Mammoth 2009 Tax Credit and Deduction List

Welcome to the Mammoth 2009 Tax Break post. I am not a tax professional. My goal in this post is to create summaries and supply links to IRS website pages which have comprehensive information. To find out if you qualify be sure to check the IRS website (linked in each area), conduct additional research, &/or speak to a tax accountant. This list also does not contain every tax deduction. You may qualify for additional and less-common deductions or credits.

This post is so long that I came up with the following linked table of contents:

• Home Tax Credits & Deductions
• First-Time Homebuyers – Credit up to $8,000
• Non-First-Time-Homebuyers – Credit up to $6,500
• Mortgage interest deduction
• Higher Education Tax Credits & Deductions
• Car-Related Vouchers & Deductions
• CARS Program & Taxes
• State and Local Sales and Excise Taxes on New Cars – Deductible
• Business Use Deductions
• Other Unreimbursed Business Expenses – Deductible
• Making Work Pay Tax Credit
• Medical Expenses – Deductible
• Earned-Income Tax Credit
• Charitable Donations & Haiti Relief – Deductible
• Possible Extension on Charitable Giving
• Moving Expenses – Deductible if Moving for Work
• Qualified Job-Hunting Expenses – Deductible
• Self-Employment Tax – 50% Deductible
• Alimony – Deductible
• Energy-Efficient Tax Incentives – Partially Deductible
• Jury Duty Pay Confiscated by Your Employer – Deductible
• Fee for Paying Your Taxes with Debit or Credit – Deductible
• A Word on Itemized Deductions

Home Tax Credits & Deductions

This year, homebuyers are eligible for some tax credits. Homeowners will continue to be able to deduct their mortgage insurance.

First-Time Homebuyers – Credit up to $8,000

From the IRS Website:

The American Recovery and Reinvestment Act of 2009 expanded the first-time homebuyer credit by increasing the credit amount to $8,000 for purchases made in 2009 before Dec. 1. However, the new Worker, Homeownership and Business Assistance Act of 2009 has extended the deadline. Now, taxpayers who have a binding contract to purchase a home before May 1, 2010, are eligible for the credit. Buyers must close on the home before July 1, 2010. [Added Nov. 12, 2009]

For home purchased in 2009, the credit does not have to be paid back unless the home ceases to be the taxpayer’s main residence within a three-year period following the purchase.

First-time homebuyers who purchase a home in 2009 can claim the credit on either a 2008 tax return, due April 15, 2009, or a 2009 tax return, due April 15, 2010. The credit may not be claimed before the closing date. But, if the closing occurs after April 15, 2009, a taxpayer can still claim it on a 2008 tax return by requesting an extension of time to file or by filing an amended return. News release 2009-27 has more information on these options.

Non-First-Time-Homebuyers – Credit up to $6,500

For current homeowners buying replacement residences, there is a possible tax credit of up to $6,500. Though you do not have to have successfully sold your primary residence, the new home does have to be your primary residence and you need to have lived in your current residence for at least 5 consecutive years. If you are married, then both spouses need to have lived there for 5 consecutive years. FAQs can be found here.

Unlike the $7,500 2008 first-time homebuyer tax credit, which had to be repaid in 8 years, the $8,000 2009 homebuyer tax credits do not have to be repaid in most cases. The biggest cause for repayment is moving within 3 years. These are designed to get people buying primary residences, but they’re not meant to encourage flipping or jumping from house to house.

Mortgage Interest Deduction

As in years past, current homeowners can often deduct the interest they paid on their mortgage. Information about mortgage interest deductions can be found here.

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Higher Education Tax Credits & Deductions

Tax credits available to people pursuing higher education include the Hope & Life Time Learning Educational Credits, other tuition deductions, and the interest you pay on a qualified student loan (like mortgage interest). If anyone in your family is in college or even just taking a few courses at a community college, it’s worth checking to see if you qualify.

This is a big one for us. Even though Micah’s almost through with his PhD and not taking classes, we still have to pay enrollment fees while he continues to work on his dissertation and the tuition for his dissertation (it’s framed as an independent study taught by his director). It’s not bad, but we appreciate what help we can get. In the Fall of 2010, I’ll be starting a Master’s in Library Science, and while I’m not factoring it in when I weigh the costs of different programs it will make a tax difference to us over the next few years.

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Car-Related Vouchers & Deductions

If you purchased a new car this year, whether as part of CARS or not, it’s possible to get some tax deductions.

CARS program and taxes

The CARS program earlier this year does not affect your federal taxes. It is treated as a trade-in would be. The transaction may have been subject to state & local sales taxes. You can check out the CARS FAQ here. But any state & local sales or excise taxes you paid should be deductible, see below.

Deduct State and Local Sales and Excise Taxes on New Cars

If you purchased any qualified new car in 2009, after February 16, 2009, you can deduct the state or local sales and excise taxes on the first $49,500 (and depending on your income). Details can be found on the IRS website and there’s a summary below:

In 2009, you can deduct the state or local sales and excise taxes imposed on the purchase of a qualified motor vehicle after February 16, 2009, and before January 1, 2010. A qualified motor vehicle includes a passenger automobile, light truck, or motorcycle, the original use of which begins with that purchaser and that has a gross vehicle weight rating of 8,500 pounds or less. A qualified motor vehicle also includes a motor home, the original use of which begins with that purchaser. The amount of tax you are able to deduct is limited to the tax that is imposed on the first $49,500 of the purchase price of the vehicle.

