Tax breaks in store this year: Filers get write-offs for cars, houses, college costs

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UNCLE SAM will look a little like Santa Claus this year, bringing a large bag of new tax credits with savings for many new home buyers, new car buyers, and those paying college expenses.

Even filers who take only the standard deduction instead of itemizing may find that a major purchase or two made in 2009 will lighten the tax burden.

“Going back every year, there's always something that is provided as an incentive for people to do something with their tax situation.

“But for 2009 and 2010, just the fact that we're in troubled times has meant that we are seeing more things out there to hopefully help people and to stimulate the economy,” said Dave Baymiller, a tax partner at the tax firm Gilmore, Jasion & Mahler Ltd. in Maumee.

Federal and state tax returns are due April 15 for most filers.

Back this year on the federal tax form is the first-time-home-buyer provision, but it has some changes that benefit taxpayers.

It still provides a credit of up to $8,000 or 10 percent of the purchase price of a home — whichever is less — bought after 2008 and before May 1, 2010. The credit can be claimed on 2009 taxes (by filing an amended return) even if the house was purchased this year.

“This is a tax provision that people definitely will want to remember,” Mr. Baymiller said.

Longtime homeowners also can catch a break on a home purchase. Someone who has lived in his or her house at least five consecutive years of the last eight can claim a credit of up to $6,500 or 10 percent of the purchase price, whichever is less, of a home bought after Nov. 6 or before May 1, 2010.

“The IRS extended the home-buying credit to encourage a lot more people to go out and buy a home because the market just wasn't being stimulated enough under the first credit offered last year,” Mr. Baymiller said.

“People were getting to a point where they wanted to buy a home to get the credit, but they were not able to find the right home or close on it on time. So the government wanted to help those people to go out and buy a home,” he said.

There is good news too for new-car buyers.

Last summer had the Cash for Clunkers program that provided a $3,500 or $4,500 voucher to buyers of new fuel-efficient vehicles. That voucher is nontaxable.

But a new deduction covers the sales and excise taxes paid on any new vehicle, including cars, trucks, motorcycles, and motor homes, purchased after Feb. 16 and through the end of the year.

Even better, the deduction can be claimed on either Schedule A for filers who itemize or on a new Schedule L for those who take the standard deduction.

The Schedule L vehicle sales tax deduction increases the standard deduction, which this year is $5,700 for a single taxpayer or a married taxpayer filling separately, $11,400 for a married couple filing jointly, and $8,350 for a head of a household.

Those taking the standard deduction also can deduct a portion of the real estate taxes they paid in 2009, up to $500 ($1,000 if married, filing jointly).

This year's tax changes will benefit those with higher-education expenses.

The former $1,800 Hope education credit has been expanded and renamed the American Opportunity education credit.

The Hope credit covered just the first two years of college tuition expenses. But the American Opportunity credit covers all four years and now includes textbook expenses.

It provides a maximum of $2,500 a student — 100 percent of the first $2,000 in tuition or books and 25 percent on the next $2,000. But the credit is gradually reduced once a taxpayer's gross income hits $80,000, and it ends at $90,000.

Thresholds are $160,000 and $180,000 for a married couple filing a joint return.

But these phaseouts are much higher than those of the Hope credit, said Robert Hodge, owner of Robert G. Hodge Tax Services in Toledo.

“So many more people will qualify for this college credit than did before. It's always been unfair in the past, but it's much better all the way around now,” he said.

Another new provision this year covers money most working taxpayers already received — and they will give it back to the government unless they claim it on their returns.

The Making Work Pay credit is a stimulus-related idea that increasing workers' take-home pay was a better way to boost the economy than handing people a large government check, as was previous practice.

Early last year, payroll withholding limits were lowered, giving workers back 6.2 percent of their incomes, or about $12 extra in their weekly paychecks. Most people have spent that money, but those who don't claim the $400 Making Work Pay credit, using a new Schedule M, on their returns, will be handing it back to Uncle Sam.

“If you don't file for it, then you just lost $400 and if you're married filing jointly, you've lost $800,” Mr. Hodge said. The credit gets phased out once a single taxpayer's gross income exceeds $75,000.

Help for jobless

Catherine Sheets, a tax partner at the Toledo office of accounting firm Plante & Moran, said some new tax changes will be of great benefit to those who lost their jobs in 2009, especially those who paid to keep their health care coverage under the Consolidated Omnibus Budget Reconciliation Act, or Cobra.

Ms. Sheets pointed out that people who lost job after Aug. 31, 2008, and before Jan. 1, 2010, could receive a 65 percent reduction for premiums paid for Cobra continuation coverage after Feb. 16, 2009, up to nine months. The reduction decreases for taxpayers whose gross income exceeds $125,000 and it phases out over $145,000.

Another benefit to help the newly unemployed: the first $2,400 in jobless payments is now tax-exempt. Previously, all unemployment compensation was fully taxable.

For the energy-conscious taxpayer, there are changes of note.

A 30 percent credit is now available on the costs of qualified energy efficiency improvements made in 2009. The credit is limited to $1,500 for 2009 and 2010.

Improvements are those that are new, last five years, and meet efficiency specifications. They include insulation, exterior doors and windows, skylights, and metal or asphalt roofs designed to reduce heat gain. Also covered are some heat-pump water heaters; electric heat pumps; central air conditioners; natural-gas, propane, or oil water heaters; stoves that burn biomass fuel; natural- gas, propane, or oil furnaces; natural-gas, propane, or oil hot water boilers for central heating; and air-circulating fans used in natural gas, propane, or oil furnaces.

Mileage rates

Mr. Baymiller said people who use their own cars for business purposes will benefit by a 4 -cent rise in the standard mileage rate to 55 cents. Also, the mileage rate for medical or moving purposes is now 24 cents, up from 19 cents.

The mileage rate for driving in the service of charitable organizations is unchanged at 14 cents. But Mr. Baymiller said that is still a nice deduction that many people forget to take.

“You must keep track of mileage to home and where you are going to volunteer in order to benefit. Fourteen cents a mile may not sound like much, but it can add up for those who do a lot of charitable work,” he said.

Contact Jon Chavez at:jchavez@theblade.com or 419-724-6128.