2009 Tax Breaks You Should Know About

With 2009 half over, the IRS reminding taxpayers to take advantage of a number tax breaks made available earlier this year in the American Recovery and Reinvestment Act of 2009, all of these incentives have expiration dates so you should take advantage of them while you can.

Amber Wood says every penny counts when you are paying for college, books, and supplies. "For me, the cost of living while being a college student is very, very difficult," says Wood. The Converse College Junior is among Americans looking for any break she can get. The IRS says there are new breaks this year, including a tax credit for the first four years of college. Converse College President Betsy Fleming says the benefit is significant, “It’s actually ten thousand dollars over four years in terms of tax credits for tuition for books, for fees, any kind of related course materials." The credit makes the break available to a broader range of taxpayers, including many with higher incomes and those who owe no tax.

With word from the Federal Reserve Chairman that interest rates will remain near record lows for some time, its enticing homeowners to refinance; but there is incentive to buy. Homebuyers who purchase in 2009 can get a credit of up to $8,000 with no pay-back requirement.

Maybe you are in the market for a new car. 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. In addition to that, consider the "cash for clunkers” program which starts Friday. If your ride gets less than eighteen miles to the gallon, you can get $3500 to $4500 credit if you trade-in toward the purchase of a car. Car dealership owner Tony Benson says, "The goal is to take some older vehicles that are less fuel efficient off the road and put some new vehicles on."

There are also incentives for energy-efficient home improvements and $250 for social security recipients, veterans and railroad retirees, and computer technology is added to the list of college expenses that can now be paid for by a qualified tuition program, so that struggling students like Amber can get the tools they need to get to graduation and out into the workplace. "I’ll actually be able to make it, pay my rent and my bills, and that kind of thing.”

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From the IRS:

IRS Reminds Taxpayers to Take Advantage of Recovery Act Benefits

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 IRS.gov.

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The American Recovery and Reinvestment Act of 2009: Information Center

The IRS is implementing the tax-related provisions of the American Recovery and Reinvestment Act of 2009 (ARRA) as quickly as possible. More information on these and other provisions of the recovery program will be available on this Web site as it becomes available.

Information for Individuals
Some of the provisions of the law primarily affect individuals.

Making Work Pay Tax Credit. This tax credit means more take-home pay for many Americans. To make sure enough tax is withheld from their pay, taxpayers can use the IRS withholding calculator. See Making Work Pay for more.

First-Time Homebuyer Credit Expands. Homebuyers who purchase in 2009 can get a credit of up to $8,000 with no payback requirement.

Money Back for New Vehicle Purchases. Taxpayers who buy certain new vehicles in 2009 can deduct the state and local sales taxes they paid or other taxes and fees they paid in states with no sales tax.

Enhanced Credits for Tax Years 2009, 2010. Find details on the earned income tax credit, additional child tax credit and the American Opportunity Credit, a new higher education benefit.

Increased Transportation Subsidy. Employer-provided benefits for transit and parking are up in 2009.

Up to $2,400 in Unemployment Benefits Tax Free in 2009. Individuals should check their tax withholding.

$250 for Social Security Recipients, Veterans and Railroad Retirees. The Economic Recovery Payment will be paid by the Social Security Administration, Department of Veterans Affairs and the Railroad Retirement Board.

Energy Efficiency and Renewable Energy Incentives. See what individuals can do to reap tax rewards.

Health Coverage Tax Credit. The credit increases from 65 percent to 80 percent of qualified health insurance premiums, and more people are eligible.