The IRS has released its updated Publication 17 (Your Federal Income Tax) for use in preparing 2009 returns. The 300-page-plus work reflects the many tax changes that affect the 2009 return, including the changes made to the first time homebuyer tax credit (FTHTC) by the Worker, Homeownership, and Business Assistance Act of 2009. (See Joe Arena's recent post for more information on the extended FTHTC).

IRS Publication 17 also highlights over 35 changes that apply for the first time on the 2009 return, including the following noteworthy items:

  • Individuals can use their tax refunds to buy up to $5,000 in U.S. Series I savings bonds in multiples of $50.
  • A $3,500 or $4,500 voucher or payment made for such a voucher under the "cash for clunkers" program to buy or lease a new fuel-efficient automobile is not taxable for federal income tax purposes.
  • Individuals don't have to pay tax on unemployment compensation up to $2,400 per person for the year; amounts over $2,400 are still taxable.
  • The maximum Hope Education Credit is increased to $2,500. Additionally, the increased credit has been renamed the American Opportunity Credit and part of it may be refundable.
  • Individuals who bought a new motor vehicle in 2009 after February 16, may be able to deduct any state or local sales or excise taxes on the purchase. In states without a sales tax, they may be able to deduct certain other taxes or fees instead. The deduction is claimed on Schedule A (Form 1040) by taxpayers who are itemizing deductions and are not electing to deduct state and local general sales taxes. If they are not itemizing deductions, these taxes increase the standard deduction as figured on Schedule L (Form 1040A or 1040).
  • For parents who are divorced or separated, a noncustodial parent claiming an exemption for a child can no longer attach certain pages from a divorce decree or separation agreement instead of Form 8332 (Release/Revocation of Release of Claim to Exemption for Child by Custodial Parent) if the decree or agreement went into effect after 2008. The noncustodial parent must attach Form 8332 or a similar statement signed by the custodial parent and whose only purpose is to release a claim to exemption.
  • Generally, a personal casualty or theft loss must be more than $500 to be allowed (this floor will revert to $100 after 2009). This is in addition to the 10% of AGI limit that generally applies to the net loss.
  • The 65% subsidy for payment of COBRA health care coverage continuation premiums is not taxable.
  • Any Pay-for-Performance Success Payments that reduce the principal balance of an individual's home mortgage under the Home Affordable Modification Program are not taxable.
As you can see, Congress fully has its eye on simplifying the tax code. My only wish is that they be required to prepare their own income tax returns!

As always, please contact us if you'd like any detail on this post of if you have any tax-related questions.


(This article contains the current opinions of the author but not necessarily those of Brighton Securities Corp. The author's opinions are subject to change without notice. This blog post is for informational purposes only. Forecasts, estimates, and certain information contained herein should not be considered as investment advice or a recommendation of any particular security, strategy or investment product. References to specific securities and their issuers are for illustrative purposes only and are not intended and should not be interpreted as recommendations to purchase or sell such securities).