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IRS Tax Break Advice From American Recovery Reinvestment Act

Branscome: Hi, everybody. I'm Theresa Branscome from the Internal Revenue Service. I'm sure you've heard about the American Recovery and Reinvestment Act. In it, there are some provisions that can make a big difference on how much or how little in tax you pay next year and beyond. It will all depend on some decisions you make this year and purchases, perhaps. And here to talk to us about this is John Lipold. He is a media-relations specialist at the IRS. John, thank you for joining us.

Lipold: You know, Theresa, 2009 is a big year for credits and deductions.

Branscome: Tell me how.

Lipold: Well, why don't we start with the first-time homebuyer's credit?

Branscome: Okay.

Lipold: If you're a first-time homebuyer and you buy a home this year, before December 1st, you may qualify for a tax credit of up to $8,000.

Branscome: That's a lot of money.

Lipold: It is. It could help a lot.

Branscome: So, how do you qualify?

Lipold: Well, first of all, you have to be a first-time homebuyer, and that means you haven't owned a home in the past three years, or, if you're married, your spouse hasn't owned a home in the last three years.

Branscome: When can you claim this credit?

Lipold: You have some choices. You can claim it on either your 2008 tax return or your 2009 tax return.

Branscome: Well, what if you've already filed your 2008 tax return?

Lipold: It's not a problem. You can amend that tax return using form 1040X.

Branscome: Now, what if you plan to buy a house later on this year?

Lipold: If you file for an extension, you have until October 15th of 2009 to both close on the house and to claim the credit.

Branscome: All right. Is there an advantage, one way or the other, claiming it on your 2008 tax return, versus your 2009 tax return?

Lipold: Well, everyone's tax situation is a little bit different. For example, if you have a big increase in income in 2009...

Branscome: Mm-hmm.

Lipold: ...you may want to think about claiming the credit on your 2008 tax return because, when it comes time to file your 2009 tax return, you may find that you no longer qualify for the credit.

Branscome: Why would that be?

Lipold: Well, there are some income restrictions here. If you are single and make more than $75,000 or if you're married, filing jointly, and you make more than $150,000, the credit begins to phase out for you.

Branscome: All right, so that's for homes. That's one big type of purchase. What about for vehicles?

Lipold: If you buy a new car in 2009, you can deduct the state and local sales and excise taxes on that purchase.

Branscome: Is that only for cars?

Lipold: It's for cars, light trucks, motorcycles, even motor homes.

Branscome: All the tax? 'Cause, you know, motor homes cost a lot of money.

Lipold: No, it's not all the taxes. You can only deduct the taxes paid on the first $49,500 of the purchase price.

Branscome: Okay, now, what about for people going to college?

Lipold: If you have college expenses, take a look at the American Opportunity Credit.

Branscome: Mm-hmm.

Lipold: It's a new credit that replaces and expands on the Hope Credit.

Branscome: How does it expand it?

Lipold: Well, it's worth up to $2,500, which is $500 more than under the Hope Credit.

Branscome: With the Hope Credit, you could only use it for two years of college. Is that the same thing with the American Opportunity Credit?

Lipold: No, the American Opportunity Credit takes that out to four years.

Branscome: Oh, so double the time?

Lipold: Yep.

Branscome: Now, I remember when I was a college student -- I usually didn't make enough money to have to file a tax return. Anything for students like that?

Lipold: Well, even if you don't make enough money where you have to file a tax return, you should consider filing to claim the American Opportunity Credit because you can get up to $1,000 back.

Branscome: Oh, that's pretty good. Anything else for college students?

Lipold: Well, if you have a section 529 college savings plan, you can use money from that plan to buy a computer for college work.

Branscome: And that's new?

Lipold: It's new, and it's for 2009 and 2010.

Branscome: Now, John, we've heard in the news that there are a lot of people who are getting unemployment compensation. Anything for them?

Lipold: Normally, unemployment compensation is taxable income.

Branscome: Mm-hmm.

Lipold: But under the new law, the first $2,400 of unemployment compensation that somebody receives in 2009 is tax-free.

Branscome: Well, that sounds like good news. John, thank you so much for this information.

Lipold: Thank you. And, remember, if you want more information, go to irs.gov.

Branscome: Well, you heard it from John -- go to the IRS's official website, irs.gov, and learn about these tax breaks and see what's in it for you.

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