It's not too early to start thinking about your 2010 taxes - even though the deadline for filing 2009 returns is still months away.
It’s not too early to start thinking about your 2010 taxes – even though the deadline for filing 2009 returns is still months away.
Some of the credits and deductions put in place last year will continue. Others will disappear. And there are some new things to consider.
“That’s why very, very few people do their own tax returns and why those who do end up using a computer program,” said Jeff Schnepper, MSN Money tax expert. “Our laws change about every year.”
Did you put off buying a new car until 2010 and still hope to deduct the sales or excise tax? You shouldn’t have procrastinated. That deduction disappears for 2010. So does the increased standard deduction for real estate taxes or losses in a federally declared disaster.
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But if you didn’t find your dream house until early this year, you’re in luck. The maximum credit of $8,000 for first-time homebuyers and $6,500 for long-time homeowners who purchase a new primary residence doesn’t expire until April 30. If you entered into a binding contract by that date you must close on the property by June 30 to be eligible. The home must be used as a primary residence and cost $800,000 or less. The credit phases out at higher incomes.
Remember, though, that you had the option of claiming the credit on your 2009 return. If you did, you can’t claim it again in 2010.
People who claimed the first-time homebuyer credit in 2008, when it actually was a long-term, no-interest loan, will have to begin paying it back this year.
It’s also not too late to take advantage of the American opportunity credit for college expenses. The expanded credit of up to $2,500 annually can be used by eligible students in the first four years of college. And it’s not just tuition and fees that are qualified expenses. Now, books and supplies also count. This credit also begins phasing out at higher incomes.
There’s still time to claim the tax credit for installing storm windows or making other energy-saving improvements to your home. The credit covers 30 percent of the cost up to a maximum credit of $1,500. The credit can still be taken in 2010, but the total for 2009 and 2010 cannot exceed that upper limit.
If you choose to go green on the road, the list of hybrids eligible for credits is shrinking. Under current law, the credit begins phasing out after manufacturers produce 60,000 hybrid cars. Some of the more popular hybrids, including the Toyota Prius, are not eligible for the credits any more.
As in the past, income limits on some credits are being adjusted for inflation.
For example, if you have three or more children and income less than $48,362 if married and filing jointly, you may be eligible for the earned income credit. The income figure is $83 higher than in 2009.
Individual filers who have a company-sponsored retirement plan but make less than $66,000 may still be eligible to take a deduction for IRA contributions. In 2009, the maximum income was $65,000.
In a big change governing Roth IRAs, people can convert regular IRAs to Roth IRAs regardless of income, beginning in 2010.
Contributions to a regular IRA are tax deductible, but when you take out money it is taxed as income. In a Roth IRA, you may not deduct the contributions, but the money is tax-free when you withdraw it.
There’s a catch to a conversion. “What’s going to happen is they’re going to have to pay the tax now on the money they pull out,” Schnepper says.
According to the 1040 instructions, “Half of any income that results from a rollover or conversion to a Roth IRA from another retirement plan in 2010 is included in income in 2011, and the other half in 2012, unless you elect to include all of it in 2010.”
Schnepper said most people will likely want the income spread out. “For most people, that’s the right answer,” he said. “But for some people it might be the complete wrong answer because I strongly suspect that by the time we get to 2012, the tax rates are going to zoom.”
In another expiring tax break, the first $2,400 collected in unemployment benefits will no longer be exempt from taxes. That exclusion expired at the end of 2009.
So did the phaseout for personal exemption and itemized deductions for people at higher ends of the income scale.
Then, there’s the alternative minimum tax.
The AMT was designed to ensure that wealthy people didn’t escape paying taxes through a series of loopholes, but it also snared people with more moderate incomes. As a result, Congress has put in a series of patches raising the amount of exempt income.
As of yet, there’s no patch for 2010. So, unless Congress acts, the exemption will decline to $33,750 for individuals and $45,000 for married couples filing jointly, the pre-2001 rates.
By comparison, the exemption last year was $46,700 for individuals and $70,950 for joint filers.
A huge caveat is that Congress has the full year to act. And, if past years serve as examples, there likely will be changes to the tax laws.