McLaughlin & Quinn, LLC - Providence | Boston

1. Making Work Pay Credit: The Act allows a credit for the lesser of 6.2% of earned income or $800 ($400 for single taxpayers) for 2009 and 2010. The credit amount begins to reduce for taxpayers with adjusted gross incomes above $75,000 ($150,000 for joint returns). The credit is unavailable for those taxpayers who are claimed as a dependent on another taxpayer's return.
2. Child Tax Credit: The Act potentially increases the refundable portion of the child tax credit for 2009 and 2010. For those years, the refundable credit is amended to apply to 15% of earned income in excess of $3,000, depending on your particular circumstances.
3. AMT Relief: The 2009 Act allows nonrefundable credits, such as the child tax credit and the credit for adoption expenses, to offset alternative minimum tax for the 2009 tax year.

1. Credit for First-Time Homebuyers: This is a more generous one-time only credit for the home purchases made after December 31, 2008 and prior to December 1, 2009. It equals 10% of the purchase price limited to $8,000 ($4,000 for married filing separately). The credit begins to phase out at modified adjusted gross incomes of $75,000 ($150,000 for taxpayers filing a joint return). There is no repayment provision; however, recapture provisions apply to certain dispositions within three years of purchase. Note that there is an option to accelerate this credit by taking it on your 2008 return.
2. Deduction for Automobile Sales and Excise Taxes: The Act allows a deduction for state and local sales and excise taxes imposed on the purchase of passenger automobiles, light trucks, motorcycles, and motor homes. The purchase must be made after February 17, 2009, and before January 1, 2010; and the deduction is limited to the taxes paid or incurred on a purchase price of up to a $49,500 ($24,750 for separate returns by married individuals). This deduction is available to non-itemizers, but it begins to phase out for taxpayer's with modified adjusted gross incomes of $125,000 ($250,000 for married filing jointly).

1. American Opportunity Tax Credit: This is a credit of up to $2,500 per eligible student per year for qualified tuition and related expenses, including related course materials, paid for each of the first four years of the student's post-secondary education. The credit is applicable for 2009 and 2010, applies against alternative minimum tax, and is partially refundable. The credit begins to phase out for taxpayers with modified adjusted gross incomes of $80,000 ($160,000 for married filing jointly), and is completely phased out at adjusted gross incomes of $90,000 ($180,000 for married filing jointly).
2. 529 Plans: Computer technology and equipment expenses can be paid for from 529 plans in 2009 and 2010.

1. The NonBusiness Energy Property Credit percentage is increased to 30% (formerly 10%) for the cost of certain energy efficient improvements and residential energy property expenditures. This credit applies to expenditures for electric heat pumps, central air conditioners, water heaters, wood stoves, natural gas, propane, and oil furnaces and hot water heaters, exterior windows, doors, skylights, and insulation. These improvements must meet certain energy standards in order to qualify for the credit and must be placed in service in 2009 and 2010. Note that there is a lifetime maximum cap of $1,500, which replaces the $500 limitation previously in effect, as well as specific dollar limitations applicable various energy saving properties. For example, the $200 limitation for windows no longer applies.
2. The Residential Energy Credit allows taxpayers to take a 30% credit for the cost of residential energy expenditures made in tax years after 2008 for solar electric generating property and solar water heaters, fuel cell property, wind turbine electric generating property, and geothermal heat pumps. The previous dollar caps are completely removed, except for the fuel cell property cap.
3. Certain Plug-In Electric Vehicles acquired after February 17, 2009 and before 2012, qualify for a new credit equal to 10% of the cost. The credit applies to certain two and three-wheeled electric vehicles and low-speed vehicles and is limited to $2,500.
4. The Alternative Motor Vehicle Credit now includes a 10% credit up to a maximum of $4,000 for the cost of converting the taxpayer's motor vehicle to a plug-in-electric drive motor vehicle. This credit is allowed in addition to any other available credits applicable to that particular motor vehicle. There is no recapture that applies to a vehicle which ceases to be a pre-existing alternative motor vehicle (for example, a hybrid) as a result of its conversion to a plug-in electric drive motor-vehicle. The credit applies to property placed in service after February 17, 2009, and before 2012.
5. The Alternative Fuel Vehicle Refueling Property Credit allows a credit for the cost of any qualified alternative fuel vehicle refueling property installed at the taxpayer's principal residence. The 2009 Act increased the credit to a maximum of $2,000 for individuals, effective for property placed in service in 2009 and 2010.

