New Tax
 Developments for 2010

Home Page 

These are some of the major tax law changes or updates that affect income taxes for 2010 and beyond.

New Homebuyer Credit

A maximum $8,000 tax credit is available for first-time homebuyers  who purchase a home by September 30, 2010 (must be under contract by April 30, 2010).  This credit is also available to non-first-time homebuyers ($6,500 maximum) who have owned a home which was their principal residence for five consecutive years of the prior eight years.  The Homebuyer Credit is refundable and can be expedited and received prior to filing your tax return.  Phase-out of the credit begins at incomes of $125,000 for single and $225,000 for joint filers.

Conversion to Roth IRA's - New rules for 2010

Beginning in 2010, you can convert some or all of your traditional IRA account balances to a Roth IRA regardless of your income level.  Prior to 2010, you could not do a conversion if your income during the year exceeded $100,000.  In addition, if you do a conversion in 2010, you can elect to defer paying the tax on the conversion until 2011 and 2012.  This is a complex decision that should be carefully analyzed by a qualified professional.  It may make sense in situations where you know you will be in a low tax bracket during the year or years where you will pay tax on the conversion.  

Efficient Energy Credits - Back for 2009 & 2010

A federal tax credit is available for the purchase of qualifying energy-efficient property for your principal residence during 2009 and 2010.  The credit is 30% of the cost of all qualifying items up to a maximum credit of $1,500 for the two year period.  (Remember:  a credit is more valuable than a tax deduction.  A credit reduces your tax liability or increases your refund by the full amount of the credit.)  Items that my qualify for the credit include doors, windows, insulation, furnaces, air conditioners and water heaters.  

There is another 30% energy credit for more expensive types of energy efficient property that applies to both your principal residence and a second home such as a vacation home or cabin.  There is no upper dollar limit on this credit.  Items that qualify for this credit include:  solar panels, solar water heaters, small wind energy systems and geothermal heat pumps.  

Carry Back of Business Losses to Prior Years Expanded 

Businesses that sustain net losses are allowed to "carry back" those losses to prior year's tax returns and treat those losses like a tax deduction for those prior years and recoup some of the taxes paid in the prior years.  The general rule has been to allow a two year carry back, in other words the the two years before the year of loss were open for this treatment.  If there wasn't enough positive income in the prior two years to absorb the loss amount, the unused loss could be carried over to future years to offset future income for up to twenty years.  The new law now allows a five year carry back.  This provision includes business losses from proprietorships, partnerships, C and S corporations and limited liability companies.  (The expanded five year carry back is not  applicable for fiscal years beginning after 12-31-2009.)

Improved Education Tax Credits

The new American Opportunity tax credit replaces the previous Hope credit for post-secondary schooling costs.  It will also largely replace the Lifetime Learning credit which applied for education costs beyond the first two years.  The American Opportunity Credit is up to $2,500 per student per year, based on 100% of the first $2,000 of education costs and 25% of the next $2,000 of costs. This new credit is an improvement in several ways:

• Qualifying education costs were expanded to include course materials and books.

• The income levels at which the credits are reduced and ultimately eliminated have been significantly increased.

• The credit is allowed for the first four years of the students post-secondary education

• Under some circumstances, 40% of the credit is refundable, meaning it can result in a cash refund even if there is no offsetting tax liability.
  

Tax Rate on Capital Gains

The tax rate on capital gains from the sale of assets held longer than one year remains at zero percent for people in the 10 percent or 15 percent tax brackets. The 15 percent maximum tax rate on long-term capital gains for taxpayers in higher brackets also remains the same.

Tax Rate on Dividends

Similarly, the special 5 percent maximum rate on dividends of taxpayers in the 10 percent and 15 percent tax brackets remains at zero percent through 2010.