New 2009 Tax Breaks For Spending Your Hard Earned Money

Sometimes when you sit down to do your tax return you are surprised as to how much money you have to pay tax on. If you are like many others, you wonder where all this taxable income went. This year you may want to closely examine what you spent your money on because there are tax breaks new for 2009 that may be applicable to some of these expenditures. The IRS has recently announced that they expect larger refunds this year due to these new tax incentives. Look carefully at the following.

The largest new tax break is the first time homebuyer credit. This is probably not news to anyone who may qualify because realtors and others have effectively communicated this provision to prospective purchasers. This tax credit is equal to 10% of the cost of the home up to $8,000, although the credit is phased out for higher income individuals. You are a first time homebuyer if you or your spouse did not own a home for at least 3 years prior to your 2009 purchase.

Existing home owners would agree that a significant portion of their income is spent on home improvements. Certain expenditures made in 2009 to make your principal residence more energy efficient are eligible for a tax credit regardless of income. This credit is equal to 30% of eligible expenses up to a maximum credit of $1500. Eligible expenses include the cost of purchasing and installing certain high efficiency heating and cooling systems, water heaters and stoves. The cost to purchase (but not to install) energy efficient windows, doors, skylights and insulation also qualify. The cost of acquiring and installing alternative energy equipment for a new or existing home qualifies for another energy credit equal to 30%of such costs, but with no cap on the amount of such credit. Alternative energy equipment includes solar and geothermal systems as well as wind turbines.

If you spent some of your money on a new car, you may also get a tax break also new for 2009. The sales tax paid on the purchase of a new vehicle after February 16, 2009 may be deductible even if you do not itemize your deductions. The deduction is limited to the tax paid on the purchase price of a new car, light truck, motorcycle or motor home up to a cost of $49,500 for each vehicle purchased. Like most tax breaks, this deduction is phased out for higher income taxpayers. It starts to phase out when your income reaches $125,000 ($250,000 for joint filers) and is completely phased out at $135,000 ($260,000 for joint filers).

Finally, if some of your money went to pay college expenses, the new American Opportunity Credit (AOC) may give you a better tax break for 2009 than the older education tax credits and deductions. The maximum $2500 AOC may be available to taxpayers who spent at least $4,000 for tuition, fees and books in 2009 for themselves, their spouses and children. The older Lifetime Learning Credit of $2,000 and $4,000 tuition and fees deduction is still available, but less attractive. For example 40% of the AOC is refundable whereas none of the older education credits were or are refundable. The AOC phases out for higher income individuals. It starts to phase out when your income reaches $80,000 ($160,000 for joint returns) and is completely phased out at $90,000 ($180,000 for joint filers). These income levels are higher than the older education tax credits. The older credits though continue to be viable options. The AOC is only available for the first 4 years of college. The older Lifetime Learning Credit is not so limited. For those living in the 7 Midwestern states ravaged by the 2008 floods the older Hope Credit (available for the first 2 years of undergraduate study) has been increased for 2009 to $3600 per student, in these cases a better option than the AOC.