New Tax Credit for First-Time Homebuyers - For home purchases made after April 8, 2008 and before July 1, 2009, a first-time homebuyer (no present ownership interest in a particular residence in the U.S. during the3-year period before purchasing the home) can receive a refundable tax credit equal to 10% of the home's purchase price but capped at $7,500 ($3,750 for married taxpayers filing separately).

The credit is essentially an interest free loan that must be paid back. The repayment will be in the form of an additional tax amount on the homeowner's federal tax returns for15 years. If the home is sold or no longer used as a primary residence before the end of the 15-year period, the balance of the credit that has not been repaid in the year the home is sold or no longer the taxpayer's primary residence. There are special rules for divorced taxpayers, deceased taxpayers, and where the; credit that has not been repaid exceeds the gain when the home is sold. The credit is phased-out for high-income taxpayers and not allowed for nonresident alien homeowners or homes financed with tax-exempt mortgage bonds or property purchased from a related party.

A New Twist for Home Sales - Taxpayers have been using a popular and legal tax strategy to exclude not just from their primary residence but also from rentals and second homes as well. This was accomplished by moving into the rental or second home and making it their primary residence for two years, then selling it and excluding the gain, up to $250,000 ($500,000for joint filers). Beginning in 2009, Congress has muted this strategy by requiring proration of the home sale gain between periods of qualified home use (principal residence) and nonqualified use (rental of second home use), and allowing the home gain exclusion to apply only to gain from qualified periods. Good news is that periods of nonqualified use do not include any period;

Before January 1, 2009,

After the last date the property is used as the principal residence of the taxpayers or spouse (regardless of use during that period), and

Not to exceed two years that the taxpayer is temporarily absent by reason of a change in place of employment, health, or, to the extent provided in regulations, unforeseen circumstances.

Roth Conversions Liberalized Beginning in 2010 - Beginning in 2010, the $100,000 modified AGI limit on conversions of traditional IRAs to Roth IRAs is eliminated, and a married taxpayer filing a separate return is allowed to convert amounts in a traditional IRA into a Roth IRA. For conversions made in 2010, the taxpayer can choose to elect to:

Include the income in the 2010 return, or

Include one-half of the conversion income in 2011 and one-half in 2012.

Since there are no income restrictions, every taxpayer with qualifying earned income can contribute to a nondeductible traditional IRS for 2008 and 2009. Looking ahead to 2010, the taxpayer can then convert their nondeductible IRA contributions into a Roth IRA, with only the earnings on the contributions being taxable. This provides an opportunity for taxpayers to place sums of money into a Roth IRA. Contact this office for further details. The Zero Capital Gains Rate Expires in 2010 - 2009 and 2010 are the final years that taxpayers will enjoy a capital gains rate of zero to the extent that their regular tax bracket is less than 25%. But before you make plans to sell everything in 2009 and 2010, remember that the gain itself adds to your income, impacts income-based limitations, and possibly pushes you into a higher tax bracket, so it is a balancing act to take advantage of this zero rate. Of course, you can also use losses to offset the gains, and contrary to conventional strategy, you should only have enough losses to keep the gain within the zero tax rate.

Annual Gift Tax Exemption Increased - Tax law limits the transfers of money and property to prevent taxpayers from reducing the tax on their estate when they die. The annual exemption amount has been increased for 2009, allowing taxpayer to give as much as $13,000 to as many individuals as they would like without gift tax implications.

Many Tax Benefits Extended through 2009 - There are several tax benefits that were set to expire that have been extended for 2009 and later years. They include the following:

Educator's $250 above-the-line deduction to school supplies;

$2,000/$4,000 above-the-line deduction of higher education expenses;

Itemized deduction for sales tax in lieu of state and local taxes;

Up to $500 ($1,00 joint) non-itemizer's additional standard deduction for property taxes;

Taxpayer age 701/2+ tax-free IRA distributions made directly to charity;

30% credit for installing home solar, wind, etc., energy-generating systems (through 2016);

$500 credit for installing home energy-efficient improvements;

$2 million exclusion of primary home acquisition debt forgiveness (through 2012);

$2,000 contractor efficient home credit;

Energy-efficient commercial building credit; and

15-year life for certain restaurant property and leasehold improvements.

Qualified Child - The "uniform definition of a child" is used in taxes to determine when an individual qualifies for certain tax benefits including the dependency exemption, child tax credit and earned income tax credit. Beginning in 2009, the following requirements have been added:

A Qualifying child must be younger than the claimant;

Generally a qualifying child must be unmarried;

A qualifying child's tax benefits are restricted to the child's parents in certain cases; and

The child tax credit is denied to taxpayers who are dependents.

New Casualty Loss Tax Issues for 2009

The $100 personal-use property casualty loss floor has been raised to $500;

The personal-use property 10% of AGI deductible is waived for federal disaster area losses.

Disaster casualty losses, can be added to the standard deduction for non-itemizers.

Unused disaster losses can be carried back five years.

Disclaimer

This information provided is an abbreviated summary of tax and financial information for the 2009 tax year and only includes law changes through November 2008. Pending tax legislation could alter contents of this information. The accuracy of this information is not guaranteed. Specific questions relating to your specific tax or financial situation should be directed to your tax and financial advisors.