1. 2009 Individual Tax
Update
Presented by:
Lauran Penn, CPA
Greg Yoder, CPA

3. Highest Marginal Tax Rates, 2001 - 2012
60
50
40
30 Ordinary Income
Capital Gains
Qualified Dividends
Estate Tax
20
10
0
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

4. Credit for first time homebuyers --
§36.
 Up to $8,000 (10% of purchase price)
 Refundable.

5. Credit for first time homebuyers --
§36.
(Continues)
 Requirements.
 Purchase of principal residence before 12/1/2009.
 Taxpayer has not owned a principal residence in the
U.S. for the three years ending with the date of
purchase (neither taxpayer if married).
 Residence can’t be purchased from a related party.

6. Credit for first time homebuyers --
§36.
(Continues)
 Phase out
 Begins at $75K.
 Begins at $150K for MFJ.
 Phased out ratably over $20K, regardless of filing
status.
 Importance of managing AGI, where possible.

7. First Time Homebuyer example
Herb and Wanda Homeowner
 Income
 Herb has $100K salary, plus 5% in his company 401K Plan,
 Wanda has $80K net income from a Sch C business,
 Joint $2,500 interest and dividends.
 Deductions
 $5,000 in charitable contributions,
 State income taxes.
 The homebuyers purchase their first home in September
2009, for $300K.
 2009 Mortgage Interest expense of $2,500.

8. Herb and Wanda Homeowner
Wages 100,000
less 401(k) (6,000)
Schedule B 2,500
Schedule C 80,000
Gross Income 176,500
Half of SE tax (5,652)
AGI 170,848
SIT (12,553)
Mortgage Interest (2,500)
Contributions (5,000)
Deduction phaseout 40
Exemptions (7,300)
Taxable income 143,535
Income Tax 28,388
SE Tax 11,304
MWP Credit (383)
1st Time Homebuyer Credit -
Net Federal Tax 39,309

9. Herb and Wanda Homeowner
Wages 100,000 100,000
less 401(k) (6,000) (12,000)
Schedule B 2,500 2,500
Schedule C 80,000 80,000
Gross Income 176,500 170,500
Half of SE tax (5,652) (5,652)
SEP Contribution (14,870)
AGI 170,848 149,978
SIT (12,553) (10,765)
Mortgage Interest (2,500) (2,500)
Contributions (5,000) (5,000)
Deduction phaseout 40 -
Exemptions (7,300) (7,300)
Taxable income 143,535 124,413
Income Tax 28,388 23,428
SE Tax 11,304 11,304
MWP Credit (383) (800)
1st Time Homebuyer Credit - (8,000)
Net Federal Tax 39,309 25,932
Additional Retirement Contributions 20,870
Tax Savings 13,377

10. Credit for first time homebuyers --
§36.
(Continues)
 Recapture
 Recapture if sold or if property ceases to be
taxpayer’s principal residence during the three
years beginning with the date of purchase.
 Full
recapture, up to the amount of gain from sale to
an unrelated person.
 Exceptions for death, divorce, and involuntary
conversion.

11. Credit for first time homebuyers --
§36.
(Continues)
 Allocation between unmarried purchasers
(Notice 2009-12).
 Any reasonable method.
 Reasonable method:
 Any method that doesn’t allocate any portion of the credit
to a taxpayer not eligible to claim that portion.
 Based on respective contributions toward the purchase
price.
 Based on ownership interest (TIC only).
 Generally allows full credit to a qualifying taxpayer.

12. Making Work Pay Credit
 2009 and 2010.
 Lesser
of 6.2% of the taxpayer’s earned
income or $400 ($800 MFJ).
 Phasedout by 2% of the taxpayer’s modified
AGI over $75K ($150K MFJ)
 Worked into withholding tables earlier in 2009.

13. Energy credits
 ResidentialEnergy Efficient Property
Credit -- §25D
 Nonrefundable – subject to carryover.
 Through 12/31/2016.
 30% of qualified
 Solar electric property expenditures.
 Solar water heating property expenditures.
 Fuel cell property expenditures.
 Small wind energy property expenditures.
 Geothermal heat pump property expenditures.

14. Energy credits
(Continues)
 Limitations
 2,000 for qualified
 Solar electric power expenditures.
 Solar water heating property expenditures.
 Geothermal heat pump property expenditures.
 $500 for each half kilowatt of capacity of qualified:
 Fuel cell property – must be certified by the Solar
Rating Certification Corporation or a comparable state-
endorsed entity.
 Small wind energy property – up to $4,000.
 Notice 2009-41

15. Energy credits
(Continues)
 Nonbusiness Energy Property Credit
 Similar to credit allowed in 2006 and 2007 but
not in 2008.
 Back in 2009 and 2010.
 Increased to $1,500 total limit for both years (was
subject to $500 lifetime limit).
 30% of qualified energy efficiency improvements
and residential energy property expenditures.
 Separate category limitations (e.g., windows) no
longer apply.

