Russell M. Khederian

the 2009 American Recovery and Reinvestment Act

INDIVIDUAL PROVISIONS:

Making Work Pay tax credit

For the years 2009 and 2010, Congress gave workers a credit of 6.2 percent of their earned income, capped at $400 for single filers and $800 for joint filers. For single filers, the credit starts phasing out at $75,000 of Adjusted Gross Income and is completely phased out at $95,000. The phaseout zone for joint filers is $150,000-$190,000. Employees will get the credit in advance via lower income tax withholding in each paycheck, not as a rebate check.

Self-employed taxpayers can reduce their quarterly estimated payments to get an advance benefit from the credit. The exact amount of the payroll tax credit for the year will be calculated on the filers’ tax returns.

First-time Home Buyer Credit

This will enhance and extend the law that was passed last year, which required a 15-year payback period. The new law will eliminate the repayment obligation for taxpayers who purchase homes (condos and co-ops) after Jan. 1, 2009 and before Dec. 1, 2009 and raise the maximum value of the credit to $8,000. The credit will phase out for high earners (see below).

Congress extended and expanded the wildly popular 2008 first-time homebuyer tax credit. Now, existing homebuyers are eligible to receive a tax credit of up to $6,500 if they buy a replacement home by June 30, 2010. In addition, the income limits have been increased, making even more people eligible for these credits.

If you purchased a primary residence in 2009 before December 1, 2009, and are a “first-time” homebuyer, you can qualify for a tax credit equal to 10 percent of up to $80,000 of the purchase price. To be eligible, you must not have owned a residence in the United States in the previous three years.

The credit is refundable to the extent it exceeds your regular tax liability, which means that if it more than offsets your tax liability, you’ll get a refund check. But it does not offset the Alternative Minimum Tax. The credit for 2009 purchases generally doesn’t have to be paid back. But you will have to repay it if you sell the house within three years of the date you bought it.

In November 2009, the program was broadened to include existing homeowners, meaning those who have lived in the same principal residence for any five-consecutive-year period during the past eight years. Homeowners are eligible for a credit of up to $6,500 if they buy a replacement home to use as their principal residence. They are not required to sell or dispose of their current home, but the new home must become their principal residence. To be eligible, homebuyers must buy, or enter into a binding contract to buy, a replacement principal residence after Nov. 6, 2009, and on or before April 30, 2010, and close on the home by June 30, 2010.

In addition, income limits were expanded from earlier versions of the credit. Homebuyers who file as single or head-of-household taxpayers can claim the full credit if their modified adjusted gross income (MAGI) is less than $125,000. For married couples filing a joint return, the combined income limit is $225,000.

Single or head-of-household taxpayers who earn between $125,000 and $145,000, and married couples who earn between $225,000 and $245,000 are eligible to receive a partial credit. The credit is not available for single taxpayers whose MAGI is greater than $145,000 and married couples with a MAGI over $245,000. Also, homes costing more than $800,000 are not eligible for the credit.

American Opportunity Education Tax Credit.

This law  temporarily replaces the Hope credit. will provide financial assistance for individuals seeking a college education. For 2009 and 2010, the package will provide a tax credit of up to $2,500 of the cost of tuition and related expenses (including books) paid during the taxable year. It is available for the first four years of college.  Again, there is a phase-out for taxpayers with adjusted gross income in excess of $80,000 ($160,000 for married couples filing jointly).

Sales Tax Deduction for New Vehicle Purchases

Buyers of new vehicles can deduct the sales tax paid on the purchase, even if they don’t claim sales taxes as itemized deductions. They can add the tax they pay to their standard deduction. This break applies to new cars, motor homes, light trucks and motorcycles purchased after February 16, 2009 and before January 1, 2010. Sales tax paid on the first $49,500 of cost qualifies. The benefit begins phasing out for married couples with Adjusted Gross Income (AGI) over $250,000 and singles with AGI $125,000. It is completely phased out for single filers with Adjusted Gross Income of $135,000 and for joint filers with AGI of $260,000. 

Itemizers who elect to deduct state sales taxes in lieu of state income taxes get no benefit from this change, since the auto sales tax is already included in the sales tax deduction. Itemizers who deduct state income taxes will get a separate deduction for auto sales taxes; non-itemizers will add the sales tax amount to their standard deduction amount. 

Temporary Suspension of Taxation of Unemployment Benefits.

Under current law, all Federal unemployment compensation is subject to taxation. This provision temporarily suspends Federal income tax on the first $2,400 of unemployment benefits per recipient. Any unemployment benefits over $2,400 will be subject to Federal income tax. Additionally, the Emergency Unemployment Compensation program will provide up to 33 weeks of extended unemployment benefits through Dec. 31, 2009 and will increase weekly benefits by $25.

