Tax Breaks Expiring in 2009

July 10, 2009 | Subscribe to our RSS Feed

With all the provisions, expirations and extensions in the tax code, it is difficult to keep track. Here is a snapshot of some of the provisions set to expire this year:

Income.

• Up to $2,400 of unemployment compensation benefits are excluded from gross income by the recipient. However, the exclusion is not available for benefits received in tax years beginning after 2009 (IRC Sec.85(c)).

Personal Deductions.

• Taxpayers can claim a deduction (whether they itemize or claim the standard deduction) for sales or excises taxes paid on the purchase of a new vehicle. The deduction (phased out at higher income levels) does not apply to purchases after December 31, 2009 (IRC Sec.164(b)(6)(G)).
• Taxpayers who claim the standard deduction can take an additional deduction for state and local property taxes, up to a maximum of $500 ($1000 for joint return filers). The deduction is not available for tax years beginning after 2009 (IRC Sec. 63(c)(7)).
• A taxpayer may claim an above-the-line deduction for “qualified tuition and related expenses” paid for the enrollment or attendance of the client, the client’s spouse, or a dependent at an eligible institution of higher education. The deduction cannot exceed $4000 (phased out at higher income levels) and applies only to tax years beginning before January 1, 2010 (IRC Sec. 222(e)).

Business Deductions.

• A taxpayer can claim an additional 50% depreciation allowance for qualifying business machinery and equipment placed in service before January 2, 2010 (IRC Sec 168(k)(2)(A)).
• An additional Section 179 expensing deduction for the first $250,000 of qualifying equipment and machinery placed in service during the year will be phased out in tax years beginning after December 31, 2009. The maximum Section 179 deduction drops to $125,000 (adjusted for inflation) with the phase-out starting at the $500,000 level (IRC Sec. 179(b)(7)).
• The maximum first-year depreciation deduction for passenger automobiles used for business purposes is increased by $8000 for automobiles placed in services before 2010 (IRC Sec. 68(e)(3)(B)).

Personal Tax Credits.

• A taxpayer who hasn’t owned a home during the previous three years can claim a first-time homebuyer credit of up to $8,000 (phased out at higher income levels) for the purchase of a principal residence. The credit can be claimed only for homes purchased before December 1, 2009 (IRC Sec. 36).

Retirement Plans.

• The requirement that an IRA owner age 70 1/2 or over must receive a minimum distribution annually is suspended for 2009, but is reinstated in 2010 (IRC Sec. 401(a)(9)(H)).