How the New Tax Law Affects You

Analysis of the American Recovery & Reinvestment Act of 2009

Making Work Pay Credit American Opportunity Credit First-Time Homebuyer Credit New car sales tax deduction Expanded tax breaks for going green Business Tax Breaks Who’s Getting Hosed?

Overview of Economic Stimulas

This is a tax credit equal to the LESSER of:◦ 6.2% of earned income◦ $400 for single filers ($800 for joint filers)

The credit is refundable-your refund can be larger than the amount of withholding you paid in

Phases out at incomes of $75,000 for single filers ($150,000 for joint filers)

Available only for 2009 and 2010

Making Work Pay Credit

The Hope Credit has been renamed the American Opportunity credit.

The credit is now available for four years of college (under the old law, it was only available for the first two years of college)

Credit equals 100% of first $2,000 + 25% of the next $2,000 for a maximum credit of $2,500

40% of the credit is refundable (under the old law, the credit was not refundable)

The phase-out limits have been raised substantially to $80,000 for single filers ($160,000 for joint filers)

Changes to College Credits

Section 529 plan withdrawals are now available for computers and computer technology purchases (including internet access)

College Costs

The first time homebuyer’s credit has been enhanced

The credit equals 10% of the purchase price up to a maximum credit of $8,000

There is no longer a repayment requirement if the home is lived in for at least 36 months

The credit applies to home purchases between 1/1/09 and 11/30/09

Phases out at $75,000 for single filers ($150,000 for joint filers)

Buying a New House?

If you already itemize, this deduction isn’t new because sales tax on large purchases has been deductible for the past few years

It helps people who don’t itemize because they can take the deduction “above-the-line”

The credit applies to cars, light trucks, SUVs, or motorcycles with costs up to $49,500

Phases out at incomes of $125,000 for single filers ($250,000 for joint filers)

Buying a New Car?

The increased Section 179 deduction of $250,000 for fixed asset purchases has been extended to 2009

The 50% bonus depreciation deduction has been extended to 2009

Net Operating Losses can now be carried back up to 5 years-this can put cash in your pocket sooner than if you had to carry the losses forward into future years

Help for Business Owners

New & Extended credits for ◦ alternative fuel vehicles◦ energy efficient home improvements◦ energy efficient business property

Going Green?

If the Bush tax cuts expire January 1, 2011, the 33% and 35% tax rate will increase to 36% and 39.6%, respectively. ◦ This will apply to single filers with income over

$200,000 and joint filers with income over $250,000

Who’s Getting Hosed?

The capital gains rate for higher income individuals will increase to 20% from 15%

Who’s Getting Hosed? (cont’d)

Normally, itemized deductions are deducted at the taxpayer’s tax rate.

Under the new law, the deduction rate is limited to 28%.

Example: Someone in the 35% tax bracket makes a $10,000 charitable contribution. The reduction in tax is $3,500 ($10,000 * 35%)

Under the new law, this person’s itemized deduction will be deducted at the maximum 28% rate. The reduction in tax is now only $2,800.

Who’s Getting Hosed? (cont’d)