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As the old saying goes, there are only two certainties in life: death and taxes. While we have yet to find a way to successfully avoid
either, there are a few tricks of the trade that can minimize the impact the taxman has on your pocketbook.
After all, nobody likes taxes, but we all have to deal with them, so we might as well handle them in the best way possible. When the end of the year
approaches, many investors' thoughts turn to how they can avoid paying tax. (Notice we said avoid, not evade.) Although a lot depends on your personal
situation, there are a few simple tax principles that apply to most investors and can help you save money (We also recommend talking to a tax planner.) In
this article, we'll look at the tax benefits of making smart investment decisions, writing off expenses, effectively managing your capital gains and more.
Dividends------ KNOWLEDGEFINANCIAL.COM
Are you an investor who ends up paying too much capital gains tax on the sale of your mutual fund shares because you've overlooked dividends that were
automatically reinvested in the fund over the years? Reinvested dividends increase your investment in a fund and thus reduce your taxable gain (or increase
your capital loss). For example, say you originally invested $5,000 in a mutual fund and had $1,000 in dividends reinvested in additional shares over the
years. If you then sold your stake in the fund for $7,500, your taxable gain would be the result of subtracting from the $7,500 both the original $5,000
investment and the $1,000 reinvested dividends. Thus, your taxable gain would be $1,500. Many people would forget to deduct their reinvested dividends
and end up paying tax on $2,500.
Bonds
When the stock markets perform badly, investors make the flight to quality and look elsewhere for places to put their money. Many find a safe haven in
bonds. When you are calculating your taxes, remember to report the interest income on your tax return: you may not have to pay tax on all the interest you
received. If you bought the bond in between interest payments (most bonds pay semiannual interest), you usually won't pay tax on interest accrued prior to
your purchase. You must still report the entire amount of interest you received, but you'll be able to subtract the accrued amount on a separate line.
Many investors also find short-term government debt a convenient safe harbor for their money when the equity markets are less than robust. Municipal bonds
are often issued by local governments or similar entities in order to finance a particular project, such as the construction of a school or a hospital, or to meet
specific operating expenses. For the retail investor, municipal bonds, or munis, can offer significant tax advantages. Most munis are issued with tax-exempt
status, meaning the returns they generate do not need to be claimed when you file your tax return. Combined with the added safety of the low-risk nature of
municipal bonds, they can be very attractive investments when stock market expectations are weak. (For further reading, see Weighing the Tax Benefits of
Municipal Securities.)
Write-Offs // KNOWLEDGEFINANCIAL.COM
Did you buy a home computer last year? If you did, you can possibly write off a portion of the cost if you used the computer to place trades or to help
manage your portfolio. The portion of the computer's cost that is deductible depends on how much you use the computer to monitor your investments. For
example, if you paid $1,500 for a computer, and you use it to keep tabs on your investments 20% of the time, $300 of the computer's cost is eligible to be
written off as an expense.
For investors who invest in small business ventures or are self-employed, there are many operating expenses that can be written off. For example, if you take
any business trips during the year that require you to obtain accommodations, the cost of your lodging and meals can be written off as a business expense,
within specified limits dependent upon where you travel. If you travel frequently, forgetting to include these types of seemingly personal expenses can cost
you sizeable dollars in lost tax savings.
For homeowners who have moved and sold their home during the year, an important consideration when reporting the capital gain on the sale is the actual
cost basis of the purchase of the home. If your home has undergone renovations or similar improvements having a useful life of more than one year, you will
likely be able to include the cost of such improvements into the adjusted cost base of your home, thus reducing your capital gain incurred on the sale and
the resultant taxes.
Tax-Deferred Programs Are Like Free Money
Every time you trade a stock, you are vulnerable to capital gains tax. Making your purchases through a tax-deferred account can save you a pile of money.
Tax-deferred accounts come in many shapes and sizes. The most well known are Individual Retirement Account (IRA) and Simplified Employment Pension
(SEP) plans. The basic idea is that you are not taxed on the funds until you withdraw, at which point you are taxed at the rate of your income tax bracket.
Waiting to cash in until after you retire will save you even more because your income will likely be lower when you are no longer working and earning a
steady income.
Also, while the benefits of tax-deferred accounts are substantial on their own, they provide an additional benefit of flexibility, as investors need not be
concerned with the usual tax implications when making trade decisions. Provided you keep your funds inside the tax-deferred account, you have the
freedom to close out of positions early if they have experienced strong price appreciation, without regard to the higher tax rate applied to short-term capital
gains.KNOWLEDGEFINANCIAL.COM
either, there are a few tricks of the trade that can minimize the impact the taxman has on your pocketbook.
After all, nobody likes taxes, but we all have to deal with them, so we might as well handle them in the best way possible. When the end of the year
approaches, many investors' thoughts turn to how they can avoid paying tax. (Notice we said avoid, not evade.) Although a lot depends on your personal
situation, there are a few simple tax principles that apply to most investors and can help you save money (We also recommend talking to a tax planner.) In
this article, we'll look at the tax benefits of making smart investment decisions, writing off expenses, effectively managing your capital gains and more.
Dividends------ KNOWLEDGEFINANCIAL.COM
Are you an investor who ends up paying too much capital gains tax on the sale of your mutual fund shares because you've overlooked dividends that were
automatically reinvested in the fund over the years? Reinvested dividends increase your investment in a fund and thus reduce your taxable gain (or increase
your capital loss). For example, say you originally invested $5,000 in a mutual fund and had $1,000 in dividends reinvested in additional shares over the
years. If you then sold your stake in the fund for $7,500, your taxable gain would be the result of subtracting from the $7,500 both the original $5,000
investment and the $1,000 reinvested dividends. Thus, your taxable gain would be $1,500. Many people would forget to deduct their reinvested dividends
and end up paying tax on $2,500.
Bonds
When the stock markets perform badly, investors make the flight to quality and look elsewhere for places to put their money. Many find a safe haven in
bonds. When you are calculating your taxes, remember to report the interest income on your tax return: you may not have to pay tax on all the interest you
received. If you bought the bond in between interest payments (most bonds pay semiannual interest), you usually won't pay tax on interest accrued prior to
your purchase. You must still report the entire amount of interest you received, but you'll be able to subtract the accrued amount on a separate line.
Many investors also find short-term government debt a convenient safe harbor for their money when the equity markets are less than robust. Municipal bonds
are often issued by local governments or similar entities in order to finance a particular project, such as the construction of a school or a hospital, or to meet
specific operating expenses. For the retail investor, municipal bonds, or munis, can offer significant tax advantages. Most munis are issued with tax-exempt
status, meaning the returns they generate do not need to be claimed when you file your tax return. Combined with the added safety of the low-risk nature of
municipal bonds, they can be very attractive investments when stock market expectations are weak. (For further reading, see Weighing the Tax Benefits of
Municipal Securities.)