The deduction is phased out over a $10,000 range that begins when modified adjusted gross income is more than $125,000 ($250,000 if married filing a joint return). No deduction is allowed when modified adjusted gross income is equal to or more than $135,000 ($260,000 if married filing a joint return). The new deduction can be used to increase the amount of your standard deduction or you can take it as an itemized deduction (if you are not electing to take the state and local general sales tax deduction).

Business Use Deductions

If you used your car for un-reimbursed business driving, then you may be eligible to deduct that. You can either use the IRS’s calculator based on mileage or use your actual gas/maintenance/(leasing) receipts to come up with a number. If you used the car for personal driving as well, you can only deduct for the business use.

I heard someone say that since she promotes her business wherever she goes (true), she’ll be deducting all her mileage. I encourage you to think carefully about whether you’d like to convince an auditor that you never used the car for anything but business before you decide to deduct all its use. The IRS page has a lot more important detail to help you figure out whether or not your use qualifies and how to come up with a figure.

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Other Unreimbursed Business Expenses

If your company made you fly somewhere & didn’t reimburse you, you can deduct it. Laundry and dry-cleaning you had to do while on a business trip—deductible. 50% deduction of an unreimbursed business meal. This has to be done in the itemized deduction section and must reach 2% of your Adjusted Gross Income (AGI), as must the business use of a car deductions above. For more info on deducting unreimbursed business expenses see the pertinent IRS page.

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Making Work Pay Tax Credit

For most people, the Making Work Pay tax credit doesn’t mean much at tax time. Instead, throughout the year you should have received up to $400 in small increments your paycheck because your employer withheld less. For some people who don’t have withholding adjusted right or who are working multiple jobs, this can change the size of their tax refunds because they had too little withheld.

More information on Making Work Pay can be found at the IRS website, but for people working one job without social security income, pensions, or other special circumstances this will probably be a non-issue.

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IRA Contributions – Deductible

Traditional IRA contributions should be listed on your taxes and are, in many cases, deductible. Roth IRAs should also be included on your taxes, but contributions will be taxed (and not taxed when withdrawn). The maximum you can contribute to an IRA depends on your age and modified adjusted gross income. The total you can contribute to any IRA may be divided between the Traditional and Roth IRAs or may be used to fund just one or the other.

For people under 50 years of age at the end of 2009, the maximum combined IRA contribution is $5,000. For people who are 50 or older before 2010, the maximum combined IRA contribution is $6,000. The maximum deductible contribution to a traditional IRA and the maximum contribution to a Roth IRA may be reduced depending on your modified adjusted gross income.*

The IRS’s comprehensive IRA information can be found here. If you are covered by a retirement plan at work, you can find information and tables about how your AGI affects your maximum IRA deduction here. If you are NOT covered by a retirement plan at work, you can find information and tables about your how your AGI affects your maximum deduction here.

You may continue contributing to a 2009 IRA until April 15th, 2010.

*From the IRS website: “This general limit may be increased to $8,000 if you participated in a 401(k) plan maintained by an employer who went into bankruptcy in an earlier year. For more information, see Catch-up contributions in certain employer bankruptcies later.”

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Medical Expenses

If you paid for medical expenses out-of-pocket, you may include them as part of your itemized deduction, provided they meet the right criteria:

A deduction is allowed only for expenses primarily paid for the prevention or alleviation of a physical or mental defect or illness. Medical care expenses include payments for the diagnosis, cure, mitigation, treatment, or prevention of disease, or treatment affecting any structure or function of the body. The cost of drugs is deductible only for drugs that require a prescription, except for insulin.

These can include doctors fees, hospital bills, prescriptions, transportation to and from the hospital. Unlike most other itemized deductions, these must add up to 7.5% of your AGI to be included in your itemized deductions. Information about specifics can be found on the IRS website.

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Earned-Income Tax Credit

The EIC is available for low-income families, especially those supporting children. The goal is to avoid taxing people too heavily if they’re close to the poverty line. 2009’s EIC qualification and maximum credit numbers are as follows.

Earned Income and adjusted gross income (AGI) must each be less than:

• $43,279 ($48,279 married filing jointly) with three or more qualifying children
• $40,295 ($45,295 married filing jointly) with two qualifying children
• $35,463 ($40,463 married filing jointly) with one qualifying child
• $13,440 ($18,440 married filing jointly) with no qualifying children

Tax Year 2009 maximum credit:

• $5,657 with three or more qualifying children
• $5,028 with two qualifying children
• $3,043 with one qualifying child
• $457 with no qualifying children

Details can be found on the IRS’s EIC page.

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Charitable Donations & Haiti Relief – Deductible

Donations of cash or property in 2009 (pledging doesn’t count until the year you follow-through) to 501(c)(3) organizations (and some religious organizations which aren’t required to obtain 501(c)(3) status) can be deducted if you are itemizing your deductions. Most organizations will display their 501(c)(3) status on their websites and in their materials.

