A big year for generous tax breaks from Uncle Sam

Tax season usually leaves Americans grumbling, but you might have a few things to smile about this year, thanks to a bout of generosity from your dear old Uncle Sam.

Desperate to kick-start the sputtering economy, Congress last year passed a stimulus bill that threw money at anyone willing to buy homes, cars, solar water heaters, energy-efficient air conditioners, refrigerators -- even golf carts.

Why? Consumer spending is believed to account for about two-thirds of economic growth, so legislators were giving Americans reasons to spend.

Add expanded credits for financing college, better breaks for casualty losses and charity, and you’ve got the makings of a great year for tax filers.

The trick will be finding the credits and dealing with the rapid-fire changes that have even tax experts flummoxed.

“It’s not as easy as it used to be,� said Mark Luscombe, principal tax analyst with CCH Inc., a Riverwoods, Ill., publisher of tax information. “Even the simple things, like deciding whether to take a standard deduction or itemize, have become complicated.�

Of course, when the problem is figuring out which of the assortment of new and highly lucrative tax credits you can claim, that’s probably a problem you can live with.

Home-buyer credits

The most generous tax break was thrown at home buyers through the first-time home buyer’s tax credit (which isn’t just for first-timers).

But your ability to claim this credit -- and how much you can claim -- will depend on a number of factors, including when you bought the home, how much it cost, how much you earn and whether you’ve owned a home before.

If you bought a home before Nov. 6 of last year, you can claim a credit of $8,000 (or 10% of the purchase price, whichever is less), if:

* The home is your personal residence.

* You have not owned a home in the three years prior to the purchase.

* You earned less than $75,000 if single or $150,000 if married. Individuals earning up to $95,000 and married couples earning up to $170,000 can claim partial credits if they meet the other criteria.

The income limits were increased for purchases made after Nov. 6. If you bought (or buy) a home from Nov. 7 to April 30, you can claim the full credit while earning up to $125,000 if single or $225,000 if married. You can get partial credits with single-earner income of up to $145,000 and married couple income of up to $245,000.

The caveats:

* The home must cost less than $800,000.

* You didn’t buy the home from a relative.

* If you are married and filing separately, the maximum credit is $4,000.

* If you sell the house in less than three years, you’ll have to pay the credit back (unless you are a member of the military and you’ve been reassigned; in that case you’ll qualify for a special exemption).

* If you are claiming a credit for a home purchased after Nov. 6, you must file a paper return and include a HUD-1 closing statement to show that you really closed the deal.

Longtime owners

If you bought a home after Nov. 6 or buy before April 30, you can claim up to $6,500 in tax credits if you’ve owned a home before. This “longtime homeowner� tax credit works much the same as the first-time home buyer credit.

The only difference: To claim it you must have owned and used the same home as your personal residence for five of the last eight years before buying a replacement home during the relevant time window.

Notably, you don’t have to dispose of your previous residence to claim a credit for buying a new residence, but you do have to move into the new home.

Another happy note: If you bought a house in early 2010, you can choose to claim the credit on your 2009 return. That would give you a faster refund and assure that you could meet the income restrictions if 2010 turns out to be a better year.

What if you owned a home for only three or four years and replaced it last year? Sorry. No credit for you.

Car-buyer break

If you bought a car in 2009, you can claim a tax deduction for the state and local sales and excise taxes that you paid on that purchase, regardless of whether you itemize. The deduction is limited to the taxes and fees paid on up to $49,500 of the purchase price. The break is phased out for singles earning more than $125,000 and married couples with more than $250,000 in joint income.

It’s worth mentioning that you get to claim this deduction regardless of whether you take the standard deduction or itemize. (That’s one of the reasons that tax filing will be more complex this year, but more on that later.)

Golf cart credits

This may be one of the weirder new tax credits. If you bought a “low-speed neighborhood vehicle� powered by a battery in 2009, you could qualify for a tax credit of up to $15,000. (If you buy one this year, you can get a credit of up to $7,500.)

What’s a low-speed neighborhood vehicle? They look like golf carts; they drive like golf carts, but they have rear-view mirrors and vehicle identification numbers that make them street legal.

When dealing with the IRS, you should call it “a qualified, plug-in, electric drive vehicle.� But among friends, you can call it a golf cart.

