New sales tax deduction/tuition credit

Several new and exciting, yes I said exciting, tax provisions have been enacted by congress for the 2009 tax year. Two of the provisions that caught my attention this year are the deduction for qualified motor vehicle taxes and the American Opportunity Tax Credit (AOTC).

The deduction for qualified motor vehicle taxes allows taxpayers to deduct the sales/excise tax that was paid when the taxpayer purchased a qualified vehicle in 2009. This new deduction is different from the sales tax deduction that can be claimed by itemizing taxpayers. In the past itemizing taxpayers have had to choose to deduct either State income taxes paid or sales tax. Under this new provision the taxpayer will be allowed to claim State income taxes paid and the sales/excise tax paid on the purchase of a qualified vehicle. This deduction can also be taken by individuals who claim the standard deduction. In order to claim this deduction, taxpayers taking the standard deduction must now complete Schedule L (Form 1040A or 1040). As usual, income and other limitations apply.

The AOTC has implemented several changes to the long standing Hope credit. The AOTC allows for taxpayers to claim a credit of up to $2,500 - the previous credit was $1,800, called the Hope credit - for qualified higher education expenses. The AOTC is available for the first 4 years of the student’s postsecondary education; the Hope credit was limited to two years. The AOTC has also expanded the definition of qualified higher education expenses to include textbooks and other course material. Again, income and other limitations apply.

Year-end Tax Planning Letter

Below is a link to our annual year-end tax planning letter. Please call if you have questions or comments regarding the tax situation for the remainder of 2009 or 2010.

2009 Year-End Tax Planning Letter

2009 Tax Law Updates

Congress passed two important tax bills in 2009. Below are brief summaries of each bill. Please call or email Brandon - brandon@ulrichcpa.com or 801-627-2100 - if you have questions.

American Recovery and Reinvestment Act

Worker, Homeownership, and Business Assistance Act

First-Time Homebuyer Tax Credit

The First-Time Homebuyer Tax Credit has been extended. On November 6, 2009, the Worker, Homeownership and Business Assistance Act of 2009 was signed into law. This act extends and expands the first-time homebuyer credit. An eligible taxpayer entering into a binding contract on or before April 30, 2010 and closing on his or her home by June 30, 2010, will have the opportunity to claim the $8,000 credit. Due to some abuses of the original credit, the IRS is requiring additional supporting documentation. Click on the link below to see the complete list of documentation that may be required when claiming the credit.

The Worker, Homeownership and Business Assistance Act also includes an opportunity for long-time residents to claim a credit up to $6,500. To qualify for this credit, a buyer must have owned and lived in the same home as primary residence for at least five consecutive years of the eight-year period ending on the date of purchase of a new home as primary residence. For assistance in claiming the First-Time Homebuyer Tax Credit, or to get more information about the credits, contact Brandon – brandon@ulrichcpa.com or (801)627-2100.

IRSHomebuyerCreditDocumentation.pdf