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Hot Tax Tips 2010 Print

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Tax tips for 2010

Tax tips for 2010

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  • 1. Hot Tax Tips 2010
    January 28, 2010
    Christine Elsea Mandojana, CPA
  • 2. Agenda
    Major 2008 Tax Law Changes
    Major 2009 Tax Law Changes
    What’s Ending?
    What’s Beginning?
  • 3. Major 2008 Tax Law Changes
  • 4. Major 2008 Tax Law Changes
    Renewed and Expanded national/refundable tax credit for first-time homebuyers and move-up buyers
    Limitations on exclusion of gain (Sec 121) from sale of principal residence
    Additional standard deduction for state and local real property taxes paid in 2009
    Cancellation of Debt Income—Exclusion for Certain Home Mortgages
    State & Local Sales Tax Deduction
    Tuition & Fees Deduction
    Educator’s Expense Deduction
    Temporary Itemized Deduction for PMI
  • 5. Equivalent to an interest-free loan equal to 10% of home purchase price (up to $7,500)
    Taxpayers must pay back loan beginning two years after home purchase tax year and over 15 year period/equal installments
    MAGI Phase-outs: MFJ = $150k to $170k;Others = $75k to $95k
    Restrictions: can’t buy from close relative, receive as gift or inherit the property; and can’t sell or cease to be primary residence before end of purchase tax year; recapture is accelerated if taxpayer disposed of the residence or it ceased to be the taxpayer’s (or spouse’s) principal residence during the 15-year period
    First-time homebuyer definition: cannot have owned another main home during 3 years prior to date of purchase
    Major 2008 Tax Law Changes
    The Evolution of the First-Time Homebuyers Credit
    Applies to home purchased between:
    April 9, 2008 and December 31, 2008
  • 6. Major 2008 Tax Law Changes
    The Evolution of the First-Time Homebuyers Credit
    Applies to home purchased between:
    January 1, 2009 and November 30, 2009
    • Refundable credit for up to 10% of home purchase price (up to $8,000 or $4,000 for Single)
    • 7. Taxpayer does not pay back the credit unless the taxpayer disposes of the residence, or the residence ceases to be the taxpayer’s (or spouse’s) principal residence, during the 36-month period beginning on the date of purchase
    • 8. MAGI Phase-outs: MFJ = $150k to $170k; Others = $75k to $95k
    • 9. Restrictions: can’t buy from close relative, receive as gift or inherit the property
    • 10. First-time homebuyer definition: cannot have owned another main home during 3 years prior to date of purchase
  • Major 2008 Tax Law Changes
    The Evolution of the First-Time Homebuyers Credit
    Extended & Expanded!!
    Applies to home purchases with closing date b/w:
    January 1, 2009 and June 30, 2010
    First-Time Homebuyer cannot have owned another principal residence during the 3-year period ending on the date of the purchase of the principal residence
    Long-Time Residents have owned the same home for any 5-consecutive-year period during the 8-year period ending on the date of the purchase of a subsequent principal residence
    Refundable credit for up to 10% of home purchase price (up to $6,500 or $3,250 for Single)
    Refundable credit for up to 10% of home purchase price (up to $8,000 or $4,000 for Single)
  • 11. Major 2008 Tax Law Changes
    The Evolution of the First-Time Homebuyers Credit
    Extended & Expanded!!
    Applies to home purchases with closing date b/w:
    January 1, 2009 and June 30, 2010
    • Taxpayer must have a binding contract to purchase before May 1, 2010 and must close on sale before July 1, 2010
    • 12. Taxpayer does not pay back the credit unless the taxpayer disposes of the residence, or the residence ceases to be the taxpayer’s (or spouse’s) principal residence, during the 36-month period beginning on the date of purchase
    • 13. MAGI Phase-outs: MFJ = $225,000; Single = $125,000
    • 14. Restrictions: can’t buy from close relative, receive as gift or inherit the property; taxpayer > 18; purchase price < $800,000
  • Major 2008 Tax Law Changes
    The Evolution of the First-Time Homebuyers Credit
    New Military, FSO & Intel Benefits!!
    Applies to home purchases with closing date b/w:
    January 1, 2009 and June 30, 2010
    • Members of the Military and qualifying Foreign Service and Intelligence Community members serving outside the US now have an extra year to buy a principal residence in the US and qualify for the credit!!