Write-Offs // KNOWLEDGEFINANCIAL.COM
Did you buy a home computer last year? If you did, you can possibly write off a portion of the cost if you used the computer to place trades or to help
manage your portfolio. The portion of the computer's cost that is deductible depends on how much you use the computer to monitor your investments. For
example, if you paid $1,500 for a computer, and you use it to keep tabs on your investments 20% of the time, $300 of the computer's cost is eligible to be
written off as an expense.
For investors who invest in small business ventures or are self-employed, there are many operating expenses that can be written off. For example, if you take
any business trips during the year that require you to obtain accommodations, the cost of your lodging and meals can be written off as a business expense,
within specified limits dependent upon where you travel. If you travel frequently, forgetting to include these types of seemingly personal expenses can cost
you sizeable dollars in lost tax savings.
For homeowners who have moved and sold their home during the year, an important consideration when reporting the capital gain on the sale is the actual
cost basis of the purchase of the home. If your home has undergone renovations or similar improvements having a useful life of more than one year, you will
likely be able to include the cost of such improvements into the adjusted cost base of your home, thus reducing your capital gain incurred on the sale and
the resultant taxes.
Tax-Deferred Programs Are Like Free Money
Every time you trade a stock, you are vulnerable to capital gains tax. Making your purchases through a tax-deferred account can save you a pile of money.
Tax-deferred accounts come in many shapes and sizes. The most well known are Individual Retirement Account (IRA) and Simplified Employment Pension
(SEP) plans. The basic idea is that you are not taxed on the funds until you withdraw, at which point you are taxed at the rate of your income tax bracket.
Waiting to cash in until after you retire will save you even more because your income will likely be lower when you are no longer working and earning a
steady income.
Also, while the benefits of tax-deferred accounts are substantial on their own, they provide an additional benefit of flexibility, as investors need not be
concerned with the usual tax implications when making trade decisions. Provided you keep your funds inside the tax-deferred account, you have the
freedom to close out of positions early if they have experienced strong price appreciation, without regard to the higher tax rate applied to short-term capital
gains.KNOWLEDGEFINANCIAL.COM
Match Your Profits and Losses in the Same Year
In many cases, it is a good idea to match the sale of a profitable
investment with the sale of a losing one within the same year. Capital
losses can be used against capital gains, and short-term losses can be
deducted gains (or losses) are only applied to your tax return when they
are realized. So-called paper gains and losses do not count - since you
have not actually sold your investments, there is no guarantee that your
investments gains (or losses) are only applied to your tax return when
they are realized. So-called paper gains and losses do not count - since
you have not actually sold your investments, there is no guarantee that
your investments will not change in value before you close out your
position. However, by actively choosing to close out (perhaps
temporarily) of losing investments, you can successfully match your
capital gains with offsetting losses, significantly reducing your tax
burden. (Learn more about tax-loss harvesting in Selling Losing
Securities for a Tax Advantage.)
significantly reducing your tax burden. (Learn more about tax-loss
harvesting in Selling Losing Securities for a Tax Advantage.)
Add Broker Fees to the Cost of Your Stocks
Buying stocks isn't free. You always pay commissions and may also pay
transferring fees if you change brokerages. These expenses should be
added to the amount you paid for a stock when determining your cost
basis. When you sell the shares, subtract the commission from the sale
price of the stocks. Think of these costs as a write-off because they are
direct expenses incurred to help you make your money grow.
ADVERTISEMENT
After all, brokerage fees and transaction costs represent money that
comes directly out of your pocket as an expense incurred while
undertaking an investment, and although modern discount brokerages
often charge relatively low fees that do not usually have a material
effect on an investor's returns, there is no reason to avoid claiming every
expense possible when filing your taxes. Many small brokerage fees
incurred over the course of an entire year can add up to hundreds of
dollars, and for active traders who place hundreds or even thousands of
trades every year, the impact of brokerage fees can be substantial.
Try To Hold On to Your Stocks for At Least 12 Months
Here is another good argument for the buy-and-hold strategy: short-term
capital gains (less than one year) are always taxed at a higher rate than
long-term ones. The difference between the tax rates of long-term and
short-term capital gains can be 13% or more in some states and
countries, and when you consider the long-term effects of compounding
on reduced income taxes incurred today, it can prove very beneficial to
hold onto your stocks for at least one year.
Most investors plan to take part in the equity markets for decades,
perhaps moving from stock to stock as the years pass, but still keeping
their money actively working for them in the market for the duration of
their capital accumulation phase. If you fit this description, take a
moment to consider the tax advantages of using a longer-term
buy-and-hold strategy if you are not doing so already - the savings can
be worth more than you think.
Conclusion
It seems there are almost as many intricacies embedded into tax laws as
there are investors who pay taxes. Part of a successful financial plan is
astute tax management: ensuring you are actively taking advantage of
tax avoidance opportunities that apply to your situation and also making
sure you do not overlook any expenses or other income-reduction
techniques that can reduce your taxable earnings.
While many investors are eager to read about the next investment
opportunity that holds potential for market-beating returns, few put in the
same amount of effort to minimize their taxes. Do yourself a favor when
tax season rolls around this year and take the time to ensure you're
doing all you can to keep your money in your pocket - the savings you
uncover may make for a healthy boost to your annual return.
In many cases, it is a good idea to match the sale of a profitable
investment with the sale of a losing one within the same year. Capital
losses can be used against capital gains, and short-term losses can be
deducted gains (or losses) are only applied to your tax return when they
are realized. So-called paper gains and losses do not count - since you
have not actually sold your investments, there is no guarantee that your
investments gains (or losses) are only applied to your tax return when
they are realized. So-called paper gains and losses do not count - since
you have not actually sold your investments, there is no guarantee that
your investments will not change in value before you close out your
position. However, by actively choosing to close out (perhaps
temporarily) of losing investments, you can successfully match your
capital gains with offsetting losses, significantly reducing your tax
burden. (Learn more about tax-loss harvesting in Selling Losing
Securities for a Tax Advantage.)
significantly reducing your tax burden. (Learn more about tax-loss
harvesting in Selling Losing Securities for a Tax Advantage.)
Add Broker Fees to the Cost of Your Stocks
Buying stocks isn't free. You always pay commissions and may also pay
transferring fees if you change brokerages. These expenses should be
added to the amount you paid for a stock when determining your cost
basis. When you sell the shares, subtract the commission from the sale
price of the stocks. Think of these costs as a write-off because they are
direct expenses incurred to help you make your money grow.
