Facing a struggling economy, lawmakers in Washington, D.C., turned to the tax code to help get it, and us consumers, moving again. Most of the tax changes were part of the stimulus package enacted last February, the American Recovery and Reinvestment Act of 2009. There are seven new tax laws you should know, and some old tax laws with new amounts adjusted for inflation.
Tax breaks were created, or in some cases expanded, for autos and home purchases, as well as for certain residential improvements. Uncle Sam now pays more of some educational costs. Some workers get bigger tax benefits to offset their commute to work. Folks who no longer have jobs at least get some tax relief. Even how you pay your IRS bill could turn into a deduction.
Here's a look at some popular tax laws that could come in handy as you work on your 2009 tax return.
1. More homebuyer creditsIn February 2009, the popular first-time homebuyer credit became a true credit, meaning that it can directly reduce dollar-for-dollar any tax you owe. Even better, the amount of the credit was increased; it's now up to 10 percent of the cost of the house up to a maximum $8,000. Best of all, it's a refundable credit so if your tax bill is zero, any credit for which you qualify will be sent to you as a refund.
A few months later, Congress extended the credit for the rest of the year (as well as into 2010). At that time, lawmakers added a new credit for "long-time" homeowners who've owned and lived in their residences for at least five consecutive years of the eight years before they buy a new house. Those folks now might qualify for a $6,500 credit.
While the first-time home purchase credit is generally a good thing for taxpayers, it will require some care in claiming it. Because of the various law changes, different income eligibility limits apply depending on when you bought the house and which type of buyer, first-time or move-up, you are.
7 new tax laws
- Homebuyer credits.
- New vehicle deduction.
- Expanded education credit.
- Home energy improvements credit.
- Unemployment income exemption.
- Bicycle commuter benefit.
- Credit card convenience fee deduction.
The new law also requires stricter proof of purchase. This safeguard against fraud requires you to send in a copy of settlement sheet, so you won't be able to file your 2009 return electronically. And that could slow down your refund.
2. New-car sales tax deductionsIf you bought a new vehicle -- that includes a car, light truck, motorcycle or even a motor home -- on or after Feb. 16, 2009, and by Dec. 31, 2009, any sales or excise tax you paid could be a deduction.
This isn't a new option for taxpayers who itemize. But now even taxpayers who claim the standard deduction can take advantage of the tax break. Standard deduction filers will have to fill out a new form, Schedule L, to claim the automotive sales tax. Itemizers still will have the choice of claiming the deduction for the sales tax on Schedule A.
Just don't count on writing off the sales taxes on a luxury vehicle. The deduction is limited to the tax paid on up to $49,500 of a vehicle's purchase price. You can, however, claim the tax deduction for each new vehicle you bought last year.
And your deduction might be limited by your income. You'll get a partial deduction if your income as a single taxpayer is between $125,000 and $135,000; between $250,000 and $260,000 for joint filers. If you make more than those top amounts for your filing status, you can't claim any amount.