Possible Extension on Charitable Giving

Congress is working on legislation which will make giving to charities through the end of February 2010 deductible on 2009 taxes as well as on 2010 taxes. The legislation would apply to all charitable giving, but the goal is to give a faster reward to those who give to help Haiti.

Something similar was done in early 2005 after the December 2004 tsunami. Even if it doesn’t pass, donations would still be deductible in a year for 2010 taxes. And if it does pass, you can hold off on claiming the deduction this year and claim it in 2010 instead (just not both times).

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Moving Expenses – Deductible if Moving for Work

Did you move for a new job or a transfer? Did your company reimburse you? If not, then you may be eligible to deduct the cost of moving from your taxes. There are certain conditions, including the distance of the move. If you think you’re eligible, you can check out the details on the IRS website.

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Qualified Job-Hunting Expenses – Deductible

This won’t help if you’re changing careers, but if you’re searching for a new job or if you were just laid off and are hunting for a job in your field, you can deduct certain expenses from your 2009 job search. From the IRS website

1. In order to deduct job search costs, the expenses must be spent on a job search in your current occupation. You may not deduct expenses incurred while looking for a job in a new occupation.
2. You can deduct employment and outplacement agency fees you pay while looking for a job in your present occupation. If your employer pays you back in a later year for employment agency fees, you must include the amount you receive in your gross income up to the amount of your tax benefit in the earlier year.
3. You can deduct amounts you spend for preparing and mailing copies of a résumé to prospective employers as long as you are looking for a new job in your present occupation.
4. If you travel to an area to look for a new job in your present occupation, you may be able to deduct travel expenses to and from the area. You can only deduct the travel expenses if the trip is primarily to look for a new job. The amount of time you spend on personal activity compared to the amount of time you spend looking for work is important in determining whether the trip is primarily personal or is primarily to look for a new job.
5. You cannot deduct job search expenses if there was a substantial break between the end of your last job and the time you begin looking for a new one.
6. You cannot deduct job search expenses if you are looking for a job for the first time.

For more information on tax benefits for job seekers and how to claim them, here’s the IRS web page.

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Self-Employment Tax – 50% Deductible

One of the downsides of certain forms of self-employment is having to pay a self-employment tax. The good news is that you can deduct 50% of your self-employment tax when calculating your AGI. This was something I had not realized until reporting my blog earnings last year and paying the self-employment tax for the first time. More on self-employment tax from the IRS website,

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Alimony – Deductible

The one good thing about alimony is that it’s tax-deductible as part of an itemized deduction list. After all, it’s not money you get to spend and your ex will be taxed on it instead. Property and gifts given to an ex-spouse are not tax deductible. For more information about deducting your alimony, check out the IRS’s alimony page.

Child support is never deductible. The child is your responsiblity and therefore it’s just like any other money you’d spend to support your child if you were living together.

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Energy-Efficient Tax Incentives – Partially Deductible

Make your home more energy-efficient in 2009? Buy a plugin-in vehicle? You may be eligible for tax credits. From the IRS Website:

The new law increases the energy tax credit for homeowners who make energy efficient improvements to their existing homes. The new law increases the credit rate to 30 percent of the cost of all qualifying improvements and raises the maximum credit limit to $1,500 for improvements placed in service in 2009 and 2010.

The credit applies to improvements such as adding insulation, energy efficient exterior windows and energy-efficient heating and air conditioning systems.

For more information and to check out the other things which qualify as energy-efficient you can visit the IRS website.

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Jury Duty Pay Confiscated by Your Employer – Deductible

Jury duty pay must be reported as taxable income. But some employers will continue to pay you while you’re on a jury in exchange for the money you were paid for jury duty. It’s normally a good trade-off, jury duty pays pennies. But come tax time, it can be deducted from your gross income so you’re not taxed on it at all. If your employer didn’t confiscate it, you’ll still have to report it as other income and cannot claim it as a deduction. More info from the IRS website.

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Fee for Paying Your Taxes with Debit or Credit – Deductible

And, finally, if you pay your taxes using a credit or debit card, you can deduct the fees for the taxpaying transaction (not all card fees, just fees for paying your taxes) from your taxes. This IRS page has the details. It would be included with Miscellaneous itemized deductions (line 23 of schedule A). If your miscellaneous deductions don’t add up to 2% of your income (and therefore aren’t eligible), then it’s probably better to pay using another method.

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A Word on Itemized Deductions

Many (but not all) of the items listed above can only be claimed as deductions if you choose to itemize your deductions. To be allowable as deductions, they may have to exceed 2% of your Adjusted Gross Income (AGI). For medical expenses, it must exceed 7.5% of your AGI, as mentioned above.

In most cases, it’s worth looking into all the deductions you may be eligible for, finding out the rules about that each in particular, and then figuring out if you qualify. The links I’ve provided to the IRS website may help. You can also use Google to search for detailed posts about specific deductions. Just keep in mind that the IRS has the last word and any blogger can be wrong. (The IRS can be wrong too, but they still tend to win.