    • 15. Eligible taxpayer must enter into a binding contract to buy a principal resident on or before April 30, 2011 and must close on or before June 30, 2011
    • 16. Eligible taxpayer must serve on qualified official extended duty service outside the US for at least 90 days during the period beginning after 12/31/2008 and ending before May 1, 2010
    • 17. Credit repayment/recapture is waived for eligible taxpayers if the home is sold or stops being the taxpayer’s principal residence after 12/31/2008 due to government orders received by the taxpayer (or spouse) for qualified official extended duty service
  • Helps homeowners who claim the standard deduction
    Homeowners can claim an additional standard deduction up to the lesser of the real estate taxes paid or $500 for single and $1,000 for MFJ filers
    Real taxes paid must meet same requirements for itemized deduction (i.e., based on value of property)
    If you own but rent your property, then you cannot take this additional deduction because you are already claiming the real property taxes on your Schedule E
    Major 2008 Tax Law Changes
    Additional Standard Deduction for State and Local Real Property Taxes Paid in 2009
  • 18. Sec 121 gain exclusion amended to limit gain exclusion to period home used as principal residence
    Gain related to period of time home rented or used as second home is no longer excluded (for periods starting in 2009)
    Exceptions for Military, US Foreign Service, US Intelligence community, and Peace Corp
    Major 2008 Tax Law Changes
    Limitations on Exclusion of Gain from Sale of Principal Residence
    Sec 121 Gain Exclusion: You can exclude capital gain up to $250,000 for single and $500,000 for MFJ on sale of a principal residence you owned and lived in the last 2 out of 5 years. You cannot exclude gain up to depreciation required by law. Ten-Year suspension period in effect for military, US Foreign Service, Intelligence community, Peace Corps. Other exceptions may apply.
  • 19. Major 2008 Tax Law Changes
    • Cancellation of Debt Income—Exclusion for Certain Home Mortgages
    • 20. Provision allowing individuals to exclude from income up to $2 million ($1 million Single) of qualified principal residence indebtedness cancelled b/c of their financial condition or decline in value of the residence—extended through 2012
    • 21. Tuition and Fees Deduction
    • 22. Above-the-line deduction for tuition and fees is extended through 2009
    • 23. Higher AGI limits than other education benefits ($4,000 deduction for AGI at or below $65,000 or $130,000 MFJ; $2,000 for AGI b/w $65,000/$80,000 or $130,000/$160,000 MFJ)
    • 24. Lifetime Learning and American Opportunity Credit (modified HOPE) are still available at lower MAGI
  • Major 2008 Tax Law Changes
    • Educator’s Expense Deduction
    • 25. Above-the-line deduction for expenses paid by qualifying K – 12 grade teachers and other qualifying educators
    • 26. Up to $250
    • 27. Extended through 2009
    • 28. Only US educators qualify
    • 29. Temporary Itemized Deduction for PMI
    • 30. Qualified mortgage insurance premiums paid are deductible as mortgage interest expense
    • 31. Deduction extended through 2010 (started in 2007)
    • 32. MFJ phase-out begins at $100,000 AGI and Singleat $50,000 AGI
  • Major 2009 Tax Law Changes
  • 33. Major 2009 Tax Law Changes
    • Making Work Pay Credit
    • 34. Qualified Tuition Program Eligible Expense Definition Expanded
    • 35. New American Opportunity Tax Credit (Modified HOPE credit)
    • 36. New Vehicle Sales Tax Deduction
    • 37. Special (Bonus) Depreciation
  • Major 2009 Tax Law Changes
    • Making Work Pay Credit
    • 38. Applies to tax years 2009 and 2010
    • 39. Calculated as the lesser of 6.2% of an individual’s earned income or $400 ($800 MFJ)
    • 40. Phase-out begins at MAGI of $75,000 ($150,000 MFJ)
    • 41. No credit for MAGI at or above $95,000 ($190,000 MFJ)
    • 42. Credit implemented during 2009 with reduced income tax withholding schedules; some MFJ with two incomes may need to return some or all of the credit due to MAGI thresholds
    • 43. Expanded Eligible Expense Definition for 529s
    • 44. Applies to tax years 2009 and 2010
    • 45. Previously, eligible expenses paid out of QTPs were: tuition, fees, books, supplies, equipment required for enrollment or attendance, expenses for special needs services, and room and board costs (subject to limit) for at least half-time students