1. Election to Expense Certain Depreciable Business Assets: The 2009 Act extends the current expensing amount of $250,000 and the $800,000 phase-out amount through 2009.
2. Bonus Depreciation: The 2009 Act extends 50% additional first-year depreciation through 2009 (2010 for certain longer-lived property and transportation property), effective for property placed in service in 2009. Also, the election to accelerate AMT credits and research credits instead of taking additional first-year depreciation is extended through 2009.
3. Net Operating Losses: Taxpayers with gross receipts not exceeding $15,000,000 may elect a three, four, or five-year carryback of 2008 net operating losses, instead of the otherwise two-year period.
4. Credit for Unemployed Veterans and Disconnected Youths Hired in 2009/2010. The 2009 Act creates a new targeted group for purposes of the work opportunity tax credit. This new group includes certain unemployed veterans and disconnected youth who begin work for the employer in 2009 and 2010.
5. Income from Discharge of Indebtedness: Taxpayers may elect to treat 2009 and 2010 business Income from a discharge of indebtedness occurring in connection with the repurchase of a debt instrument as includible in income ratably over an eight-year tax period. For a 2009 repurchase, the inclusion begins in the fifth tax year following the tax year in which the repurchase occurs. For a 2010 repurchase, the inclusion begins in the fourth tax year following the tax year in which the repurchase occurs.
   
6. Partial Exclusion for Gain from Certain Small Business Stock: Effective for stock acquired after February 17, and before 2011, the percentage exclusion is increased from 50% to 75%.
7. Tax Imposed on Certain Built-in Gains: Effective for tax years beginning in 2009 and 2010, the S corporation built-in gains holding period is reduced from 10 years to seven years.

1. Alternative Motor Vehicle Credit: Effective for property placed in service in 2009 through 2012, the 2009 Act adds a 10% credit up to $4,000 for the cost of converting a motor vehicle to a plug-in electric drive vehicle. There is no recapture if the vehicle ceases to be eligible for the pre-existing alternative motor vehicle credit as a result of the conversion.
2. Alternative Fuel Vehicle Refueling Property Credit: The 2009 Act temporarily increases this credit for property placed in service in 2009 and 2010. For hydrogen refueling property, the credit percentage remains the same, but the maximum credit is increased to $200,000. For non-hydrogen refueling property, the credit is increased from the existing 30% to 50%, with a $50,000 maximum.
3. Plug-in Electric Vehicle Credit (new): Certain two- and three-wheeled electric vehicles and certain low-speed electric vehicles placed in service after February 17, 2009, and before 2011, are eligible for a credit equal to 10% of their cost, up to a maximum of $2,500 per vehicle.
4. Energy Credit: There are several changes to the energy credit. The $4,000 cap for small wind energy property is eliminated along with the basis reduction for subsidized energy financing, effective for periods beginning after 2008. In addition, for property placed in service in 2009 and 2010, the taxpayer may apply for a grant from The Treasury Department instead of taking the credit. Grant recipients must reduce the basis of the property by 50%, but the grants are not includible in income.
5. Qualified Advanced Energy Property Credit (new): The 2009 Act allows for up to $2.3 billion for a new 30% credit for the cost of investments in qualified advanced energy projects, effective for periods after February 17, 2009. Qualified energy projects are projects that equip, expand, or establish manufacturing facilities that produce certain renewable and alternative energy property. This credit will be administered by the Treasury Department in consultation with the Energy Department.

There are certain Federal and State taxes that can be discharged in bankruptcy.

Learn more about our
IRS/State Tax Resolution Practice»