ADVERTISEMENT
After all, brokerage fees and transaction costs represent money that
comes directly out of your pocket as an expense incurred while
undertaking an investment, and although modern discount brokerages
often charge relatively low fees that do not usually have a material
effect on an investor's returns, there is no reason to avoid claiming every
expense possible when filing your taxes. Many small brokerage fees
incurred over the course of an entire year can add up to hundreds of
dollars, and for active traders who place hundreds or even thousands of
trades every year, the impact of brokerage fees can be substantial.
Try To Hold On to Your Stocks for At Least 12 Months
Here is another good argument for the buy-and-hold strategy: short-term
capital gains (less than one year) are always taxed at a higher rate than
long-term ones. The difference between the tax rates of long-term and
short-term capital gains can be 13% or more in some states and
countries, and when you consider the long-term effects of compounding
on reduced income taxes incurred today, it can prove very beneficial to
hold onto your stocks for at least one year.
Most investors plan to take part in the equity markets for decades,
perhaps moving from stock to stock as the years pass, but still keeping
their money actively working for them in the market for the duration of
their capital accumulation phase. If you fit this description, take a
moment to consider the tax advantages of using a longer-term
buy-and-hold strategy if you are not doing so already - the savings can
be worth more than you think.
Conclusion
It seems there are almost as many intricacies embedded into tax laws as
there are investors who pay taxes. Part of a successful financial plan is
astute tax management: ensuring you are actively taking advantage of
tax avoidance opportunities that apply to your situation and also making
sure you do not overlook any expenses or other income-reduction
techniques that can reduce your taxable earnings.
While many investors are eager to read about the next investment
opportunity that holds potential for market-beating returns, few put in the
same amount of effort to minimize their taxes. Do yourself a favor when
tax season rolls around this year and take the time to ensure you're
doing all you can to keep your money in your pocket - the savings you
uncover may make for a healthy boost to your annual return.
TAX SAVING TIPS FOR INDIVIDUAL INVESTOR
| REAL ESTATE FOR SALE HOUSES, CONDOS, TOWN-HOMES, BUSINESSES. WATERFRONT PROPERTIES, FORECLOSURE, GOVERNMENT HOMES, BELOW MARKET VALUE AFFORDABLE PRICE CALL Mr. ANTONY AT: 786-709-6577 With Us The Home Buying Process is Easy & Simple Mortgage Loan Modification can help you reduce your monthly payments. Mortgage Loan Pre-Qualification Real Estate Financing Home Purchasing Home Refinancing Home Equity Cash-Out Debt Consolidation Reverse Mortgage FHA-Programs LET US ASSIST YOU! 786-709-6577 |
| REAL ESTATE: LET US HELP YOU SELL YOUR PROPERTY FAST & QUICK & FOR THE TOP PRICE. CALL Mr. ANTONY AN EXPERIENCED PROFESSIONAL REALTOR AT: 786-709-6577 ---------------------------------------------------- ----- FORTUNE INTERNATIONAL REALTY 18801 NE 29TH AVENUE AVENTURA, FL. 33180 FAX{786}279-0556 |
TAX SAVING TIPS FOR INDIVIDUAL INVESTOR, GREAT INFORMATION FOR ALL // Tax Breaks for Almost Everyone; THE MOST IMPORTANT TAX
SAVING YOU MUST KNOW
SAVING YOU MUST KNOW
The mortgage interest deduction is probably the most well-known, and generally the largest, of all the deductions that can be itemized. But not only interest is eligible to be deducted. Loan
origination points, when taken in the year that the loan was made, can also be itemized.
Another method for reducing your tax bill is by the utilization of tax credits. Tax credits are dollar-for-dollar reductions subtracted from your tax liability. There are tax credits for college
expenses, for retirement savings, even for adopting children. Two very important education-related tax credits are the Hope Credit and the Lifetime Learning Credit. The Hope Credit is for
students in their first two years of college. The Lifetime Learning Credit is for anyone else taking college courses.
One of the best, and most abused, tax credits is the Earned Income Credit (EIC). Unlike other tax credits, the EIC is credited to your account as a payment. This means that the credit can
often result in a tax refund even if the total tax owed has been reduced to zero. You may be eligible to claim the earned income credit if you earn less than a certain amount and have a
qualifying dependent.
origination points, when taken in the year that the loan was made, can also be itemized.
Another method for reducing your tax bill is by the utilization of tax credits. Tax credits are dollar-for-dollar reductions subtracted from your tax liability. There are tax credits for college
expenses, for retirement savings, even for adopting children. Two very important education-related tax credits are the Hope Credit and the Lifetime Learning Credit. The Hope Credit is for
students in their first two years of college. The Lifetime Learning Credit is for anyone else taking college courses.
One of the best, and most abused, tax credits is the Earned Income Credit (EIC). Unlike other tax credits, the EIC is credited to your account as a payment. This means that the credit can
often result in a tax refund even if the total tax owed has been reduced to zero. You may be eligible to claim the earned income credit if you earn less than a certain amount and have a
qualifying dependent.
Taxes
The More You Know, the Less You’ll Pay // ----KNOWLEDGEFINANCIAL.COM
Do you own a business? Do you have real estate, stock, or any other type of investment? Did you lose money in Las
Vegas last year? Do you have a job? Are you alive? If you answered “yes” to any of the preceding questions, then you
could probably benefit from all of the tax information that you can get. Taxes have a huge impact on virtually all of us, and
their implications can be felt in almost every area of our financial lives.
Unfortunately, it is extremely difficult to master the United States Tax Code. And with literally hundreds of changes made
to the laws yearly, it becomes even more of a challenge to stay abreast of its current structure. This is a conundrum,
because taxes are certainly one of the most important areas which require up-to-date information.
Many people are intimidated by the thought of both preparing and paying their taxes. It is here where education can begin
to pay dividends. This section will provide a host of valuable information that will help you to understand many general
tax topics.M
The More You Know, the Less You’ll Pay // ----KNOWLEDGEFINANCIAL.COM
Do you own a business? Do you have real estate, stock, or any other type of investment? Did you lose money in Las
Vegas last year? Do you have a job? Are you alive? If you answered “yes” to any of the preceding questions, then you
could probably benefit from all of the tax information that you can get. Taxes have a huge impact on virtually all of us, and
their implications can be felt in almost every area of our financial lives.
Unfortunately, it is extremely difficult to master the United States Tax Code. And with literally hundreds of changes made
to the laws yearly, it becomes even more of a challenge to stay abreast of its current structure. This is a conundrum,
because taxes are certainly one of the most important areas which require up-to-date information.
