Several new tax law changes were enacted in early 2009.  Here are three dealing with waiver of required minimum distributions from retirement plan, first time homebuyer tax credit and deduction of Madoff-style fraud losses that you might find particularly interesting or applicable to you. 

Clarifications on the Waiver of Required Minimum Distributions for 2009

Under a special rule enacted in view of falling investment values, retirement plan account participants, IRA owners, and their beneficiaries that would otherwise have to take a required minimum distribution (RMD) out of their retirement accounts for 2009 will not have to do so. The IRS has issued guidance clarifying that:

1. If you would have been required to take a RMD for 2009 and you do take withdrawals in 2009 (that are not RMDs for 2008):

(a)  you might be able to roll over the withdrawn amounts into other eligible retirement plans; but

(b) you must still include any previously untaxed portion of the withdrawal that you do not roll over in your gross income.

2. An RMD for 2008 is not waived, even for eligible individuals who chose to delay taking their 2008 RMD until Apr. 1, 2009 (e.g., retired employees and IRA owners who turned 70 1/2 in 2008).
3. 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 RMD for 2010.
4. 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.

Taking Better Advantage of the First Time Homebuyer Tax Credit.

In two separate pieces of guidance, the IRS has explained some ideas on how to take advantage of the credit for first-time homebuyers. The credit is the lesser of 10% of the purchase price of the home or $8,000 for a qualifying 2009 purchase ($7,500 for a qualifying 2008 purchase). The credit is refundable, meaning you get it even if you don't owe taxes. The credit must be paid back to the federal government if it relates to a home purchased in 2008 but it generally does not have to be paid back if it relates to a home purchased in 2009 (unless within 36 months of purchase the home either is disposed of or ceases to be the taxpayer's principal residence). A credit for a qualified 2009 purchase will generally be claimed on a taxpayer/homebuyer's 2009 individual income tax return but it can, by election, be taken on his/her 2008 individual income tax return.

Also, in a news release, the IRS explained the 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 including

1. getting an extension to file their 2008 income tax return,
2. filing their 2008 return now and amending it later,
3. amending a previously filed 2008 return, or
4. claiming the credit on a 2009 return (might be preferable where a higher income in 2008 would result in getting a smaller credit on the 2008 return than would be available on a 2009 return due to the impacts of one's income on the amount of the credit allowable).

In separate guidance, the IRS explained how unmarried co-owners can get the maximum credit amount.

New Guidance for Victims of Madoff-Type Investment Fraud Losses

The IRS issued guidance for investors caught in Ponzi-style fraud such as that made famous in the case of Bernard Madoff.  It is important to note that there are specifics that a taxpayer must address and qualify for to be able to take advantage of this preferred tax treatment.

This guidance, the details of which are beyond the scope of this article, takes a pro-taxpayer position, allowing the losses to be claimed as theft losses against ordinary income (rather than as capital losses essentially only deductible against capital gains) and even, if qualified, allowing a net operating loss generated by such fraud losses to be treated as sole proprietorship losses potentially eligible to be carried back 3, 4, or 5 years. The IRS guidance consists of a revenue ruling addressing a number of issues that victims of Madoff-type schemes must address and qualify for as well as a revenue procedure that provides safe harbors for determining the proper time and amount of loss.

If you would like to discuss these or any other tax issue, please contact Gary Soiref (gsoiref@pmn.com) or any member of our tax team at (617) 426-9440.

Note: This article represents a general overview of Federal and/or Massachusetts 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.

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.

Save article

Email PMN

Email to a Friend