New Developments
 
   
 
New Developments

We've Moved! Not very far actually, only about 2 1/2 blocks. The new address is 5114N South Main Street in Winter. The move gives us much more room. The entrance is ADA (Americans With Disabilities Act) compliant and there is plenty of on-street parking.

Wisconsin Revises Capital Gain Exclusion

2009 Act 28, Section 1543 reduces the net long-term capital gain exclusion to 30 percent from 60 percent. The reduction applies for the 2009 tax year. There is an exception for farm assets acquired from a decedent but that only includes livestock, farm equipment, farm real property and farm depreciable property.

IRS Closes 1099 Lump Sum Timber Sale Loophole

For lump sum sales of timber after May 28, 2009, the proceeds are now required to be reported on a Form 1099. Prior to May 29, 2009 only sales classified as a scaled sale (economic interest retained) were required to be reported on a Form 1099. The Service has long suspected that timber owners who did not receive a Form 1099 tended not to report the income on their tax returns. The correct form to use is a 1099-S.

American Recovery and Reinvestment Act of 2009

New Car Deduction

Purchasers of new vehicles in 2009 get an above the line deduction for state and local sales tax or excise taxes paid on the purchase. This means you do not need to itemize to get benefit of this deduction. If you do itemize and take State taxes in lieu of sales taxes you will not benefit from this provision.

Two limits: First - only the sales or excise taxes related to the first $49,500 of the purchase of each vehicle qualifies. Second: Any deduction will be phased out to the extent the purchaser has adjusted gross income exceeding $125,000 ($250,000 on joint returns).

A qualified motor vehicle is:

  • A new passenger automobile or light truck, or motorcycle with a gross vehicle weight rating of 8,500 pounds or less.
  • A new motor home.

Making Work Pay Credit

This is a credit against income tax in an amount equal to the lesser of 6.2% of your earned income up to $400 ($800 married filing jointly). If you are an employee your employer is withholding less each pay period to roughly come out to the amount of the credit. WARNING: If you are married filing joint and you both work, the new withholding tables will likely underwithhold meaning that you could owe at the end of the year. This credit also phases out by 2% of the excess over $75,000 of modified adjusted gross income ($150,000 married filing jointly). If your income results in a phase out of the credit you will, in essence, need to pay it back at the end of the year. Review your withholding now to avoid any surprises next year when you file your 2009 tax return. The reduced withholding also applies to those only receiving pension income, even though that type of income does not qualify you for the credit. This IRS has since released revised tables for pension withholding but payers are not required to adopt the revised tables.

If you are self-employed, the credit will be calculated on your 2009 return. You could reduce your quarterly federal estimates by the amount of your credit and come out about the same as you did in 2008.

For Social Security recipients as well as railroad retirees and disabled veterans, you will get a check for $250 in lieu of the credit. This will work similar to 2008's economic stimulus payment.

First Time Homebuyer Credit

The new law raises the current maximum $7,500 first time homebuyer credit to $8,000 and eliminates any repayment requirement if you spend at least 36 months in the home. This applies to purchases of a principal residence from January 1, 2009 through November 30, 2009. You are a first-time homebuyer if you haven't had an ownership interest in a principal residence in the U.S. during the three year period prior to the purchase of the home.

If you purchased a home on or after April 9, 2008 through December 31, 2008 you only got a $7,500 credit that you have to repay over a 15 year period. If that makes you mad consider the poor person who purchased their home on April 8th or earlier. They got nothing.

Education Credit

For 2009 and 2010 only, the new law temporarily enhances the HOPE education credit to a maximum of $2,500 per year and extends it to all four years of college. In addition, course materials will be added to qualfied expenses. You'll also be able to tap your Section 529 plan tax-free to purchase a computer for use in college as well as pay for computer technology, including internet access.

Unemployment Compensation

The new law temporarily excludes up to $2,400 of unemployment compensation from income. This is only for 2009.

Energy Incentives

The energy credit that expired at the end of 2007 is now back for 2009. In addition to insulation, exterior windows and doors, metal roofs, certain types of furnaces, water heaters, central air conditioners, electric heat pumps and geothermal heat pumps the new law also includes:

  • asphalt roofs with appropriate cooling granules
  • natural gas, propane or oil water heaters with a thermal efficiency of at least 90% (versus 80% under the old law)
  • a stove that burns biomass fuel and has an efficiency rating of at least 75% (Note that firewood is technically biomass so a wood stove is a stove that burns biomass fuel)

A maximum cap of $1500, aggregate, applies to the above energy improvements based on a 30% credit on the cost. Caps within categories also apply.

A 30% Credit also applies for solar, qualified geothermal heat-pumps and qualified small wind-energy property through December 31, 2016. No cap for the solar, a $2,000 cap applies for the geothermal and a $500 cap for each half kilowatt of capacity, not to exceed $4,000, applies to the small wind-energy systems.

The credit will offset both regular and AMT tax with any excess credit being carried forward to the next year.

Small Business Carryback of Losses

The new law allows small businesses to carry back losses five years rather than the previous three.

Work Opportunity Tax Credit

Unemployed veterans and disconnected youth now qualify employers for this credit if they are hired and begin work in 2009 or 2010.

Other Items of Interest

2008 - 2010 Capital Gains Rates

Never in my wildest dreams did I ever think the tax rate would get down to 0% but if you are in the 10% or 15% tax brackets, your capital gains will be taxed at that unbelievable rate. If you are in a higher tax bracket, your capital gains will continue to be taxed at the 15% rate. Most sales of timber qualify for the capital gains provisions. As it stands now, the 0% rate is only temporary. It is scheduled to expire at the end of 2010.

Mileage

When you use your vehicle for business, to go to the doctor's office or to help out your church or local tax exempt organizations, you are allowed a deduction to at least partially cover the cost. You have the option of taking the actual cost of operating the vehicle or taking a standard rate per mile. The standard mileage rate is taken by most people because of the recordkeeping burden of going the actual cost route.

The standard mileage rates for 2009 are as follows:

Category
Rate
Business
$0.55
Medical & Moving
$0.24
Charitable
$0.14

 

If you want to use the actual cost method instead, you can take the out-of-pocket cost of gas and oil for the miles driven in the medical and charitable categories. If you use your vehicle for business you can also add in the cost of maintenance and repairs, insurance and depreciation.

Real Estate Tax Deduction for Non-Itemizers

For 2008 and 2009 only, those who take the standard deduction rather than itemizing can add real estate taxes paid to the extent of $500 ($1,000 if married filing a joint return) to their standard deduction amount.

Conservation Reserve Program Payments

The IRS began insisting that payments under this popular program were income subject to self-employment tax. Congress took exception and passed a law exempting those payments from self employment tax if the recipient receives social security or disability payments. The new law applies to payments received in 2008 or later.

Business Expensing Elections

In order to encourage businesses to purchase new equipment, Congress has increased the Section 179 expensing election (expense rather than depreciate) to $250,000 on up to $800,000 of purchases. This is for 2008 only though I imagine they will extend it if the economic situation doesn't improve. After 2008 it is scheduled to fall back to $125,000 on up to $500,000 in purchases. 2008 levels were extended to 2009 under the American Recovery and Reinvestment Act of 2009.

Bonus Depreciation

The name of this provision is very misleading. "Bonus", in my mind, means something additional. All it means in this instance is that you can take more of your allowed depreciation in the year of purchase rather than over the useful life of the asset. For 2008 the bonus depreciation is 50%. Bonus depreciation was extended through December 31, 2009 under the American Recovery and Reinvestment Act of 2009.