IR-2009-67, July 20, 2009
WASHINGTON — With 2009 now half over, the Internal Revenue Service
reminds taxpayers to take advantage of the numerous tax breaks made
available earlier this year in the American Recovery and Reinvestment
Act (ARRA).
The recovery law provides tax incentives for first-time homebuyers,
people purchasing new cars, those interested in making their homes more
energy efficient and parents and students paying for college. But all
of these incentives have expiration dates so taxpayers should take
advantage of them while they can.
First-Time Homebuyer Credit
The Recovery Act extended and expanded the first-time homebuyer tax credit for 2009.
Taxpayers who didn’t own a principal residence during the past three
years and purchase a home this year before Dec. 1 can receive a credit
of up to $8,000 on either an original or amended 2008 tax return, or a
2009 return. But the purchase must close before Dec. 1, 2009, and an
eligible taxpayer cannot claim the credit until after the closing date.
This credit phases out at higher income levels, and different rules
apply to home purchases made in 2008.
New Vehicle Purchase Incentive
ARRA also provides a tax break to taxpayers who make qualified new vehicle purchases after Feb. 16, 2009, and before Jan. 1, 2010.
Qualifying taxpayers can deduct the state and local sales and excise
taxes paid on the purchase of new cars, light trucks, motor homes and
motorcycles. There is no limit on the number of vehicles that may be
purchased, and you may claim the deduction for taxes paid on multiple
purchases. But the deduction per vehicle is limited to the tax on up to
$49,500 of the purchase price of each qualifying vehicle and phases out
for taxpayers at higher income levels. This deduction is available
regardless of whether a taxpayer itemizes deductions on Schedule A.
Energy-Efficient Home Improvements
The Recovery Act also encourages homeowners to make their homes more
energy efficient. The credit for nonbusiness energy property is
increased for homeowners who make qualified energy-efficient
improvements to existing homes. The law increases the rate to 30
percent of the cost of all qualifying improvements and raises the
maximum credit limit to a total of $1,500 for improvements placed in
service in 2009 and 2010. Qualifying improvements include the addition
of insulation, energy-efficient exterior windows and energy-efficient
heating and air conditioning systems.
Tax Credit for First Four Years of College
The American opportunity credit is designed to help parents and
students pay part of the cost of the first four years of college. The
new credit modifies the existing Hope credit for tax years 2009 and
2010, making it available to a broader range of taxpayers, including
many with higher incomes and those who owe no tax. Tuition, related
fees, books and other required course materials generally qualify. Many
of those eligible will qualify for the maximum annual credit of $2,500
per student.
Certain Computer Technology Purchases Allowed for 529 Plans
ARRA adds computer technology to the list of college expenses
(tuition, books, etc.) that can be paid for by a qualified tuition
program (QTP), commonly referred to as a 529 plan. For 2009 and 2010,
the law expands the definition of qualified higher education expenses
to include expenses for computer technology and equipment or Internet
access and related services to be used by the designated beneficiary of
the QTP while enrolled at an eligible educational institution. Software
designed for sports, games or hobbies does not qualify, unless it is
predominantly educational in nature.
Making Work Pay and Withholding
The Making Work Pay Credit lowered tax withholding rates this year
for 120 million American households. However, particular taxpayers who
fall into any of the following groups should review their tax
withholding rates to ensure enough tax is withheld, including multiple
job holders, families in which both spouses work, workers who can be
claimed as dependents by other taxpayers and pensioners. Failure to
adjust your withholding could result in potentially smaller refunds or
in limited instances may cause you to owe tax rather than receive a
refund next year. So far in 2009, the average refund amount is $2,675,
and 79 percent of all returns received a refund.
Related Information
For more on the Recovery provisions that may apply to individual taxpayers, see the ARRA page on this Web site.
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