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November 13, 2009
In-laws are eligible for first time home buyer credit
First-time Home Buyer Credit: Generally, IRC Sec. 36 authorizes a refundable credit to first-time homebuyers for the purchase of a principal residence. To qualify, the taxpayer cannot acquire the residence from a related person , which includes the taxpayer's spouse, ancestors, and lineal descendants. The IRS reviewed the scope of the related person rule in several information letters, noting that a husband could not take the credit for the purchase of a residence from his parents, but his wife was "not prohibited from taking the credit because in-laws are not related persons for purposes of the first-time homebuyer credit." Furthermore, a taxpayer could not claim the credit for a residence purchased from his or her parents or grandparents.
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November 12, 2009
Home Buyer Credit Now Available to Existing Homeowners
With President Obama signing the Worker, Homeownership, and Business Assistance Act of 2009 on 11/6/09, the Section 36 credit is now available to current homeowners. Specifically, an individual (and, if married, his or her spouse) who has maintained the same principal residence for any five-consecutive year period during the eight-year period ending on the date of the purchase of a new principal residence is eligible for a maximum $6,500 tax credit ($3,250 for a married individual filing separately). Furthermore, the credit now phases out for taxpayers with modified AGI between $125,000 and $145,000 ($225,000 and $245,000 for joint filers) for the year of purchase. However, no credit is allowed if the purchase price of the new residence exceeds $800,000.
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October 19, 2009
IRS: Retirement contributions same for 2010
By DAVID PITT, AP Personal Finance Writer David Pitt, Ap Personal Finance Writer – Thu Oct 15, 5:53 pm ET
DES MOINES – The maximum contribution limits for your 401(k) and other retirement plans will stay the same next year, the IRS says. The agency released a statement Thursday keeping the maximum contribution rate at $16,500 instead of lowering it, as some had feared. Retirement plan advisers said a lower contribution limit would send the wrong signal to investors who already largely do not save enough.
The maximum contribution is established by using a formula tied to the third-quarter Consumer Price Index for all urban consumers — the CPI-U. This year the CPI-U fell 1.3 percent over the past 12 months.
The IRS said procedures in the Social Security Act for adjusting benefit amounts do not allow it to reduce limits. The CPI-U measures the average change in the prices of goods and services including food, clothing, shelter, fuel, drugs and other day-to-day items bought by U.S. urban consumers. It is released by the U.S. Department of Labor.
The falling index meant that for the first time ever the Internal Revenue Service was faced with the possibility that the maximum contribution level — now at $16,500 — could have been lower than the year before. The agency, however, concluded the law did not allow for a lower limit. A lower limit could have discouraged workers at a time when they should be saving more, said Jacque Mohs, a vice president at Des Moines-based Principal Financial Group. Inc., a leading 401(k) provider.
"We think now is not the time to cut back, it is time to continue to save more for retirement," she said. "Especially in a market recovery time. You don't want to be out of the market. Now is the time to invest and have some of that dollar cost averaging." Dollar cost averaging is the practice of investing a fixed amount at regular intervals regardless of whether the market is moving up or down, spreading out risk associated with market movement.
The IRS also said it was retaining many of last year's tax deductions, some of which also are determined by inflation figures. Several deductions for 2010 are unchanged and others change slightly. They include:
- The value of each personal and dependency exemption available to most taxpayers is $3,650, unchanged from 2009.
- The new standard deduction for heads of household is $8,400, up from $8,350 in 2009. For other taxpayers, the standard deduction remains unchanged at $11,400 for married couples filing a joint return and $5,700 for singles and married individuals filing separately. Nearly two out of three taxpayers take the standard deduction rather than itemizing deductions, such as mortgage interest, charitable contributions, and state and local taxes.
- Various tax bracket thresholds will see minor adjustments. For example, for a married couple filing a joint return the taxable income threshold separating the 15 percent bracket from the 25 percent bracket is $68,000, up from $67,900 in 2009.
- The annual gift tax exclusion remains unchanged at $13,000.
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October 15, 2009
Push on to expand $8,000 tax credit
By Jeanne Sahadi, CNNMoney.com senior writer
NEW YORK (CNNMoney.com) -- Congress is considering proposals to greatly expand a soon-to-expire $8,000 tax credit for first-time homebuyers -- potentially applying it to all but the wealthiest homebuyers.
Supporters say doing so would further boost home sales, stabilize housing prices and generate jobs. Opponents say extending and expanding the credit would be a waste of money and only temporarily stave off further price declines. The credit now can be claimed by anyone buying a home who has not owned one for three years and who closes the deal by Nov. 30.
Beyond extending that deadline, some lawmakers want to make the credit available to all homebuyers who meet income eligibility requirements. And some want to increase the amount of the credit from $8,000 to $15,000.
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October 13, 2009
Auto Purchase Sales Tax Deduction
With 2010 models arriving in dealer showrooms, the IRS reminded taxpayers that buying a new car, light truck, motor home, or motorcycle by 12/31/09 may enable them to claim the state and local sales and excise tax deduction on their 2009 tax return.
The deduction is limited to the sales and excise taxes and similar fees paid on up to $49,500 of the purchase price of a new vehicle. It is reduced for joint filers with modified adjusted gross incomes (MAGI) from $250,000–$260,000 and other taxpayers with MAGI from $125,000–$135,000, but is available regardless of whether the taxpayer itemizes deductions.
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October 9, 2009
IRS Made Errors in Stimulus Payments to 400,000 Taxpayers
- The IRS issued more than $96 billion in advanced economic stimulus payments (up to $1,2000 for married couples filing jointly) to more than 119 million taxpayers in Calendar Year 2008 and approximately $8.5 billion in payments to almost 21 million taxpayers as of April 17, 2009.
- 259,000 taxpayers did not receive $84.6 million in payments due to various IRS errors.
- 141,000 taxpayers received $60.6 million in payments for which they were ineligible due to various IRS errors.
Clients of DJG should not be concerned because we calculated in 2007 exactly what the stimulus payment should be and if there was a descrepancy we reconciled it in 2008.
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