First-Time Homebuyer Credit Extended to April 30, 2010; Some Current Homeowners Now Also Qualify

The credit amount is 100% of the first $2,000 of tuition and other eligible expenses, plus 25% of the next $2,000 of such costs,

a top credit of $2,500. (The Hope credit had been limited in 2008 to $1,800.)

The credit is subject to an income cap. The credit phases out for singles with MAGI between $80,000 and $90,000, and for joint filers with MAGI between $160,000 and $180,000.

ARRA makes 40% of the credit refundable. This means it can be paid to eligible taxpayers in excess of their tax liability.

For new vehicles (passenger vehicles, light trucks, and motorcycles weighing 8,500 or less) purchased after Feb. 17, 2009, and before Jan 1, 2010, the buyer can deduct state and local sales taxes and excise taxes on the purchase price price up to $49,500. The deduction can be claimed as an adjustment to gross income. (Itemizing is not necessary to use this tax break). However, the deduction phases out for those with MAGI(Modified Ajusted Gross Income)  between $125,000 and $135,000 if single, or $250,000 and $260,000 if married filing jointly.

Jennifer H Stokes, Licensed CPA www.TaxDeductionsByOccupation.com

www.1040.com/StokesTaxService

Employees do not have to do anything to receive the payments; they are automatic. Some employees, however, might wish to change their withholding allowances by filing a new Form W-4 with your employers so you will not have an underpayment of taxes when you file your 2009 tax returns. For example, if you work more than one job, each employer will include the stimulus payment in your paycheck. But, when you file your 2009 tax return, only one stimulus payment will be allowed (assuming your income is below the MAGI limit).

Self-employed individuals are also entitled to the Making Work Pay credit. Because they do not receive wages, they can claim their stimulus credit by either 1) adjusting their estimated taxes for 2009 or 2) claim the stimulus payment when they file their 2009 income tax return.

Jennifer Stokes, Licensed CPA
www.TaxDeductionsByOccupation.com
www.1040.com/StokesTaxService

On Feb 17, President Obama signed into law a $787 billion stimulus package called the American Recovery and Reinvestment Act of 2009.

This package included nearly $300 billion in tax relief and more than 300 changes to the Internal Revenue Code!

During the year, I will post a key tax credit or other tax-related provision at www.TaxDeductionsByOccupation.blog.com.

Jennifer H Stokes, Licensed CPA

American Recovery and Reinvestment Tax Act of 2009

President Barack Obama signed the 1,073 page “stimulus” act into law on February 17, 2009—the American Recovery and Reinvestment Act of 2009.

The cost of the entire stimulus act is nearly $800 billion. The tax provisions represent approximately $300 billion of that total cost. This eTax Alert focuses on the individual tax changes in the new law.

Making Work Pay Credit
By far, the most costly tax provision is the “Making Work Pay Credit” at an estimated cost of $116 billion. This refundable credit is available for both 2009 and 2010. The credit is equal to the lesser of 6.2% of earned income of the taxpayer, or $400 for a single person or $800 in the case of a joint return. The credit is limited when modified adjusted gross income exceeds $75,000 for a single person or $150,000 for a married person. The credit is phased out at a 2% rate above those levels. For example, the credit is fully phased out for a single individual with modified adjusted gross income of $95,000. Individuals who may be claimed as a dependent are not eligible for the credit. Qualified taxpayers would either receive the credit by a reduction in their income tax withholding or can claim the credit as a lump sum when they file their tax return.

$250 Economic Recovery Payment
The new law also provides for a one-time payment of $250 to Social Security recipients, railroad retirees, disabled veterans, and retired government workers. This payment will reduce the amount of the “Making Work Pay Credit” to which a recipient might otherwise be entitled.

Alternative Minimum Tax “Patch”
The new law includes an alternative minimum tax patch for 2009 at a cost of $70 billion. The AMT patch for 2009 raises exemption amounts for joint filers to $70,950 and to $46,700 for single filers. This AMT patch will relieve about 26 million taxpayers from AMT exposure.

First-Time Home Buyer Credit “Update”
The first-time home buyer tax credit is increased from $7,500 to $8,000 for homes purchased from January 1, 2009, though November 30, 2009. There is no required repayment for a home acquired in 2009 after 36 months in the home. The credit begins to phase out for single taxpayers with adjusted gross incomes in excess of $75,000 and in excess of $150,000 for joint filers. A first-time home buyer is defined as someone who has not owned a present interest in a principal residence within 3 years of the purchase date. An eligible taxpayer can elect to take this refundable credit based on a 2009 purchase of a home on his or her 2008 tax return.

New Car Tax Deduction
If a taxpayer purchases a new vehicle between February 17, 2009, and December 31, 2009, he or she will be eligible for an “above-the-line” deduction for state and local sales taxes or excise taxes paid on the purchase. This means taxpayers will achieve the tax deduction even if they do not itemize their deductions. This rule applies to the first $49,500 of the purchase price of any one vehicle. The deduction will be phased out for a purchasers who have adjusted gross incomes exceeding $125,000 for single taxpayers or $250,000 for joint returns. Newly purchased foreign and domestic vehicles qualify, including cars, light trucks, motorcycles, and motor homes with a gross vehicle weight of not more than 8,500 pounds. The sales tax on leased vehicles is not included. Also, a taxpayer is not eligible if he or she elects to deduct sales and use taxes as an itemized deduction.