16. Energy credits
(Continues)
 Alternative Motor Vehicle Credit -- §30B
 Qualified Hybrid Motor Vehicle Credit
 Passenger automobiles and light trucks – through 2010.
 Other vehicles (GVWR > 8,500 pounds) – through 2009.
 Advanced Lean Burn Technology Motor Vehicle Credit
 Passenger automobiles and light trucks.
 Vehicles must be pre-certified.
 Available through 2010.
 Qualified Fuel Cell Motor Vehicle Credit
 Vehicles must be pre-certified.
 Available through 2015.
 Qualified Alternative Fuel Motor Vehicle Credit
 Vehicles must be pre-certified.
 Available through 2010.

19. Education Provisions
 American Opportunity Tax Credit
 Formerly the Hope Credit.
 2009 and 2010.
 Up to $2,500 per eligible student per year of
qualified tuition and related expenses.
 First four years of a student’s post-secondary
education in a degree or certificate program.
 100% of the first $2,000 of qualified expenses, 25%
of the next $2,000.

20. Education Provisions
(Continues)
 Phase outs based on modified AGI
 Between $80,000 and $90,000.
 Between $160,000 and $180,000 for MFJ.
 Forty percent of the credit is refundable.
 None refundable if the taxpayer claiming the credit
is a child subject to the kiddie tax.

21. Education Provisions
(Continues)
 Temporary expansion of expenses eligible for §529 plan
distributions;
 Computer technology or equipment or Internet access
are now qualified expenses.
 For 2009 and 2010B.

22. Depreciation
 50%bonus depreciation extended through
2009.
 $250K expanded §179 limitation extended
through 2009.

23. Deduction for sales taxes on qualified
motor vehicles
 Deduction for sales taxes on qualified
motor vehicles
 In addition to deduction for state and local
income taxes.
 Purchases through 12/31/2009.
 Available for first $49,500 of purchase price
per vehicle.
 AGI phaseouts between $125K and $135K
($250K and $260K for MFJ).

24. Deduction for sales taxes on qualified
motor vehicles (Continues)
 Deduction for sales taxes on qualified
motor vehicles (continues)
 Can be in addition to standard deduction.
 Qualified vehicles
 Passenger auto, light truck or motorcycle (GVWR
< 8,500 pounds)
 Motor home
 Does not apply to used vehicles.

25. Principal residence debt relief
provisions -- §108(a)(1)(E)
 Principal residence debt relief provisions --
§108(a)(1)(E)
 Extended through 2012.
 Exclusion from gross income.
 Basis reduction.
 Debt must be acquisition indebtedness
(§163(h)(3)(B)).
 Principal residence only.
 Up to $2million ($1million for MFS) of debt can
qualify.

26. FBAR requirements
 Slight expansion in definition of foreign
financial account.
 Major activity on unreported foreign income
front.
 Deadlines have passed for avoiding criminal
prosecutions, but expanded awareness of
reporting requirements continues.
 Extension through 6/30/2010 for foreign
commingled funds and signatory authority.

27. Private Mortgage Insurance
 Deductible through 2010.
 Phaseouts for AGI exceeding $100K ($50K
for MFS).
 2009 temporary regulations issued for
dealing with prepaid PMI premiums
 Mortgage servicers report entire amount of prepaid
premiums
 Taxpayers can deduct ratably over the lesser of
 Term of the mortgage, or
 84 months

28. Madoff victims ruling
 Madoff victims ruling
 Revenue Ruling 2009-9, Revenue Procedure
2009-20
 Applies to other Ponzi scheme investments.
 Theft loss
 Not capital loss.
 Not subject to the usual casualty loss limitations.
 Fully deductible as non-limited miscellaneous itemized
deduction.
 Can generate NOL carryback.
 Safe harbor provisions for year and amount of loss.

29. Innocent spouse
 (1) A joint return was filed for the tax year
 (2) There is an understatement of tax on the return that
is attributable to erroneous items of the other spouse
 (3) The innocent spouse establishes that, in signing
the return, he or she didn't know and had no reason to
know of the understatement
 (4) It would be inequitable to hold the innocent spouse
liable for the deficiency
 (5) The innocent spouse elects the relief in the form
that IRS prescribes no later than two years after IRS has
begun collection activities with respect to that spouse.

30. Innocent spouse cases
 Lantz. Tax Court invalidates innocent spouse
regulation.
 IRS disagrees with Lantz, but will change its
litigation tactics.
 Porter. Tax Court changes to de novo
standard to review denial of innocent spouse
relief. (Formerly was abuse of discretion
standard.)
 IRS will not follow Porter.

31. Thompson v. U.S.
 Court of Federal Claims holds that an interest
in an LLC is not the same as a limited
partnership interest for PAL purposes.
 Very good facts for the taxpayer.

32. Roth Conversions
2010 – major planning issue when
 In
preparing 2009 returns
 AGI limits temporarily suspended.
 Conversion in 2010.
 Income picked up half in 2011, half in 2012.

33. THANK YOU FOR YOUR TIME!