There are no income restrictions on who can claim this credit. In fact, the credit works best for those who earn a lot of money and pay a lot of tax. Why? The credit reduces your tax on a dollar-for-dollar basis, but can’t reduce your tax bill below zero.

How much does it pay? That depends on the golf cart you bought. Most qualify for credits of $4,000 to $6,500, but the credit is calculated based on battery life, so different vehicles get different credits.

The Internal Revenue Service has certified 23 manufacturers’ models for the 2009 tax year. You can get more information from the IRS at www.irs.gov “> www.irs.gov . Or if you’re looking for explanations that you can understand, there are several good articles on the Web that you can find with a Google search for “free golf cart.�

Energy credits

Did you go green in 2009? Good news if you did. The money you spent to go solar (or geothermal) can land you a tax credit for up to 30% of your expenses. That’s not limited by your income or some other arbitrary cap. So, if you spent $20,000 going green, you get a $6,000 credit that reduces your tax on a dollar-for-dollar basis.

If you bought an energy-efficient furnace, water heater, air conditioner or stove -- or if you replaced your windows or treated them to make your home more energy efficient -- you can claim a credit amounting to 30% of the cost, or $1,500, whichever is less. But although the credit sounds easy, claiming it can be tough. Check out the story on Page B3 to see why.

New college credit

The federal government has been giving some taxpayers with college expenses tax breaks to defray some of those costs for some time. But these breaks were expanded to cover more taxpayers in 2009. They were also made richer, now providing a write-off of up to $2,500 per student.

The American Opportunity Credit can be claimed by anyone paying college bills for themselves or a dependent, as long as they earn less than $90,000 if single and $180,000 if married. For more information on this break, and how it conflicts and coordinates with other potential tax breaks for college expenses, see the story on Page B3.

Jobless exemption

Unemployment benefits are normally taxable, but recognizing that many jobless Americans might be particularly hard-pressed in the throes of this nagging recession, Congress provided a slight reprieve. Up to $2,400 in unemployment benefits received in 2009 are tax free. Additional amounts are taxable.

Not itemizing?

In a normal year, you decide whether you’re going to take a standard deduction or itemize by comparing a single number -- the standard deduction for your marital status -- with the sum of your other deductible expenses, such as mortgage interest, property taxes and charitable contributions.

This year, it’s a little more complex because legislators decided to let non-itemizers claim an extra credit for property taxes ($500 for singles; $1,000 for married couples); claim some casualty losses exceeding $500; and take a deduction for new-vehicle sales taxes paid without using the itemized deduction form, Schedule A.

The catch: To claim these “standard� deductions, you’ll now need to fill out a Schedule L, Luscombe said.

Ironically, most people take the standard deduction to save the time and complexity of filling out the 30-line Schedule A. Schedule L is 21 lines. The thoughtful taxpayer now has to fill out both to see which gives the better deduction. In case it’s not patently obvious by now, tax simplicity is dead.

Casualty and theft

Normally, you can claim casualty losses for personal property only once the loss exceeds 10% of your adjusted gross income, plus $500. But in the wake of several years of massive natural disasters, including the Midwest floods of 2008 and the record-setting Station Fire of 2009, legislators got a bit more generous about letting people claim their casualty losses.

This year, if you suffered a loss from a federally declared natural disaster, you can claim the portion that exceeds $500 as a write-off on your income taxes. The comparative size of the loss to your adjusted gross income doesn’t matter.

Note, too, that the IRS put out a special ruling for victims of the Bernard Madoff Ponzi scheme that lets them treat their losses as a theft rather than as an investment loss. The government’s “safe harbor� rule says that you can deduct 95% of the “qualified investment� in Madoff’s scheme if you’re not pursuing a third-party recovery and 75% if you are.

But if you’ve got Madoff losses -- or losses from any of the other Ponzi schemes uncovered in 2009 -- seek help from a tax professional. There are tricks to using the IRS’ safe harbor rule as well as several ways to take a theft loss;col1.One of the others might prove more advantageous for you.

Haiti donations

Finally, if you gave money to Haiti relief, you can deduct those contributions on your 2009 return, even if you made the contribution in 2010. The caveats: You must make the donation before March 1 (which means you’d have to give by text or credit card, if you want in on this today) and give to a recognized U.S. charity that specifies that your donated dollars are going to Haiti relief.

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