You have just over a month left to make moves to cut your tax bill in the spring.
Besides the usual tax strategies, such as making charitable donations before year's end, you might be able to take advantage of one of the many temporary tax breaks Congress created to stimulate the economy. • One of them, the popular first-time home buyer credit, was recently extended so you have more time to get it. But it's unclear whether others will survive. • So, as you think about the coming tax season, here are some tax breaks to keep in mind. —Baltimore Sun
Home buyer credit
The $8,000 first-time home buyer credit recently was extended and expanded so more of us will be eligible. Now, even if you're not buying your first house, you might qualify for a credit worth up to $6,500 if you're purchasing a principle residence after Nov. 6. To qualify, you must have owned a house for five consecutive years during the eight years before buying the new one. The full credit is available if modified adjusted gross income is up to $125,000 for singles and $225,000 for married joint filers. It then starts phasing out. You also have more time to buy. The house must be under contract by April 30, and the deal must close by the end of June.
Sales tax deduction
"You can still buy a car in 2009 and get to write off the sales tax on the car," said Barbara Weltman, author of 1001 Deductions & Tax Breaks. This deduction applies to new vehicles purchased from Feb. 17 to the end of this year. And you can deduct the sales and excise taxes paid on the first $49,500 of the purchase.
For this year and next, deduct up to 30 percent of the cost of energy improvements to your main residence, such as adding energy-efficient windows, doors, insulation furnaces, air conditioners, heat pumps and water heaters. The amount of credit, though, can't exceed $1,500 for the combined two-year period.
"It's a triple win: You save on your taxes, you save on your energy and you're probably adding value to your home," Weltman said. Check out dsireusa.org for the various state and local energy tax breaks.
Tax breaks for unemployed
You don't have to pay income taxes on the first $2,400 of unemployment benefits received this year. Also, if you've been laid off any time between Sept. 1, 2008, and the end of this year, you could qualify for a nine-month federal subsidy that pays 65 percent of the so-called COBRA premiums to remain covered under your old employer's health insurance plan.
The new American Opportunity credit, good for this year and next, is a more generous version of the old Hope Scholarship credit. The Opportunity credit is worth up to $2,500 in higher education costs — tuition, fees, books or required materials — paid in any one of the first four years of school. The credit essentially covers the first $2,000 spent on college costs and 25 percent of the next $2,000 spent.
The credit begins to phase once income reaches $80,000 for singles, $160,000 for married joint filers.
Whether you lost money to Bernie Madoff or another Ponzi scheme, the IRS earlier this year said you can treat the loss as a theft rather than writing it off as a capital loss, which limits how much you can deduct each year.
"Theft losses have no dollar limit on what you can deduct," Weltman said. To qualify as a theft, the lead figure in the scheme must be indicted or charged with a crime.
A traditional strategy is to offset capital gains on investments with capital losses and use up to $3,000 in excess losses to offset ordinary income. If you panicked and sold last year when the stock market fell, remember you could still be sitting on losses that can be used to offset any gains this year, said Bob D. Scharin, senior tax analyst at Thomson Reuters' Tax & Accounting.