Many people are intimidated by the thought of both preparing and paying their taxes. It is here where education can begin
to pay dividends. This section will provide a host of valuable information that will help you to understand many general
tax topics.M
| Tax-Slashing Secrets for Real Estate Wealth There are very few business opportunities that allow you to build wealth without paying taxes - and then subsequently pay reduced rates when the time comes to settle up with Uncle Sam. Real estate, however, is a prime exception. Today I will focus on two strategies that can slash the taxes you pay on your real estate investments - and put a lot more money in your pockets at the same time. Set up properly, both of these wealth-building tools will result in little to no tax due until your property is sold. Tax Strategy One: Offsetting Rental Income Let's assume you purchased a rental property for $100,000 and you found a tenant who paid $1,100 rent per month. Your monthly out-of-pocket expenses averaged $1,000. This would include mortgage payments, repairs, management fees, and so on. While this scenario does generate some positive cash flow (cash inflows greater than cash outflows), this will most likely result in a tax loss. The reason for this is that when you file this activity on your tax return, you are entitled to depreciate your property. Depreciation allows you to recoup the purchase price of your property over time through annual tax deductions. In other words, depreciation is a noncash expense. Combining depreciation with other rental expenses may very well mean that your total expenses exceed the amount of cash you have actually spent out of pocket on the rental activity. In some situations, this tax loss can be used to offset other W-2 income. The bottom line to you is that you receive valuable tax benefits. The wealthy realize this, which explains part of the reason that they are so actively involved in real estate. Tax Strategy Two: Make the Most of Property Appreciation The second wealth-building aspect in this example would be the appreciation of the property itself. Over time, real estate values tend to increase. Let's assume that over a three-year period the property you purchased has increased in value to $120,000. The monthly mortgage payments made on the property have reduced the outstanding debt to $95,000. You now have increased your net worth by $25,000 without paying a dime in tax. Are you starting to see why the wealthy are involved in real estate? They're not in real estate because they are wealthy, they're wealthy because they're in real estate. Another exciting part of this scenario is that when you sell that property and turn that equity into cash, the majority of the gain will be taxed as a long-term capital gain. That means preferential tax treatment! Currently, the maximum long-term capital gain rate is 15 percent. |
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| A PROFESSIONAL MORTGAGE BROKER, A COMPETENT, AN EXPERIENCED REAL ESTATE PROFESSIONAL IS WAITING TO ASSIST YOU. CONTACT US AT: 786-709-6577 VISION MORTGAGE BANK.-------------------------------BUYING OR SELLING A PROPERTY, WE CAN HELP YOU! MORTGAGE LOANS PRE-QUALIFICATION, HOME PURCHASING, HOME REFINANCING, HOME EQUITY, DEBT CONSOLIDATION. LET US HELP YOU! CALL: 786-709-6577 |
| BUYING, SELLING, LEASING, FINANCING AND REFINANCING A PROPERTY IN SOUTH FLORIDA. CALL A PROFESSIONAL AT: 786-709-6577--- |
BUYING, SELLING, LEASING PROPERTY. CALL Mr. ANTONY AT: 786-709-6577--- FORTUNE INTERNATIONAL REALTY
 |  |  |  |  |  |  |  |
| IN FLORIDA WHEN THE TIME COMES TO BUY, TO SELL, TO LEASE,TO LIST A REAL ESTATE PROPERTY. THAT'S THE AFFAIR OF A REAL ESTATE PROFESSIONAL. CALL Mr. ANTONY AT: 786-709-6577---FORTUNE INTERNATIONAL REALTY. |
| Tax Deductions For Rental Property Owners Do you own real estate that you rent out? Besides the potential for an ongoing income and capital appreciation, such investments offer deductions that can reduce the income tax on your profits. But first, what kind of real estate investor are you: a passive investor or real estate professional? In this article we'll show you how your classification could make a big difference in the number of tax breaks you get.  If you spend the majority of your time in the real estate business as a real estate professional, your rental losses are not passive. This means that your losses are fully deductible against all income, passive and non-passive. Otherwise, your losses are passive and only deductible up to $25,000 against your rentals' income (deduction phases out if your modified adjusted gross income (MAGI) is between $100,000 and $150,000). However, losses of more than $25,000 can be carried over to the following year. The IRS defines a real estate professional as someone who spends more than one-half of his or her working time in the rental business. This includes property development, construction, acquisition and management. You must also spend more than 750 hours per year working on your real estate rental properties. Common Income Sources Rental Income Money you receive for rent is generally considered taxable in the year you receive it, not when it was due or earned; therefore, you must include advance payments as income. For example, suppose you rent out a house for $1,000 per month and you require that new tenants pay first and last months' rent when they sign a lease. In this case, you'll have to declare the $2,000 you received as income, even though a $1,000 of that $2,000 covers a period that might be several years in the future. Tenant-Paid Expenses Expenses your tenant pays for you are considered income. This would include, for instance, an emergency repair on a refrigerator a tenant has to have done while you are out of town. You can then deduct the repair payment as a rental expense. Trade for Services Your tenant might offer to trade his services in exchange for rent. However, you must include a fair market value of the services as income. As an example, if your tenant offers to paint the rental house in exchange for one month's rent (valued at $1,000), you must include the $1,000 as income, even though you didn't actually receive the money. However, you will be able to deduct the $1,000 as an expense. Security deposits Security deposits are not taxable when you receive them if the intent is to return this money to the tenant at the end of the lease. But what if your tenant does not live up to the lease terms? For example, suppose that you collect a $500 security deposit and then your tenant moves out and leaves holes in the walls that cost $400 to repair. You can deduct that amount from the security deposit during the year that you return it. At that time, though, you must include the $400 that you used to repair the wall as income. You will also be able to show the $400 as a deductible expense. Repairs Vs. Improvements Rental property owners may assume that anything they do on their property is a deducible expense. Not so, according to the IRS. A repair keeps your rental property in good condition and is a deductible expense in the year that you pay for it. Repairs include painting, fixing a broken toilet and replacing a faulty light switch. Improvements on the other hand, add value to your property and are not deductible when you pay for them. You must recover the cost of improvements by depreciating the expense over your property's life expectancy. Improvements can include a new roof, patio or garage. Therefore, from a tax standpoint, you should make repairs as the problems arise instead of waiting until they multiply and require renovations. Common Deductions Mortgage Expenses Expenses to obtain a mortgage are not deductible when you pay them. These include commissions and appraisals. However, you can amortize them over the life of your mortgage. Once you start making mortgage payments, remember that