other health insurance, there’s a good chance those costs may have put you over the limit — especially if your income fell too. (The average family paid $4,776 for COBRA last year, even with the subsidy that was part of the economic relief package, according to data from the Kaiser Family Foundation.) Aspirin and eyeglasses count toward the write-off; see IRS publication 502 for a list of other qualifying expenses.
Potential savings: $132 if your income was $70,000 and you paid average COBRA costs plus another $1,000 in medical bills
5. You helped those in Haiti
Though the earthquake occurred in 2010, you don’t have to wait until next year to deduct your contributions to nonprofits providing disaster relief. Congress fast-tracked a bill that lets you deduct donations made before March 1, 2010 on your 2009 tax return. A bill is currently in the House that would enable taxpayers to deduct last-minute donations to Chile earthquake relief from their 2009 returns as well.
Potential savings: $56 for giving $200 to Haiti relief
6. You had investment losses
Even with the market’s surge last year, the average stock was still down 29% from its October 2007 peak. If you sold securities at a loss in 2009 and you had owned the shares for more than a year, those losses can come in handy now. You can use them, as well as any losses you carried over from 2008, to offset capital gains you may have reaped by selling investment winners as the markets recovered. Have more losses than gains? You can also use up to $3,000 in net investment losses to offset ordinary income. And any leftover losses can be carried forward to reduce your 2010 taxes.
Potential savings: $840, assuming $3,000 in losses and no capital gains
7. You weathered a disaster
There were 59 federal disasters declared in 2009, everything from ice jams in Alaska to flooding in Florida. If your house was damaged in one of them and your homeowners insurance didn’t pick up the full bill, you have money coming back to you — and you don’t need to itemize to get it. For 2009, there is no limit on what you can claim (typically you can deduct only losses greater than 10% of AGI). And you can also retroactively apply any losses you can’t use to 2008 taxes. File amended returns to get your money quickly. One hitch: You must subtract $500 from the loss before writing it off.
Potential savings: $6,860 if you took a $25,000 hit
8. You made energy-efficient home improvements
For 2009 the government offered taxpayers more green for going green. You can take a credit worth 30% of what you spent on energy-saving skylights, replacement windows, water heaters, and the like. (Go to energystar.gov to see what qualifies.) But instead of the $500 cap previously on this benefit, you can now claim a combined $1,500 for 2009 and 2010.
If you went green in a big way — installing a solar, wind, or geothermal energy system into your house, for example — you can cash in on a 30% credit, with no upper limit. (Previously this maxed out at $2,000.) If this latter credit exceeds your total tax bill, you can apply the unused portion to next year’s return, says Luscombe.
Potential savings: $1,500 if you spent $5,000 on windows and skylights
Potential savings: $10,500 if you spent $35,000 on solar heat and electric
9. You own property but don’t itemize
Those who itemize their deductions typically get credit for their property taxes. But those who didn’t itemize missed out on this break in the past. For the 2009 tax year (as in 2008), joint filers who don’t itemize are allowed to deduct as much as $1,000 of those taxes. This is especially valuable to anyone who’s paid off a mortgage, or come close, and doesn’t have enough mortgage interest to justify itemizing. Use the new Schedule L to nail down this deduction.
Potential savings: $280 for $1,000 in taxes
10. You picked up a second job
Many Americans took freelance work in 2009 to make up for smaller paychecks and shrunken investment accounts. Whether you spent time selling old baseball cards on eBay or consulting for a former boss, you probably have a business by IRS standards. And that gives you a whole host of write-offs, including costs of supplies, equipment, and work-related errands (55¢ a mile for business use of your car).
Better yet, if you’re running this side operation out of a home office — and not also using it as a TV room/guest room/playroom — you can deduct a prorated share of your utility bills and even your mortgage payments.
Potential savings: $420 on the typical home office alone
11. You moved for work
Did the miserable job market send you searching far and wide for employment? If you ended up relocating for a full-time position that’s at least 50 miles farther from your old home than your last job was, you can deduct your moving expenses on Form 3903. That includes the cost of the moving company or truck rental, boxes and tape, shipping your car or your pet, storing your things, starting and stopping utilities, and traveling to the new location.
Potential savings: $1,540 if the move cost $5,500
12. You’re a high earner
Top earners usually pay for their fat paychecks in reduced exemptions and deductions. But if you’re among those bringing home big bacon, you’ll be glad to hear that, for you, the 2009 tax code is kinder and gentler. Two ways you’ll benefit:
You’ll get credit for your kids: This year anyone who doesn’t fall into the AMT zone will get some personal exemption for claiming their children as dependents. In previous years that exemption — $3,650 for 2009 — phased out at higher income levels. This year it phases down to $2,433, but not out.
Potential savings: $852 per kid, assuming you’re in the 35% tax bracket
You get more from itemizing: Typically, high-income-tax filers have to reduce their itemized deductions by 3% of the amount their AGI exceeds a certain threshold ($166,800 for single and joint filers in 2009). But for 2009 that reduction comes down to 1%.
Potential savings: $142 for the average itemizer in the 28% bracket.
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