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We made it through another filing season, so naturally, now we ought to start thinking about how we can make next year's deadline for the 2009 tax year less taxing. Over the past two filing seasons, with all of the different Tax Acts both the previous and current administrations have passed (along with a promise of more to come before the end of the 2009 tax year), there is a lot to sift through. In this article, we have summarized some of these hot ticket tax topics to help you plan ahead for next filing season.
There were a number of important tax developments in the first quarter of 2009, and while the new tax changes in the American Recovery and Reinvestment Act of 2009 got the most attention, many other developments occurred that may also significantly affect you and how you plan for the 2009 tax year.
Waivers of RMDs for 2009. Retirement plan account participants, IRA owners, and their beneficiaries do not have to take required minimum distributions (RMDs) for 2009. The IRS has issued guidance clarifying that:
· If you would have been required to take RMDs for 2009 and you do in fact take withdrawals in 2009 which are not designated 2008 tax year withdrawals, you may be able to roll over the withdrawn amounts into other eligible retirement plans. But you must still include in your gross income any previously untaxed portion of the withdrawal that you do not roll over.
· The 2009 RMD waiver applies to individuals who may be eligible to postpone taking their 2009 RMD until Apr. 1, 2010 (generally, retired employees and IRA owners who attain age 70 1/2 in 2009). However, the law does not waive any RMDs for 2010.
· If a beneficiary is receiving distributions over a 5-year period, he or she can waive the distribution for 2009, effectively permitting the beneficiary to take distributions over a 6-year period.
Homebuyer credit. This credit is the lesser of 10% of the purchase price or $8,000 for a qualifying 2009 purchase and is refundable, meaning you get it even if you don't owe taxes. A credit for a 2009 purchase can be claimed on the 2008 return or on the 2009 return. The IRS allows several different ways that individuals who recently purchased a home or are considering buying one in the next few months can claim the up-to-$8,000 credit for 2009 home purchases. This includes getting an extension, filing now and amending later, amending a previously filed 2008 return or claiming the credit on a 2009 return where higher income in 2008 would reduce the credit under so-called phase-out rules.
Victims of Madoff-type investment schemes. Just days after Bernard Madoff's guilty plea, the IRS issued comprehensive guidance for the many investors caught in his (and similar) notorious Ponzi-style fraud. The guidance takes an extremely generous, pro-taxpayer position, allowing the losses to be claimed as theft losses against ordinary income and even allowing a net operating loss generated by Madoff-style losses to be treated as sole proprietorship losses. These losses are potentially eligible to be carried back 3, 4, or 5 years under a business-style tax break enacted by the American Recovery and Reinvestment Act of 2009. The guidance consists of a revenue ruling dealing with specific tax issues that victims of Madoff-type schemes must confront and a revenue procedure providing safe harbors for determining the proper time and amount of loss. For further explanation on this topic, please see the full article from last month's newsletter at Newsletter.
Trademarks and the like may qualify for tax-free swaps. A like-kind exchange is a popular way for a taxpayer to dispose of qualifying appreciated property without paying a current tax. The IRS now says that intangibles such as trademarks, tradenames, mastheads, etc., that can be valued separately and, apart from goodwill, qualify as like-kind property that can be exchanged without incurring a current tax. Furthermore, the IRS says that except in rare and unusual situations, intangibles such as trademarks, trade names, mastheads, and customer-based intangibles can be separately described and valued apart from goodwill. Of course, to qualify for a like-kind exchange, various statutory and regulatory rules have to be satisfied.
Vehicles qualifying for the hybrid credit. The IRS has listed 2009 and 2010 model year hybrid vehicles that qualify for the hybrid credit. Examples include the following models: For 2009 - Escalade, Tahoe, Silverado, Malibu, Aspen, Durango, Escape, Sierra, Yukon, Civic, Tribute, Mariner, Altima, Aura and the Vue. For 2010 – the Fusion and Milan.
Due to a production-based limitation, not all hybrids qualify for a full credit. For example, the credit for qualified Toyota and Lexus vehicles was eliminated for purchases on or after Oct. 1, 2007. The phase-out of the credit for qualified Honda vehicles began for purchases on or after Jan. 1, 2008 and the credit was completely eliminated for purchases on or after Jan. 1, 2009. The phase-out of the credit for qualified Ford and Mercury vehicles began for purchases after Mar. 31, 2009.
More investment flexibility for 529 plans. Section 529 Education Plans are tax-advantaged savings plans that can be used to pay qualified education expenses. In recent guidance, the IRS has determined, that for calendar year 2009 only, 529 plans may permit accounts to change their investment strategy twice (as opposed to once under prior rules) during the year, as well as upon a change in the designated beneficiary of an account. This new flexibility was prompted by concerns from 529 plan sponsors that in today's market environment the lack of flexibility in switching investments could imperil many 529 accounts.
Discharge of Mortgage Debt. For mortgage debt discharged on or after Jan. 1, 2007 and before Jan. 1, 2010, taxpayers generally may exclude up to $2 million of mortgage debt forgiveness on their principal residence. Any amounts excluded from income due to the discharge of personal residence debt are applied to reduce the basis (but not below zero) of the principal residence of the taxpayer.
Long-Term Capital Gain Tax Rate. Beginning last year (2008) and continuing through at least 2010, a zero tax rate applies to most long-term capital gain and qualified dividend income that would otherwise be taxed at the regular 15% rate and/or the regular 10% rate. This rate reduction occurs primarily when a taxpayer's ordinary income taxed at the ordinary income graduated tax rates (e.g., tax on wages, interest, nonqualified dividends, business income, etc.) reduced by adjustments and deductions is less than a certain amount depending on the taxpayer's filing status. For 2009, married filing joint taxpayers with taxable income up to $67,900 and single taxpayers with taxable income up to $33,950, may be able to take advantage of this rate reduction if conditions are right.
Credit for Non-Business Energy Property. You may be able to take a credit on certain energy efficient items placed in your home during 2009. This credit was eliminated in 2008, but has been reinstated for 2009 and 2010. Some of the items allowable for the credit include high-efficiency heating and cooling systems, water heaters, windows, doors, and insulation. The amount of this credit will be limited by the amount of energy credit used in 2006 or 2007.
Mileage Rates. The 2009 mileage rates for a taxpayer's use of their vehicle are 55¢ per business mile, 24¢ per mile to get medical care or make a job related move, and 14¢ per mile for charitable use.
You can avoid headaches at tax time by keeping track of your receipts and other records throughout the year. Good recordkeeping will help you remember the various transactions you made during the year, save you time and effort at tax time when organizing and completing your return and will also assist the preparer in quickly and accurately completing your return which in turn may make filing your return a less stressful experience.
As always, with any of these or other issues, please contact Kim Dearborn-Nelson at 617‑598‑5327 (kdearbornnelson@pmn.com) or any member of the tax team at (617) 426-9440 for further explanation.
Note: This article represents a general overview of or opinion on certain tax issues or developments and should not be relied upon without an independent, professional analysis of how any of these provisions may apply to a specific situation. We recommend you consult your professional tax advisor before taking any action based on anything in this article.
IRS CIRCULAR 230 NOTICE: In compliance with U.S. Treasury Circular 230 Regulations and any applicable state laws, we hereby notify you that any tax advice contained in the body of this document, or attachments thereto, was not intended or written to be used, and cannot be used, by the recipient or any other party for the purpose of (1) avoiding penalties that may be imposed under the Internal Revenue Code or applicable state or local tax law provisions, or (2) promoting, marketing or recommending to another party any transaction or matter addressed herein.
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