not all of the payment is deductible. Since part of each payment goes toward paying down the principal, this amount is not a deductible expense; the portion paid toward interest is deductible. Your mortgage company will send you a Form 1098 each year showing how much you've paid in interest throughout the year. This is deductible. Also, if a part of your payment includes money that goes into an escrow account to cover taxes and insurance, your mortgage company should report that to you as well. Travel Expenses Money you spend on travel to collect rent or maintain your rental property is deductible. However, if the purpose of the trip was for improvements, you must recover that expense as part of the improvement and its depreciation. You have two choices on how to deduct travel expenses: the actual expenses or the standard mileage rate. You can read more about the IRS's requirements and current mileage allowance in chapter 4 of Publication 463. Other Common Expenses In addition to repairs and depreciation, some of the other common expenses you can deduct are: Insurance Taxes Lawn care Tax return preparation fee Losses from causalities (hurricane, earthquake, flood, etc.) or thefts Condominiums and Cooperatives If you own a rental condominium or cooperative, each has some special rules. Condominiums With a condominium you might pay dues or assessments to take care of commonly-owned property. This includes the building structure, lobbies, elevators and recreational areas. When you rent out your condominium, you can deduct expenses, such as depreciation, repairs, interest and taxes that relate to the common property. However, just as with a single- family rental, you cannot deduct money spent on capital improvements, such an assessment for a cabana at the clubhouse. Instead you must depreciate your cost of any improvement over its life expectancy. Cooperatives Expenses you have for a cooperative apartment you rent out are deductible. This includes the maintenance fees paid to the cooperative housing corporation. Capital improvements are treated differently - you cannot deduct the cost of the improvement, nor can you depreciate it. You must add the cost of the improvement to your cost basis in the corporation's stock. This will reduce your capital gain when you sell the apartment. Keep Good Records Under the IRS's Schedule E there are spaces for numerous categories of expenses. Therefore, the IRS gives you flexibility in the items you can deduct. But be prepared to back up your claim, and be sure to break out expenses that are for repairs and maintenance from those that are capital improvements. Remember, money you spend on improvements could reduce your tax liability when you sell. In addition, if you claim to be a real estate professional, you should keep supporting documentation (appointment books, diaries, calendars, logs, etc.) to prove your active participation and the time spent on your properties each year. All in all, there are quite a few types of deductions available to real estate investors and it pays to know which ones you qualify for. |
| Is it true that you can sell your home and not pay capital gains tax?  It is true in most cases. When you sell your home, the capital gains on the sale are exempt from capital gains tax. Based on the Taxpayer Relief Act of 1997, if you are single, you will pay no capital gains tax on the first $250,000 you make when you sell your home. Married couples enjoy a $500,000 exemption. There are, however, some restrictions on this exemption. In order for the sale to be exempt, the home must be considered a primary residency based on Internal Revenue Service (IRS) rules. These rules state that you must have occupied the residence for at least two of the last five years. If you buy a home and a dramatic rise in value causes you to sell it a year later, you would be required to pay capital gains tax on the gain. This rule does, however, allow you to convert a rental property into a primary residence because the two-year residency requirement does not need to be fulfilled in consecutive years. For example, suppose that you invest in a new condo. You live in it for the first year, rent the home for the next three years and, when the tenants move out, you move back in for another year. At the end of this five-year period, you will be able to sell your condo without having to pay capital gains tax. The other major restriction is that you can only benefit from this exemption once every two years. Therefore, if you have two homes and lived in both for at least two of the last five years, you won't be able to sell both of them tax free. This act has been beneficial for home owners because it has significantly changed the implications of home sales. Before the act, sellers had to roll the full value of a home sale into another home within two years in order to avoid paying capital gains tax. This, however, is no longer the case, and the proceeds of the sale can be used in any way the seller sees fit. |
Banking and Finance, Business and Financial news, Political News, The Market News.
THE BANKING AND THE AMERICAN FINANCIAL SYSTEM. HISTORY, SUCCESS AND
FAILURE!
SMALL BUSINESS, METHODS, TECHNIQUES, AND STRATEGIES
Business structures 101. LLP, LLC, S-corp and C-corp: It's not just alphabet soup! A
breakdown of what you need to know, in layman's terms.
FINANCIAL KNOWLEDGE: The Successful Investment Journey, Ten Tips For The
Successful Long-Term Investor. Ten Steps to Building a Winning Trading Plan, Five
Things To Know About Asset Allocation
SAVING MONEY: THE SECRETS OF SAVING; WAYS TO SAVE A LOT OF MONEY
AND GETTING RICHER. 66 WAYS TO SAVE MONEY
BUILDING WEALTH! How to Become Wealthy? Nine Truths That Can Set You on the
Path to Financial Freedom.
Becoming Wealthy One Bite at a Time! 7 Rules of Wealth Building, Practical Keys to
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Ten Resolutions to Make Your Financial Life Easier
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INSURANCE: WAYS TO MAKE MONEY & SAVE MONEY ON YOUR INSURANCE. THE
IMPORTANCE OF INSURANCE IN SOMEONE'S LIFE!
Homeowners' Insurance: What You Need to Know. Auto Insurance, Life Insurance
Will & Living trust
What is a will and what is living trust? How does a living trust avoid probate?
Auto Loans: Great Car, Great Price…. But what about the Financing? Explore your
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Auto dealers have a long history of using questionable sales tactics to bilk consumers in
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Money Management: 10 Ways to Avoid Overdraft and Bounced Check Fees! Three Ways
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THE BANKING AND THE AMERICAN FINANCIAL SYSTEM. HISTORY, SUCCESS AND
FAILURE!
SMALL BUSINESS, METHODS, TECHNIQUES, AND STRATEGIES
Business structures 101. LLP, LLC, S-corp and C-corp: It's not just alphabet soup! A
breakdown of what you need to know, in layman's terms.
FINANCIAL KNOWLEDGE: The Successful Investment Journey, Ten Tips For The
Successful Long-Term Investor. Ten Steps to Building a Winning Trading Plan, Five
Things To Know About Asset Allocation
SAVING MONEY: THE SECRETS OF SAVING; WAYS TO SAVE A LOT OF MONEY
AND GETTING RICHER. 66 WAYS TO SAVE MONEY
BUILDING WEALTH! How to Become Wealthy? Nine Truths That Can Set You on the
Path to Financial Freedom.
Becoming Wealthy One Bite at a Time! 7 Rules of Wealth Building, Practical Keys to
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UNCLAIMED MONEY, UNCLAIMED PROPERTY, THE FORGOTTEN TREASURE
SEATING IN THE HANDS OF THE STATES GOVERNMENT
COULD BE YOURS OR TO SOMEONE YOU MAY KNOW!
Billions of dollars have been lost. Could some of it be yours? Yes the government may
owed you money; you may not even know about it.
FINANCIAL FREEDOM: A SMARTEST WAY TO PREPARE A BETTER FUTURE IS TO
PLAN TODAY TO OBTAIN A COMPLETE FINANCIAL FREEDOM.
