What You Need to Know About Key 2010 Tax Changes (2 of 3)

Yesterday we urged you to be thinking about tax ramifications in 2010 and how the new tax laws may affect you. Today, we take a look at the tax laws expiring this year. If you’ve taken advantage of some of these in the past, you will want to pay close attention to see whether or not these get extended sometime during 2010.

Expiring in 2010

Education credit: The American Opportunity Credit replaced the Hope Education Credit for 2009 and 2010 only. The benefits of the new credit are:

  • required course materials, such as books qualify
  • the credit is increased to up to $2,500
  • income level phase-outs are higher
  • 40% of the credit is refundable.
  • Nonbusiness energy property credit: A 30% credit (up to $1,500, less if any credit was taken in 2009) is available if you make certain energy efficient improvements to your home. Such improvements include high-efficiency heating and air conditioning systems, water heaters, windows, skylights, doors, insulation and roofs. The improvements must be made to an existing principal residence. A manufacturer’s certificate must accompany the qualifying property.
  • Residential energy efficient property credit: Taxpayers receive a 30% credit for installing solar electric systems, solar hot water heaters, geothermal heat pumps, wind turbines, and fuel cell property. The property can be purchased for both an existing principal residence and for new construction. A manufacturer’s certificate must accompany the qualifying property.
  • First-time homebuyer credit: First-time homebuyers (including long-term residents) are eligible for the tax credit if the purchase contract is entered into before May 1, 2010, and closing takes place before July 1, 2010. These dates are extended by one year for members of the military on extended active duty.
  • Lower capital gains rates: The 15% capital gains rate (0% for taxpayers below the 15% tax bracket) will increase to 20% in 2011. Qualifying dividends taxed at reduced capital gains rates will be taxed at ordinary income rates beginning in 2011.
  • Increased first-year asset expensing: For 2010, the amount eligible for asset expensing is $134,000. Beginning in 2011, the amount is reduced to $25,000 (indexed for inflation).
  • Expanded NOL carrybacks: Businesses may carryback NOLs for up to five years for losses incurred in taxable years beginning after Dec. 31, 2007, and beginning before Jan. 1, 2010, but can only elect for one taxable year, not two. Businesses are able to offset 50% of the available income from the fifth taxable year preceding the loss, and 100% of all income in the remaining four carryback years.
  • Refundable portion of child tax credit: The earned income formula for the determination of the refundable child credit applies to 15% of the taxpayer’s earned income in excess of$3,000. This allows more earned income to qualify in order to determine how much of the credit is refundable. Beginning in 2011, the amount will be considerably higher.
  • Higher earned income tax credit: The temporary increase in the EITC percentage from 40% to 45% for families with three or more qualifying children ends in 2010. Additionally, the marriage penalty relief, through an increased threshold phase-out amount for married couples filing joint returns, expires.
  • Lower income tax rates: Legislation in 2001 reduced the tax rates on ordinary income through 2010. The current rates of 10%, 15%, 25%, 28%, 33%, and 35% could all change beginning in 2011.
  • Child tax credit dollar amount: The $1,000 per qualifying child credit amount is set to be reduced to $500 beginning in 2011.

Watch this blog tomorrow when we discuss the tax laws that expired in 2009. Will they remain expired? We will be staying on top of those developments and keep you posted.