Tax Credits For Auto, College, Home Buyers And Retirements Scheduled To Sunset

Nearly Three Dozen Tax Hikes Scheduled for 2009 and 2010

While health care and corporate bailouts take center stage in Congress, the clock is ticking on many current tax breaks for small business owners and individuals, according to Bob D. Scharin, senior tax analyst for the Tax & Accounting business of Thomson Reuters.

“A variety of tax hikes are scheduled for 2010 and again in 2011,” he said. “but it’s unclear at this time which provisions will actually take effect.” Scharin points to the expiration of the first-time homebuyer credit on Nov. 30, 2009 and repeal of the estate tax in 2010, which reverts back into law for decedents dying after 2010, including the $1 million exclusion and the top tax rate of 55 percent as two of the most controversial changes scheduled to take effect.

Scharin points out that the sunsetting provisions can be quite confusing to taxpayers. For instance, whether an affluent person dies in December or January can make a multi-million dollar estate tax difference.

The following chart provides an overview of provisions scheduled to expire between November 2009 and December 2010. Call to interview Bob D. Scharin, senior tax analyst, for the Tax & Accounting business of Thomson Reuters, to help your readers understand the timing issues of any of these provisions, and others that may not be listed here, as the year draws to a close.

Individual Tax Rates

* Reduced capital gain rates of 0%/15% and dividends taxed at capital gain rates. (expires on 12/31/2010)
* 10% tax bracket for individuals. After 2010, the lowest individual tax bracket is scheduled to revert back to 15% (expires on 12/31/2010)
* Reduced rates for top four individual income tax brackets. After 2010, the current 25%, 28%, 33%, and 35% rate brackets are scheduled to revert back to 28%, 31%, 36%, and 39.6%, respectively (expires on 12/31/2010)
* Expanded 15% tax bracket for married filing joint taxpayers (MFJ). After 2010, the taxable income at which the 15% tax bracket ends for MFJ is scheduled to revert from 200% to 167% of the amount applicable to single taxpayers. (expires on 12/31/2010)

Individual Deductions

* Repeal of phase-out of personal exemptions. For 2009, the phase-out is reduced to 1/3 of what it would otherwise have been. For 2010, the phase-out is repealed. After 2010, the full phase-out is scheduled to apply. (expires on 12/31/2010)
* Above-the-line deduction for certain expenses of elementary and secondary school teachers. (expires on 12/31/2009)
* Additional standard deduction, up to $500 ($1,000 if MFJ) for state and local real property taxes. (expires on 12/31/2009)
* Expanded standard deduction for MFJ. After 2010, the standard deduction for MFJ is scheduled to revert from 200% to 167% of standard deduction for single taxpayers. (expires on 12/31/2010)
* Repeal of overall limitation of itemized deductions. For 2009, the limitation is reduced to 1/3 of what it would otherwise have been. For 2010, the limitation is repealed. After 2010, the limitation is scheduled to revert back to what it was in 2001. Thus, itemized deductions (other than medical expenses, casualty losses, investment interest, and gambling losses) will be reduced by the lesser of (1) 3% of the amount of the taxpayer’s income exceeding the applicable threshold or (2) 80% of the deductions subject to the limit. (expires on 12/31/2010)
* Election to deduct state and local general sales taxes instead of state income tax. (expires on 12/31/2009)
* Deduction for state sales tax and excise tax on the purchase of motor vehicles. (expires on 12/31/2009)
* Deduction of mortgage insurance premiums as qualified residence interest. (expires on 12/31/2010)
* Above-the-line deduction for qualified tuition and related expenses. (expires on 12/31/2009)

Retirement Plans and IRAs

* Waiver of 2009 minimum required distribution rules for IRAs and defined contribution plans. (expires on 12/31/2009)
* Tax-free treatment of qualified charitable distributions from IRAs for individuals age 70½ or older. (expires on 12/31/2009)

Education Tax Benefits

* American opportunity credit. Note: After 2010, the American Opportunity credit will expire, but the Hope Scholarship credit, as in effect before 2009, is reinstated. (expires on 12/31/2010)
* Computer technology and equipment treated as qualified higher education expense for Sec. 529 accounts (qualified tuition programs). (expires on 12/31/2010)

Tax Credits

* Increased child tax credit. After 2010, the current $1,000 credit is scheduled to revert back to $500. (expires on 12/31/2010)
* $3,000 threshold for determining the refundable portion of the child credit. (expires on 12/31/2010)
* Personal energy property credit of up to $1,500. (expires on 12/31/2010)
* Ability to use nonrefundable personal credits against both regular tax and AMT. (expires on 12/31/2009)
* Alternative motor vehicle credit for advanced lean burn technology motor vehicles and qualified hybrid motor vehicles that are passenger automobiles or light trucks. Note: In addition to this expiration date, the provision begins to phase out over a one-year period beginning on the date the manufacturer has manufactured and sold at least 60,000 qualified vehicles. (expires on 12/31/2010)
* Increased (45%) earned income credit percentage for taxpayers with three or more qualifying children and increased phase-out threshold for MFJ filers. (expires on 12/31/2010)
* First-time homebuyer credit of up to $8,000. (expires on 11/30/2009)
* Making work pay credit of up to $400, $800 for MFJ. (expires on 12/31/2010)
* Refundable credit of $250 ($500 for MFJ where both spouses are eligible individuals) for government retirees who are not covered by Social Security and weren’t eligible to receive an economic recovery payment. (expires on 12/31/2009)

Alternative Minimum Tax

* Increased AMT exemption. (expires on 12/31/2009)

Business Deductions and Business Property

* First year bonus depreciation allowance (50% of basis) for qualified property. (expires on 12/31/2009)
* Increased Section 179 deduction limit and qualifying property phase-out threshold—$125,000 and $500,000, respectively (indexed for inflation). Note: After 2010, the amounts are $25,000 and $200,000 (not indexed for inflation). (expires on 12/31/2010)
* Increase in Section 179 deduction limit and qualifying property phase-out threshold to $250,000 and $800,000, respectively. (expires on 12/31/2009)

Income Exclusions

* Exclusion of unemployment compensation benefits from gross income. (expires on 12/31/2009)
* Deferral and ratable inclusion of income from business debt discharged by reacquisition. (expires on 12/31/2010)

Estate and Gift Taxes

* Various estate tax provisions provided by Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA), including the $3.5 million estate tax exclusion and current maximum estate tax rate of 45%. The estate tax is repealed for decedents dying in 2010. (expires on 12/31/2009)
* Repeal of the estate tax. For decedents dying after 2010, the estate tax provisions are scheduled to revert back to the law in effect before EGTRRA, including the $1 million exclusion and the top tax rate of 55%. (expires on 12/31/2010)
* Various gift tax provisions provided in EGTRRA, including the $1 million exclusion and the maximum gift tax rate of 45% for 2009 and 35% for 2010. After 2010, the gift tax provisions are scheduled to revert back to the law in effect before EGTRRA, including the $1 million exclusion and the top tax rate of 55%. (expires on 12/31/2010)

Source: Joint Committee on Taxation’s list of Expiring Federal Tax Provisions 2008–2020. This table is not all-inclusive. It covers tax provisions most likely to affect individuals and small businesses. The full list is available on the Joint Committee’s Website at www.jct.gov/x-20-09.pdf.


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