Ten Resolutions to Make Your Financial Life Easier
WHY YOU AREN’T RICH?
Many people assume they aren't rich because they don't earn enough money. If I only
earned a little more, I could save and invest better, they say, they don’t have a good
education, they say they have too much responsibilities; Excuses, Excuses, Excuses.
THIS IS WHY!
INSURANCE: WAYS TO MAKE MONEY & SAVE MONEY ON YOUR INSURANCE. THE
IMPORTANCE OF INSURANCE IN SOMEONE'S LIFE!
Homeowners' Insurance: What You Need to Know. Auto Insurance, Life Insurance
Will & Living trust
What is a will and what is living trust? How does a living trust avoid probate?
Auto Loans: Great Car, Great Price…. But what about the Financing? Explore your
financing options!---
Auto dealers have a long history of using questionable sales tactics to bilk consumers in
the market for a new car. Many people keep their eye on the sale price and neglect
scams involving vehicle financing, which can add thousands of dollars to the price of a
car.
Money Management: 10 Ways to Avoid Overdraft and Bounced Check Fees! Three Ways
to Put Your Budget On on Auto Pilot! The Low Tech Way to Budget Your Money
FREE CREDIT REPORT CAN HELP YOU FIND OUT WHAT'S GOOD OR WHAT'S BAD
AND ALSO DETECT ID THEFT!
CREDIT INFO: SAVE YOUR CREDIT, RESCUE IT, PROTECT IT, INCREASE YOUR
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CAPITAL GAINS AND LOSSES
When you sell a capital asset, the difference between what you sell it for and what you
paid for it is a capital gain or a capital loss.
If your long-term capital gain for the year is more than your net short-term capital loss,
that gain may be taxed at a lower rate.
If you have a taxable capital gain, you may be required to make estimated tax
payments.
----------------------------------------------------------------------------------------
Almost everything you own and use for personal or investment purposes is a capital
asset. Examples are your home, household furnishings, and stocks or bonds held in
your personal account.
When you sell a capital asset, the difference between the amount you sell it for and
your basis, which is usually what you paid for it, is a capital gain or a capital loss.
You have a capital gain if you sell the asset for more than your basis. You have a capital
loss if you sell the asset for less than your basis. Losses from the sale of personal-use
property, such as your home or car, are not deductible.
Capital gains and losses are classified as long-term or short-term. If you hold the asset
for more than 1 year before you dispose of it, your capital gain or loss is long-term. If
you hold it 1 year or less, your capital gain or loss is short-term.
If you have a net capital gain, that gain may be taxed at a lower tax rate. The term "net
capital gain" means the amount by which your net long-term capital gain for the year is
more than your net short-term capital loss.
The highest tax rate on a net capital gain is generally 15% (or 5%, if it would otherwise
be taxed at 15% or less). There are 3 exceptions:
The taxable part of a gain from qualified small business stock is taxed at a maximum
28% rate.
Net capital gain from selling collectibles (such as coins or art) is taxed at a maximum
28% rate.
The part of any net capital gain from selling Section 1250 real property that is required
to be recaptured in excess of straight-line depreciation is taxed at a maximum 25%
rate.
If you have a taxable capital gain, you may be required to make estimated tax
payments. If your capital losses exceed your capital gains, the amount of the excess
loss that can be claimed is limited to $3,000, or $1,500 if you are married filing
separately. If your net capital loss is more than this limit, you can carry the loss
forward to later years.
When you sell a capital asset, the difference between what you sell it for and what you
paid for it is a capital gain or a capital loss.
If your long-term capital gain for the year is more than your net short-term capital loss,
that gain may be taxed at a lower rate.
If you have a taxable capital gain, you may be required to make estimated tax
payments.
----------------------------------------------------------------------------------------
Almost everything you own and use for personal or investment purposes is a capital
asset. Examples are your home, household furnishings, and stocks or bonds held in
your personal account.
When you sell a capital asset, the difference between the amount you sell it for and
your basis, which is usually what you paid for it, is a capital gain or a capital loss.
You have a capital gain if you sell the asset for more than your basis. You have a capital
loss if you sell the asset for less than your basis. Losses from the sale of personal-use
property, such as your home or car, are not deductible.
Capital gains and losses are classified as long-term or short-term. If you hold the asset
for more than 1 year before you dispose of it, your capital gain or loss is long-term. If
you hold it 1 year or less, your capital gain or loss is short-term.
If you have a net capital gain, that gain may be taxed at a lower tax rate. The term "net
capital gain" means the amount by which your net long-term capital gain for the year is
more than your net short-term capital loss.
The highest tax rate on a net capital gain is generally 15% (or 5%, if it would otherwise
be taxed at 15% or less). There are 3 exceptions:
The taxable part of a gain from qualified small business stock is taxed at a maximum
28% rate.
Net capital gain from selling collectibles (such as coins or art) is taxed at a maximum
28% rate.
The part of any net capital gain from selling Section 1250 real property that is required
to be recaptured in excess of straight-line depreciation is taxed at a maximum 25%
rate.
If you have a taxable capital gain, you may be required to make estimated tax
payments. If your capital losses exceed your capital gains, the amount of the excess
loss that can be claimed is limited to $3,000, or $1,500 if you are married filing
separately. If your net capital loss is more than this limit, you can carry the loss
forward to later years.
ASSETS DEPRECIATION
Depreciation is when you deduct a part of the cost of business, property over a number of years.
Under Section 179, you can write off up to $125,000 of the cost of eligible business property.
Generally, you can't deduct in 1 year the entire cost of property you purchased, either for use in your
trade or business or to produce income, if the property has a useful life substantially beyond the tax
year.
Instead, you can depreciate it. You can spread the cost over a number of years and deduct a part of the
cost each year.
What to Depreciate
The kinds of property that you can depreciate include machinery, equipment, buildings, vehicles and
furniture. You can't claim depreciation on property held for personal purposes.
If you use property, such as a car, for both business or investment and personal purposes, only the
business or investment use portion may be depreciated. You may depreciate property that meets all 5
of the following tests.
It must be property you own.
It must be used in a business or other income-producing activity.
It must have a determinable useful life.
It must be expected to last more than one year.
It must not be excepted property (certain intangible property, certain term interests and property placed
in service and disposed of in the same year).
If you're depreciating property you placed in service before 1987, you must use the Accelerated Cost
Recovery System (ACRS) or the same method you used in the past. For property placed in service after
1986, you generally must use the Modified Accelerated Cost Recovery System (MACRS).
