October 9, 2009
In the depths of the recession the government passed the 2009 economic stimulus bill and tweaked the federal tax code to help boost consumer spending and assist people who were losing their jobs, homes and benefits. Now, several of those tax breaks, rebates and other incentives are due to expire at year's end.
Congress and the Obama Administration may ultimately decide to retain some or all of these benefits. But just to be safe, here are a few you may want to tap now, if they make sense for your individual situation:
Homebuyer tax credit. If you haven't owned a home in the past three years and meet certain income guidelines, you may qualify for a tax credit of up to $8,000 on homes purchased before December 1, 2009. This is a tax credit, not a deduction, which means your tax owed is reduced by the credit amount. For more details, search for the First-Time Homebuyer Question and Answers document posted on the IRS website (www.irs.gov).
Property tax standard deduction. If you don't qualify to itemized deductions on your federal income tax but do pay state or local real estate taxes, you may qualify to add up to $500 ($1,000 for joint filers) in property taxes paid this year to your standard tax deduction. Rules and filing instructions are complex, so read IRS Tax Tip 2009-47 at www.irs.gov for details.
Sales tax deduction for new cars. If you buy a new car, light truck, RV or motorcycle before December 31, 2009, you may be able to deduct state and local sales and excise taxes on up to the first $49,500 of the purchase price, even if you don't itemize deductions. The deduction gradually phases out for those whose adjusted gross income is over $125,000 ($250,000 for married couples filing jointly). Please note that this is different from last summer's expired "Cash for Clunkers" program.
Health insurance. If you are laid off before December 31, 2009, and your employer has 20 or more employees and offers health insurance, you may qualify for a 65 percent subsidy of the cost to continue coverage through COBRA, the federal law that allows many people to retain such coverage at their own expense. Check with your human resources department and visit the Department of Labor's website for more details (http://www.dol.gov/ebsa/cobra.html).
Deduction for education expenses. Through 2009, parents or students may deduct up to $4,000 for college or other post-secondary education tuition and other qualifying fees, even if they don't itemize deductions. There are certain restrictions and income limits, so refer to the IRS' "Top Ten Facts About the Tuition and Fees Deduction" for more details (www.irs.gov/newsroom/article/0,,id=205361,00.html).
Educator expenses. Teachers and other educators who work at least 900 hours during a school year may deduct up to $250 for eligible unreimbursed expenses they paid for out of pocket, including books, supplies, equipment and software used in the classroom. They may do so even if they don't itemize deductions on IRS Schedule A. Read Topic 458 at www.irs.gov for details.
You may want to confer with your tax preparer or financial advisor to make sure you qualify before acting on these tax benefits.
Recent Practical Money Matters