Tax Guide » Tax Laws & The IRS » 7 tax law changes that affect 2010 taxes
Last year, Congress spent a good part of its time worrying about 2011's tax laws. But lawmakers finally did get down to business and passed some legislation at the last hour that could affect your 2010 tax return.
Look out for these seven tax scenarios as you complete your taxes this filing season.
Watch the filing timetableThe first thing some taxpayers need to know about isn't tax laws, but the timing of those laws. Because Congress took until Dec. 17, 2010, to finalize legislation that applies to this year's filing, the Internal Revenue Service is playing catch-up, still revising some forms and updating its computer system.
That means that if you itemize deductions on Schedule A or claim the tuition and fees or educator expenses deductions directly on Form 1040 or 1040A, the IRS won't process your return until Feb. 14. If you e-file, the IRS says don't wait; most software manufacturers will hold your return until Valentine's Day.
Claim the expanded first-time homebuyer creditThis home-related tax break, which first appeared in 2008, was extended yet again in 2010. Because it's a tax credit, you can subtract the amount directly from any tax you owe as long as you had a written, binding contract in place by April 30, 2010, and closed on your primary residence purchase by Sept. 30, 2010.
The exact amount of the credit depends on whether, under IRS definitions, you're a first-time buyer or a move-up buyer. First-time buyers generally haven't owned a home in the preceding three years and can claim an $8,000 tax credit. Folks who previously owned a home but bought another one might be eligible for a $6,500 tax credit.
Even better, the homebuyer credit is refundable for first-timers and move-up buyers. That means that if your tax bill is less than the credit amount, you'll get the excess back as a tax refund.
One downside, however, is that homebuyer credit claimants can't e-file. "Because additional documentation is required -- a copy of the sales contract, closing statement or equivalent -- you'll have to file a paper return," says Mark Luscombe, principal federal tax analyst with CCH, a tax software and publishing company in Riverwoods, Ill.
Repay the original homebuyer creditIf you took the original first-time homebuyer credit a couple of years ago, 2010 is your year of tax-break reckoning.
Initially, the homebuyer tax break was not a true credit, despite being called such by lawmakers. Rather, it was a $7,500 interest-free loan that buyers claimed on their 2008 tax returns and agreed to pay back over 15 years on future tax filings. That payback begins with 2010 returns.
Whether you're claiming the first-time homebuyer credit or paying back the 2008 version, you'll have to file Form 5405.
And don't try to slip past the IRS. The agency can check past returns where homebuyer transactions are claimed. "The IRS already has sent letters to those who claimed the credit in 2008 that they'll owe this year," says Luscombe.