Section 179
Under Section 179, there are limits on the amount you can deduct in a tax year. You can deduct up to
$125,000 of the cost of eligible business property in 2007 (the limit is higher if you placed the property
in service in a qualified enterprise zone, qualified renewal community property or GO Zone (certain
parts of the area affected by Hurricane Katrina). This deduction is reduced if you purchase more than
$500,000 (up to $600,000 in the GO Zone) of eligible property for the year. Real estate and property used
mainly in connection with furnishing lodging are not eligible for this deduction.
The eligible property must be acquired for business use and acquired by purchase. Eligible property
includes the following:
off-the-shelf software
machinery and equipment
property contained in or attached to a building, other than structural components
gasoline storage tanks and pumps at retail service stations
livestock
The Section 179 deduction can't exceed your taxable income from businesses (including wages) for the
year.
Depreciation is when you deduct a part of the cost of business, property over a number of years.
Under Section 179, you can write off up to $125,000 of the cost of eligible business property.
Generally, you can't deduct in 1 year the entire cost of property you purchased, either for use in your
trade or business or to produce income, if the property has a useful life substantially beyond the tax
year.
Instead, you can depreciate it. You can spread the cost over a number of years and deduct a part of the
cost each year.
What to Depreciate
The kinds of property that you can depreciate include machinery, equipment, buildings, vehicles and
furniture. You can't claim depreciation on property held for personal purposes.
If you use property, such as a car, for both business or investment and personal purposes, only the
business or investment use portion may be depreciated. You may depreciate property that meets all 5
of the following tests.
It must be property you own.
It must be used in a business or other income-producing activity.
It must have a determinable useful life.
It must be expected to last more than one year.
It must not be excepted property (certain intangible property, certain term interests and property placed
in service and disposed of in the same year).
If you're depreciating property you placed in service before 1987, you must use the Accelerated Cost
Recovery System (ACRS) or the same method you used in the past. For property placed in service after
1986, you generally must use the Modified Accelerated Cost Recovery System (MACRS).
Section 179
Under Section 179, there are limits on the amount you can deduct in a tax year. You can deduct up to
$125,000 of the cost of eligible business property in 2007 (the limit is higher if you placed the property
in service in a qualified enterprise zone, qualified renewal community property or GO Zone (certain
parts of the area affected by Hurricane Katrina). This deduction is reduced if you purchase more than
$500,000 (up to $600,000 in the GO Zone) of eligible property for the year. Real estate and property used
mainly in connection with furnishing lodging are not eligible for this deduction.
The eligible property must be acquired for business use and acquired by purchase. Eligible property
includes the following:
off-the-shelf software
machinery and equipment
property contained in or attached to a building, other than structural components
gasoline storage tanks and pumps at retail service stations
livestock
The Section 179 deduction can't exceed your taxable income from businesses (including wages) for the
year.
DIVIDENDS
Dividends refers to the money a corporation pays you because you own stock in that corporation.
You should receive a Form 1099-DIV or a Schedule K-1 if you receive distributions of $10 or more.
Qualified dividends are ordinary dividends that meet the requirements to be taxed at the same maximum rates as net capital gains.
Dividends are distributions of money, stock, or other property a corporation pays you because you own stock in that corporation. You also may receive dividends through a partnership, an
estate, a trust, a sub-chapter S corporation or from an association that is taxed as a corporation.
If you receive dividends in significant amounts, you may have to pay estimated tax.
You should receive a Form 1099-DIV from each payor for distributions of $10 or more. Also, if you receive dividends through a partnership, an estate, a trust, or a sub-chapter S corporation,
you should receive a Schedule K-1 from that entity indicating the amount of dividends taxable to you. Even if you don't receive a Form 1099-DIV or Schedule K-1, you still must report all
taxable dividends.
Ordinary dividends are the most common type of distribution from a corporation, and they are taxable as ordinary income unless they are qualified dividends. Qualified dividends are
ordinary dividends that meet the requirements to be taxed at the same maximum rates as net capital gains.
Nondividend distributions can be made in the form of a return of capital or a tax-free distribution of additional shares of stock or stock rights. A return of capital is a return of some or all of
your investment in the stock of the company. A return of capital reduces the basis of your stock and is not taxed until your basis in the stock is fully recovered. Once the basis of your stock
has been reduced to zero, any further return of capital is a capital gain.
Capital gain distributions may be paid by regulated investment companies (mutual funds) and real estate investment trust (REITs). Capital gain distributions are always reported as
long-term capital gains. You must also report any undistributed capital gain that mutual funds or REITs have designated to you in a written notice. Those undistributed capital gains are
reported to you on Form 2439.
Form 1099-DIV should break down the distribution into the various categories. If it does not, contact the payor.
INTEREST INCOME
Generally most interest you earn is taxable.
Interest from Series EE and Series I U.S. Savings bonds may be excluded from income if you pay
qualified higher education expenses during the year.
You must report the amount of any tax exempt interest shown on your Form 1099-INT or similar
statement.
Most interest that you receive, and can be withdrawn, is taxable income. Examples of taxable interest
are interest on bank accounts, money market accuracy certificates, and deposited insurance
dividends. If you receive taxable interest, you may have to pay estimated tax.
Interest on insurance dividends you leave on deposit with the Department of Veterans Affairs, however,
is not taxable.
Interest on Series EE and Series I U.S. Savings bonds generally does not have to be reported until you
redeem or dispose of the bonds or they mature. Interest from these bonds may be excluded from
income if you pay qualified higher educational expenses during the year and meet other requirements.
Certain distributions commonly referred to as dividends are actually interest. They include "dividends"
on deposits or share accounts in cooperative banks, credit unions, domestic savings and loan
associations, federal savings and loan associations, and mutual savings banks.
If you have a bond, note, or other debt instrument that was originally issued at a discount, part of the
original issue discount may have to be included in your income each year as interest.
You must show the amount of any tax exempt interest you received during the tax year. This is an
information reporting requirement only, and does not convert tax exempt interest to taxable interest.
You should receive a Form 1099-INT, Form 1099-OID or a similar statement from each payer of interest
of $10 or more, showing the taxable interest you must report.
Generally most interest you earn is taxable.
Interest from Series EE and Series I U.S. Savings bonds may be excluded from income if you pay
qualified higher education expenses during the year.
You must report the amount of any tax exempt interest shown on your Form 1099-INT or similar
statement.
Most interest that you receive, and can be withdrawn, is taxable income. Examples of taxable interest
are interest on bank accounts, money market accuracy certificates, and deposited insurance
dividends. If you receive taxable interest, you may have to pay estimated tax.
Interest on insurance dividends you leave on deposit with the Department of Veterans Affairs, however,
is not taxable.
Interest on Series EE and Series I U.S. Savings bonds generally does not have to be reported until you
redeem or dispose of the bonds or they mature. Interest from these bonds may be excluded from
income if you pay qualified higher educational expenses during the year and meet other requirements.
