What tax breaks are officially ending this year?
The end of the 2009 year
will also spell the end of many tax breaks for both individuals and businesses.
Some of these tax breaks are "temporary" credits and deductions
that Congress typically extends for another year or two at the last moment.
Other sunsetting provisions are relatively new, with no previous track record
on their being extended. In either case, however, the unfamiliar economic
climate in which our nation finds itself makes predicting whether Congress
will find the funding necessary to extend any particular tax break this time
around, beyond 2009, a matter of guesswork. The following is a list of
important tax breaks expiring at the end of 2009.
A word to the wise: if you can take advantage of any
tax break on this list before 2009 closes, do so. At this point, you cannot
-and should not-- count on having any of them available in 2010.
Homebuyer tax
credit. The
first-time homebuyer tax credit expires sooner rather than later in 2009.
That is, the credit expires November 30 - the credit provision requires that
the residence be "purchased" by November 30, with
"purchase" defined as taking place when title passes and the full
purchase price is paid (that is, at the "closing") and not
earlier when the contract of sale is executed and a down payment is escrowed.
The credit is equal to 10 percent of the purchase price of a principal
residence, up to $8,000. It applies to homes purchased after December 31,
2008, and before December 1, 2009.
Itemized state and
local sales tax deduction. The ability to deduct state and local sales taxes in lieu
of state and local income taxes is available until December 31, 2009, when
the itemized state and local sales tax deduction expires.
Higher education
tuition deduction. The higher education tuition deduction, permitting taxpayers to take
an above-the-line deduction for qualified tuition and related expenses, will
expire this year. The maximum deductible amount is $4,000 for taxpayers with
adjusted gross income not exceeding $65,000 ($130,000 for joint filers).
Taxpayers whose income exceeds that limit but does not exceed $80,000
($160,000 for joint filers) may deduct up to $2,000 in qualified expenses.
Additional standard
deduction for real property taxes. If you claim the standard deduction and also have real
estate taxes, you can take an increased deduction ($500 for individuals and
$1,000 for married couples filing jointly) for your real estate taxes. This
tax break is scheduled to expire at the end of 2009.
Teachers' classroom
expense deduction. The $250 above-the-line deduction for qualified classroom expenses
will expire at the end of 2009. The deduction benefits teachers and other
educators, from teachers' aides to school principals, who used their own
out-of-pocket money to purchase qualified classroom supplies, such as
notebooks, scissors, paper, pens, markers and books. As an above-the-line
deduction, the $250 tax break is available to non-itemizers as well.
Bonus depreciation. For businesses, bonus
depreciation and enhanced "section 179 expensing," both designed to
- temporarily - encourage business to make capital investments, are set to
expire at the end of 2009. Bonus depreciation can be claimed for both regular
tax and alternative minimum tax (AMT) liability unless the taxpayer makes an
election out.
Enhanced Code Sec.
179 expensing.
Enhanced "section 179 expensing," is set to expire at the end of
2009 in addition to bonus depreciation, as mentioned above. Qualified
taxpayers may deduct up to $250,000 of the cost of machinery, equipment,
vehicles, furniture, and other qualifying property placed in service during
2009. The $250,000 amount is reduced if the cost of all Code Sec. 179
property placed in service by the taxpayer during the tax year exceeds
$800,000.
Research and
development credit. The research and development, or R&D credit, is set to expire at
the end of 2009. The credit is available for businesses that increase their
research expenses. The credit is 14 percent of qualified research expenses
that exceed 50 percent of the average qualified research expenses for the
three preceding tax years.
COBRA subsidy. The COBRA premium assistance
provided as part of the American Recovery and Reinvestment Act of 2009 (2009
Recovery Act) will not benefit individual involuntarily terminated from
employment after December 31, 2009. The COBRA subsidy is only available to
individuals involuntarily terminated from work between September 1, 2008 and
December 31, 2009 The COBRA subsidy under the 2009 Recovery Act provides for
individuals to pay only 35 percent of their COBRA premiums with employers
paying the remaining 65 percent, for nine months.
Unemployment compensation. Although unemployment
compensation is typically taxable income, the 2009 tax year provides a
respite from taxability for up to $2,400 of unemployment income. However, the
exclusion from taxable income for unemployment compensation is only available
for 2009, and will expire at the end of the year unless Congress acts to
extend this benefit.
Motor vehicle sales
tax deduction.
The deduction for sales tax paid on the purchase a new motor vehicle is
available for vehicles purchased between February 17, 2009 and December 31,
2009. Taxpayers can deduct state and local sales and use taxes paid on the
first $49,500 of the purchase price of the vehicle. The deduction can be
taken whether or not the taxpayer itemizes deductions. However, if you deduct
state and local general sales taxes as an itemized deduction, you cannot
"double dip" and take the deduction for new car sales taxes.
AMT exemption
amounts. For
2009, the AMT exemption amounts increased to $46,700 for individuals and
$70,950 for married taxpayers filing jointly. However, these exemption
amounts will decrease in 2010 to $33,750 for single taxpayers and $45,000
married taxpayers filing jointly.
