Some Key Changes in 2009

President Obama signed the American Recovery and Reinvestment Act into law earlier this year and with it came many changes which may impact your tax planning. Some of those changes are outlined below.

Education

The “Hope Scholarship” Credit was replaced by a better credit of up to $2,500 for all four years of college and is known as the American Opportunity Tax Credit. The phaseout range has been expanded so more people can take advantage of the credit: starting at $80,000 AGI for singles and $160,000 for couples. If the credit exceeds your income tax liability, 40% of it is refundable. Qualifying expenses now include course materials under this enhanced credit.

Retirement

The required minimum distributions (RMDs) from IRAs, 401(k) plans and similar retirement accounts were suspended for 2009.

Real Estate

The break for first-time homebuyers (those who have not owned a main residence for the last three years) was further enhanced with the passage of this law. The maximum tax credit for those buying between January 1 and November 30, 2009 rises to 10% of the purchase price or $8,000, whichever is less. The credit does not need to be repaid if the home remains a main residence for three years after the purchase date. 2008 purchases remain subject to the earlier rules, including pay-back. Phaseout of the credit starts of modified AGI of $75,000 for singles; $150,000 for joint filers.

Sales Tax on New Vehicles

There’s a new above-the-line deduction for the sales taxes or other fees (in states with no sales tax) on new vehicles purchased in 2009 after February 16. Taxes on the first $49,500 of the purchase price qualify. The deduction phaseout starts at AGI $125,000 singles; $250,000 couples.