American Opportunity Tax Credit
The American Opportunity Tax Credit is essentially a modification and renaming of the existing Hope Scholarship Tax Credit. A credit of up to $2,500 for the first 4 years of higher education expenses would be available. The credit would be calculated based upon 100% of the first $2,000 of qualified tuition and related expenses, plus 25% of the next $2,000 of such expenses. The credit would begin to phase out at $80,000 of modified AGI for a single taxpayer and $160,000 for married taxpayers. Up to 40% of the credit would be refundable. The American Opportunity Tax Credit would also be allowed for the Alternative Minimum Tax.

Tax Relief for Families with Children
Tax relief in the form of larger refunds or reduced income tax withholding for families with children is provided for by temporary increases for 2009 and 2010 in theearned income tax credit for families withthree or more children and the refundable portion of the child tax credit.

Unemployment Compensation
The new law excludes up to $2,400 of unemployment compensation from income for 2009. Amounts in excess of $2,400 are taxable.

Tax-Free Transportation Fringe Benefits
Qualified transportation fringe benefits, including transit passes, van pooling, and qualified parking, are tax free up to $230 per month for 2009 and 2010 with an inflation adjustment.

Qualified “529 Plan” Tuition Programs
Distributions from a “529 Plan” for qualified education expenses are tax free. Qualified education expenses now include computers, computer technology, and Internet access.

For more information on these topics and more, check out Western CPE’s NEW course, American Recovery and Reinvestment Act of 2009, available for immediate purchase and download.

IRS Speeds Lien Relief for Homeowners Trying to Refinance, Sell  

WASHINGTON — The Internal Revenue Service today announced an expedited process that will make it easier for financially distressed homeowners to avoid having a federal tax lien block refinancing of mortgages or the sale of a home.

If taxpayers are looking to refinance or sell a home and there is a federal tax lien filed, there are options. Taxpayers or their representatives, such as their lenders, may request that the IRS make a tax lien secondary to the lien by the lending institution that is refinancing or restructuring a loan. Taxpayers or their representatives may request that the IRS discharge its claim if the home is being sold for less than the amount of the mortgage lien under certain circumstances.

The process to request a discharge or a subordination of a tax lien takes approximately 30 days after the submission of the completed application, but the IRS will work to speed those requests in wake of the economic downturn.

“We don’t want the IRS to be a barrier to people saving or selling their homes. We want to raise awareness of these lien options and to speed our decision-making process so people can refinance their mortgages or sell their homes,” said Doug Shulman, IRS commissioner.

 “We realize these are difficult times for many Americans,” Shulman said. “We will ensure we have the resources in place to resolve these issues quickly and homeowners can complete their transactions.”

Filing a Notice of Federal Tax Lien is a formal process by which the government makes a legal claim to property as security or payment for a tax debt. It serves as a public notice to other creditors that the government has a claim on the property.

In some cases, a federal tax lien can be made secondary to another lien, such as a lending institution’s, if the IRS determines that taking a secondary position ultimately will help with collection of the tax debt.  That process is called subordination. Taxpayers or their representatives may apply for a subordination of a federal tax lien if they are refinancing or restructuring their mortgage. Without lien subordination, taxpayers may be unable to borrow funds or reduce their payments. Lending institutions generally want their lien to have priority on the home being used as collateral.

To apply for a certificate of lien subordination, people must follow directions in Publication 784, How to Prepare an Application for a Certificate of Subordination of a Federal Tax Lien. Again, there is no form but there must be a typed letter of request and certain documentation. The request should be mailed to one of 40 Collection Advisory Groups nationwide. See Publication 4235, Collection Advisory Group Addresses, for address information.

Taxpayers or their representatives may apply for a certificate of discharge of a tax lien if they are giving up ownership of the property, such as selling the property, at an amount less than the mortgage lien if the mortgage lien is senior to the tax lien. The IRS may also issue a certificate of discharge in other circumstances if the taxpayer has sufficient equity in other assets, can substitute other assets, or is able to pay the IRS its equity in the property. Without a tax lien discharge, the taxpayer may be unable to complete the home ownership change and the ownership title will remain clouded.

To apply for a tax lien discharge, applicants must follow directions in Publication 783, Instructions on How to Apply for a Certificate of Discharge of a Federal Tax Lien. There is no form but there must be a typed letter of request and certain documentation. The request should be mailed to one of 40 Collection Advisory Groups nationwide. See Publication 4235 for address information.

The IRS also urges people to contact the agency’s Collection Advisory Group early in the home sale or refinancing process so that it can begin work on their requests. People sometimes delay informing lenders of the tax liens, which only serves to delay the transaction.

Currently, there are more than 1 million federal tax liens outstanding tied to both real and personal property. The IRS issues more than 600,000 federal tax lien notices annually.

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