From creating your holiday travel itinerary to making tax-related decisions, planning ahead is always a good idea. Here is a summary of three significant federal tax developments that you may find helpful as the new calendar year begins:
Year of the Roth?
Prior to 2010, those with an adjusted gross income over $100,000 were ineligible to convert traditional IRA assets to a Roth IRA. In 2010, however, anyone can convert from a traditional IRA to a Roth IRA, regardless of their adjusted gross income.
An IRA owner is required to pay current income taxes on any gains realized from a conversion; that is, the IRS treats the conversion as if it were a taxable distribution. However, the new tax law allows the IRA owner to spread the tax burden over two years, in 2011 and 2012. Ordinarily the tax is due for the year in which the conversion occurs.
The differences between traditional IRAs and Roth IRAs, and the new opportunity for the high-income taxpayer to fund a Roth IRA, may result in substantial benefits. You should discuss with your attorney, financial advisor or CPA how such a conversion might be advantageous to you.
Time to Move?
The first-time homebuyers tax credit was set to lapse on December 1, 2009. However, the credit has been extended through the end of June 2010. To be eligible, homebuyers must be under contract on the new home by April 30, 2010 and close on the residence by June 30, 2010.
Taxpayers who have not owned another principal residence during the three years prior to the date of purchase are considered first-time homebuyers. Long-time homeowners are also potentially eligible if they have owned and occupied a residence for at least five years out of the past eight and purchase a replacement home after November 6, 2009.
The credit is reduced or eliminated for higher-income taxpayers. For example, for a purchase after November 6, 2009, for a married couple filing a joint return, the phase-out range is adjusted gross income of $225,000 to $245,000.
For an eligible purchase in 2009, a taxpayer can choose to claim the credit on either their 2008 or 2009 income tax return. For an eligible purchase in 2010, a taxpayer can choose to claim the credit on either their 2009 or 2010 tax return.
(Continue to) Go Green?
Consumer energy tax incentives relating to home energy efficiency continue through December 31, 2010. Consumers who buy and install certain products, such as heating and cooling equipment, energy-efficient windows, insulation, doors and roofs in existing homes can receive a tax credit for 30% of the cost, up to $1,500.
Similarly, individuals and businesses who buy or lease a new hybrid gas-electric car or truck are eligible for an income tax credit for vehicles purchased on or before December 31, 2010. The amount of the credit depends on the fuel economy, weight of the vehicle and whether the tax credit has been or is being phased out. The tax credit will be phased out for each manufacturer once that company has sold 60,000 eligible vehicles. At that point, the tax credit for each company’s vehicles will be gradually reduced over the course of 15 months« Back to news