The
American Recovery And Reinvestment Act Of 2009
(ARRA)
The American Recovery and Reinvestment Act (ARRA)
provided
tax incentives for first-time homebuyers, people
purchasing new cars, those interested in making
their homes more energy efficient and parents
and students paying for college. However, most
of these tax breaks are soon set to expire. They
include:
First-Time
Homebuyer Credit
The
Recovery Act extended and expanded the first-time
homebuyer tax credit for 2009 and 2010. Taxpayers
who didn’t own a principal residence during
the past three years and had a binding sales contract
by April, 30, 2010 could receive a credit of up
to USD8,000 on either an original or amended 2008,
2009 or 2010 tax return. This credit phases out
at higher income levels, with a ceiling of USD75,000
for single taxpayer and USD150,000 for married
taxpayers for purchases from January 1, 2009 and
November 6, 2009. The income levels were raised
to USD125,000 and USD225,000 respectively for
purchases April 30, 2010 and September 30, 2010.
Different rules applied to home purchases made
in 2008.
New
Vehicle Purchase Incentive
ARRA
provided a tax break to taxpayers who make qualified
new vehicle purchases after February 16, 2009,
and before January 1, 2010. Qualifying taxpayers
were able to deduct the state and local sales
and excise taxes paid on the purchase of new cars,
light trucks, motor homes and motorcycles. There
was no limit on the number of vehicles that could
be purchased, and taxpayers were allowed to claim
the deduction for taxes paid on multiple purchases.
The deduction per vehicle was limited to the tax
on up to USD49,500 of the purchase price of each
qualifying vehicle and phased out for taxpayers
at higher income levels. This deduction was available
regardless of whether a taxpayer itemizes deductions
on Schedule A.
Energy-Efficient
Home Improvements
The
Recovery Act encourages homeowners to make their
homes more energy efficient. The credit for non-business
energy property is increased for homeowners who
make qualified energy-efficient improvements to
existing homes. The law increases the rate to
30% of the cost of all qualifying improvements
and raises the maximum credit limit to a total
of USD1,500 for improvements placed in service
in 2009 and 2010. Qualifying improvements include
the addition of insulation, energy-efficient exterior
windows and energy-efficient heating and air conditioning
systems.
Tax
Credit for First Four Years of College
The
American opportunity credit is designed to help
parents and students pay part of the cost of the
first four years of college. The new credit modifies
the existing Hope credit for tax years 2009 and
2010, making it available to a broader range of
taxpayers, including many with higher incomes
and those who owe no tax. Tuition, related fees,
books and other required course materials generally
qualify. Many of those eligible will qualify for
the maximum annual credit of USD2,500 per student.
Certain
Computer Technology Purchases Allowed for 529
Plans
ARRA
adds computer technology to the list of college
expenses (tuition, books, etc.) that can be paid
for by a qualified tuition program (QTP), commonly
referred to as a 529 plan. For 2009 and 2010,
the law expands the definition of qualified higher
education expenses to include expenses for computer
technology and equipment or internet access and
related services to be used by the designated
beneficiary of the QTP while enrolled at an eligible
educational institution. Software designed for
sports, games or hobbies does not qualify, unless
it is predominantly educational in nature.
Making
Work Pay and Withholding
The
Making Work Pay Credit lowered tax withholding
rates this year for 120 million American households.
However, particular taxpayers who fall into any
of the following groups should review their tax
withholding rates to ensure enough tax is withheld,
including multiple job holders, families in which
both spouses work, workers who can be claimed
as dependents by other taxpayers and pensioners.
Failure to adjust withholding could result in
potentially smaller refunds for some taxpayers,
or, in limited instances, may cause taxpayers
to owe tax rather than receive a refund next year.
By April, 2010, the average refund amount was
nearly USD3,000.
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