    • 46. Now, includes expenses paid or incurred for the purchase of any computer technology or equipment or Internet access or related services (computer software for sports, games or hobbies doesn’t count)
  • Major 2009 Tax Law Changes
    • New American Opportunity Tax Credit
    • 47. Modifies the HOPE tax credit for 2009 and 2010
    • 48. Up to $2,500 (100% of 1st $2,000 expenses and 25% of next $2,000) per eligible student per year for qualified tuition and related expenses paid for each of the first 4 years of the student’s post-secondary education in a degree or certificate program
    • 49. Tuition and related expenses definition expanded to include course materials (previously tuition and academic fees only)
    • 50. MAGI phase-out b/w $80,000 and $90,000 ($160,000 and $180,000 MFJ)
    • 51. 40% refundable for non-child taxpayers (0% refundable to child taxpayers subject to kiddie tax)
  • Major 2009 Tax Law Changes
    • New Vehicle Sales Tax Deduction
    • 52. Applies to qualified new motor vehicle purchases b/w Feb 17, 2009 and Jan 1, 2010
    • 53. Allowed for taxpayers using either the itemized or standard deduction
    • 54. Taxpayers using the itemized deduction can add qualified sales tax to state and local taxes OR include in other general sales tax claimed
    • 55. Taxpayers using the standard deduction add the qualifying sales tax to their 2009 standard deduction
    • 56. Qualified motor vehicle sales taxes are State or local sales or excise taxes imposed on the purchase of a qualified motor vehicle cost not exceeding $49,500
    • 57. A qualified motor vehicle is either a passenger auto, light truck or motorcycle less than 8,500 lbs or a motor home. The original use of the vehicle must commence with the taxpayer
    • 58. MAGI phase-out: $125,000 to $135,000 ($250,000 to $260,000 MFJ)
  • Major 2009 Tax Law Changes
    • Bonus Depreciation
    • 59. Applies to qualifying MACRS property acquired after Dec 31, 2007 and placed in service b/f Jan 1, 2010
    • 60. Qualifying MACRS property is generally new property depreciable under MACRS and has a recovery period of 20 years or less
    • 61. Bonus Depreciation equals 50% of the adjusted basis and taken in the placed-in-service year
    • 62. Opt-out available
  • What’s Ending?
  • 63. What’s Ending?
    After 2009
    • Above-the-Line Tuition and Fees Deduction
    • 64. Educator’s Expense Deduction
    • 65. New Vehicles Sales Tax Deduction
    • 66. Additional Standard Deduction for Real Estate Taxes
  • What’s Ending?
    After 2010
    • 2003 Investment Tax Cuts
    • 67. Child Tax Credit of $1,000/qualifying child reverts to $500
    • 68. New American Opportunity Tax Credit
    • 69. Making Work Pay Credit
    • 70. Expanded Eligible Expense Definition for QTP
    • 71. Bonus Depreciation
    • 72. Temporary Itemized Deduction for PMI
    • 73. First-Time and Long-Time Resident Homebuyer’s Credit (unless qualifying Military, FS or Intel Community)
  • What’s Ending?
    2003 Investment Tax Cuts
    Investment tax cuts extended until December 31, 2010 (previously 12/31/2008)
    • Applies to long term (>1 year) capital gains and qualified dividends
    • 74. Capital gains for taxpayers in 10% to 15% bracket dropped to 0% in 2008 to 2010
    • 75. Max LT capital gain rate will return to 20% and max qualified dividend rate will return to 39.6% in 2011
    • 76. Unrecaptured Section 1250 gains taxed at max 25%
    • 77. $3000 loss write-off against ordinary income still in effect
  • What’s Beginning?
  • 78. ROTH IRA Conversions
    Income limit eliminated for Roth IRA Conversions in 2010
    Taxpayers with modified AGI > $100,000 will be able to convert Traditional IRA funds to a Roth IRA in 2010
    • If convert in 2010, you can spread the federal income tax over 2 years (2011 & 2012)
    What’s Beginning?
  • 79. Questions?
  • 80. Cell: 321-205-2810
    US VOIP: 202-657-4875
    US Fax: 301-576-4415
    christine@cemtaxplanning.com
    Bogota Office: 296-1470
    Christine Elsea Mandojana, CPAFinancial Planning & Tax Services
    Service Offerings
    Financial Planning
    • Comprehensive Planning
    • 81. Budget/Cash Management
    • 82. Debt Management
    • 83. Retirement Planning
    • 84. Education Planning
    • 85. Insurance Planning
    Tax Services
    • Tax Planning
    • 86. Tax Preparation (Federal and State)

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