What's New in Taxes: Tax breaks are included in the new Recovery Act

The American Recovery and Reinvestment Act of 2009 includes a bevy of new tax breaks. The key provisions summarized below are generally retroactive to January 1, 2009.
* Making work pay credit. Employees and self-employeds can claim a credit for 2009 and 2010 equal to the lesser of 6.2% of earned income or $400 ($800 for joint filers). The credit phases out once adjusted gross income (AGI) reaches $75,000 for singles and $150,000 for couples.
* Alternative minimum tax (AMT). The new law creates another "patch" for 2009 through higher exemption amounts: $46,700 for singles and $70,950 for couples. This change will prevent an estimated 26 million middle-income taxpayers from being hit by the AMT.
* First-time homebuyer's credit. This credit is enhanced for 2009. The maximum credit increases from $7,500 to $8,000 for homes purchased from January 1, 2009, through November 30, 2009. Repayment isn't required if you live in the home at least three years. Phase-out of the credit remains for an AGI above $75,000 for singles and $150,000 for joint filers.
* New vehicle deductions. A buyer can claim a new above-the-line deduction for sales and excise taxes on the first $49,500 of a vehicle's price. The deduction phases out for an AGI above $125,000 ($250,000 for joint filers). It applies to 2009 purchases after February 16.
* Education credits. For 2009 and 2010, the maximum Hope credit - renamed the "American Opportunity Tax Credit" - increases from $1,800 to $2,500 and may be claimed for all four years of college (instead of the first two). Phase-out begins at $80,000 of AGI for singles and $160,000 for joint filers.
* Child tax credit. The refundable portion of the child tax credit is increased for 2009 and 2010 by lowering the income threshold for refundability from $8,500 to $3,000.
* Energy incentives. Among numerous energy provisions, the new law increases the residential energy credit from 10% to 30% and raises the maximum cap to $1,500 for installations in 2009 and 2010.
There's much more in the new law, ranging from a tax exclusion for $2,400 of unemployment benefits in 2009 to a one-time $250 payment to certain retirees and veterans.
For guidance in tax planning under these latest changes, contact us.