Extension of AMT relief for 2009

This law will provide more than 26 million families with tax relief by increasing the Alternative Minimum Tax exemption amount to $70,950 (MFJ) and $46,700 for individuals.

Tax Credits for Energy-Efficient Improvements to Existing Homes

For 2009 and 2010, the law will increase the amount of the tax credit to 30 percent of the amount paid for qualified energy efficiency improvements, such as new furnaces, hot water tanks, energy-efficient windows and doors, or insulating materials during the taxable year. The cap on the tax credit has been raised to $1,500.

Section 179 Expense Deduction and Bonus Depreciation

The maximum amount of equipment placed in service in 2009 that businesses can expense stays at $250,000. And the annual investment limit remains $800,000. Thus, you won't begin to lose the benefit of expensing until you place more than $800,000 of assets in service in 2009.

Bonus depreciation allows a business to write off an additional 50 percent of the cost of new equipment in the first year.

These benefits are set to expire on December 31,2009 unless extended into  2010 by Congress.  

Child Tax Credit

If the credit exceeds the filer’s tax liability, all or part of the credit will be refunded if the filer earns more than $3,000 in 2009 and 2010, down from $12,550 in earnings previously.

Kiddie Tax

In 2009, a child's unearned income over $1,900, such as gains and dividends, is taxed at the parents' marginal rate until the year the child is age 19, or age 24 for full-time students whose earned income is less than half their support.

Higher Income Limits for Deductible IRAs and for Roth IRAs

If you are covered by a retirement plan at work, you can take a full IRA deduction in 2009 if your modified Adjusted Gross Income is less than $89,000 (married filing jointly) or $55,000 (single or head of household). A partial deduction is allowed until your Adjusted Gross Income reaches $109,000 if you are married filing jointly, or $75,000 if you are single or a head of household. Also, the opportunity to contribute to a Roth IRA is now phased out as your modified Adjusted Gross Income rises between $166,000 and $176,000 if you are married filing jointly, or $105,000 to $120,000 if you are single or a head of household.

Capital Gains Tax and Dividend Tax Rates

The tax rate on capital gains from the sale of assets held longer than one year remains at 0% for people in the 10 percent or 15 percent tax brackets. The 15 percent maximum tax rate on long-term capital gains for taxpayers in higher brackets also remains the same. Similarly, the special 5 percent maximum rate on dividends of taxpayers in the 10 percent and 15 percent tax brackets remains at zero percent through 2010.

Converting a Second Home to a Primary Home

If you convert a second home into a principal residence after 2008, you may not be able to exclude all of your gain. A portion of the gain on a subsequent sale of the home will be ineligible for the home-sale exclusion of up to $500,000, even if the seller meets the two-year ownership-and-use tests. The portion of the profit that’s subject to tax is based on the ratio of the time after 2008 when the house was a second home or a rental unit, to the total time you owned it.

OTHER BUSINESS PROVISIONS:

Small businesses experiencing losses in tax years beginning or ending in 2008 can benefit from a provision that allows them to apply the loss to previous years’ income for as many as five years before the year in which the loss takes place, potentially producing a tax refund for the prior year. Normally, losses can be “carried back” only to the two previous years. “Small” businesses, for this purpose, are those with gross receipts of less than $15 million.

Small business stock. To encourage purchase of certain small business stock, the law increases the exemption for gain on the stock held for five years or more from 50 percent to 75 percent for stock acquired after the date of enactment and before January 1, 2011.

S-Corporation built in gains tax. For S corporation conversions, the law temporarily shortens, from 10 to 7 years, the holding period for assets subject to the built-in gains tax imposed after a C corporation elects to become an S corporation. This reduction would apply to C corporations that convert to S corporations in tax years beginning in 2009 and 2010.

IMPORTANT NOTE

On January 7, 2010 we will begin sending each individual tax client our 2009  Income tax questionnaire. This form should be completed prior to our annual meeting.

If you have not received the 2009 questionnaire or need another copy please click on the " Income Tax Questionnaire" tab at the top of this page. You can  then print out individual pages or the entire form. 

You may also contact Sharon at our office and we will mail you or fax you a copy.   Call Sharon at 617-484-1816 or email her at belmontcap@aol.com.

 2008 Woodland Country Club Member-Guest Overall Champions

Bob and Russ Khederian

 3 Stooges Hand Puppets c:1959

Christmas 1959

Paris 2009

Taken where my father (US Army- Purple Heart recipient)  stood after the liberation of France  in 1944