Certain distributions commonly referred to as dividends are actually interest. They include "dividends"
on deposits or share accounts in cooperative banks, credit unions, domestic savings and loan
associations, federal savings and loan associations, and mutual savings banks.
If you have a bond, note, or other debt instrument that was originally issued at a discount, part of the
original issue discount may have to be included in your income each year as interest.
You must show the amount of any tax exempt interest you received during the tax year. This is an
information reporting requirement only, and does not convert tax exempt interest to taxable interest.
You should receive a Form 1099-INT, Form 1099-OID or a similar statement from each payer of interest
of $10 or more, showing the taxable interest you must report.
 | |  | |  | |  | |  | |  |
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Of 72 is the most
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..MILLIONAIRE: How To
Make Your First $1
Million? The
Millionaire's Mindset
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INVESTING IN THE
STOCK MARKET LEARN
THIS FIRST!...
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Government's general
information; Local,
State, and Federal.
Housing Finance
Authority of Miami
dade, Monroe, Broward,
and Palm Beach County
..EMPIRE: THE ABC's OF
INVESTMENTS, Ways to
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SUCCESS...
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TOP 10 CREATIVE
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The Five C’s of Credit:
LEARN MORE..
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TO INVEST IN REAL
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HOW TO GET THE BEST
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Top 10 home-buying
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HOW TO USE HOME
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TO NEGOTIATE SALE
PRICE?...
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Basics of Accounting...
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FUNDAMENTAL OF
TAXES. THE MORE YOU
KNOW, THE LESS YOU
PAY...
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Real Estate Financial
Calculator Problems
every investors should
know about...--
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AREN'T YOU RICH?
BUILDING
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FINANCIAL
FREEDOM,
BECOME A RICH
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CAN... Learn More!
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Everything You
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as other countries.
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is Copyright? The
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Tax Breaks for Almost Everyone // ----- KNOWLEDGEFINANCIAL.COM
You'll find lots of new deductions, credits and expanded eligibility rules when you prepare your 2009 tax return.
There's no denying that 2009 was a challenging year for millions of Americans. But filling out your 2009 tax return could bring
some welcome relief in the form of a big refund. There are a slew of new and expanded tax breaks for home buyers and car
buyers, college students and their parents, homeowners who installed energy-efficient improvements, and the unemployed.
Together, these tax savings are expected to boost average tax refunds above last year's level of about $2,800, says IRS
spokeswoman Nancy Mathis. The sooner you file, the sooner you'll get your money back.
Here are highlights of what's new for 2009 tax returns.
Education Credit
More parents and students can use a federal education credit to offset part of the cost of college under the new American
Opportunity Credit. The maximum $2,500 credit is available to eligible taxpayers who paid at least $4,000 in qualified college
tuition, fees and required course materials, including books, in 2009. The full credit is available to individuals with incomes up to
$80,000, phasing out above that level and disappearing completely at $90,000. (For married couples filing jointly, the full credit is
available to those with incomes up to $160,000 and disappears above $180,000.) Those income limits are higher than under the
existing Hope and Lifetime Learning credits.
If you claim the credit and owe no tax, you may receive a refund of 40% of the credit, up to a maximum of $1,000 for each eligible
student. Other education credits are not refundable. The American Opportunity Credit can be applied only to expenses paid
during the first four years of college. Graduate students are not eligible for this new credit, but they still qualify for the Lifetime
Learning credit, of up to $2,000 per household, or a tuition-and-fees deduction of up to $4,000. (A credit, which reduces your tax
bill dollar for dollar, is more valuable than a deduction, which merely reduces the amount of income that is taxed.)
Parents of some college freshmen and sophomores should bypass the new American Opportunity Credit and opt instead for the
supercharged Hope Credit available to students in Midwestern seven states affected by 2008's flooding disaster (Arkansas,
Illinois, Indiana, Iowa, Missouri, Nebraska, and Wisconsin). The top credit on 2009 returns for qualified students is $3,600.
Home-Energy Credits // KNOWLEDGEFINANCIAL.COM
If you weatherized your home or bought alternative-energy equipment in 2009, you may qualify for either of two expanded
home-energy credits, regardless of your income.
You may claim a credit worth 30% of the cost of eligible home improvements on your principal residence, up to a maximum
$1,500. The cost of certain high-efficiency heating and air-conditioning systems, water heaters and stoves used for home
heating qualify for the credit, along with labor costs for installing them. The cost of energy-efficient windows, doors, skylights
and insulation also count, but installation costs do not. You would have to spend at least $5,000 to qualify for the full $1,500 credit.
A second tax credit is designed to spur investment in alternative-energy equipment, such as solar electric systems, solar water
heaters, geothermal heat pumps and wind turbines, in new and existing homes. The credit is worth 30% of the cost, including
installation, with no cap on the amount of the credit.
Home Buyer's Credit
If you bought your first home in 2009, you may be able to claim a tax credit worth 10% of the cost of the house, up to a maximum
$8,000, subject to income eligibility rules. You are considered a first-time home buyer if you, or you and your spouse, didn't own a
principal residence for at least three years before purchasing a house in 2009.
Different income eligibility limits apply depending on when you bought the house. If you purchased it before November 7, 2009,
you are eligible for the full first-time home buyer's tax credit if you are single and your income didn't top $75,000 or if you are
married and your joint income didn't exceed $150,000. The credit phases out for individuals with incomes up to $95,000 and
married couples with joint incomes up to $170,000, disappearing above those income levels.
Income Eligibility Limits // KNOWLEDGEFINANCIAL.COM
Limits are higher for those who bought homes on or after November 7, 2009. And a new 10% credit, with a maximum of $6,500, is
available to longtime homeowners who bought a new principal residence on or after that date. The full home-buyer credits are
available to individuals with incomes up to $125,000 and married couples with joint incomes up to $225,000. The credit is phased
out for individuals with incomes up to $145,000 and joint filers with incomes up to $245,000 and disappears for those with
incomes above those levels.
Taxpayers claiming either credit on their 2009 returns must use the new Form 5405, "First-Time Homebuyer Credit". If you claim
the credit, you cannot file your 2009 tax return online; you must print it out and mail it to the IRS. See more details in our FAQ on
the home-buyer credits.
New-Vehicle Purchases
If you bought a new car, light truck, motorcycle or motor home on or after February 16, 2009, through the end of the year, you
may be able to deduct the state or local sales tax or excise tax you paid on the vehicle on your 2009 tax return. The deduction is
limited to the tax you paid on up to $49,500 of the purchase price of the vehicle, but there is no limit on the number of qualifying
vehicles.
To qualify for the full deduction, your income can't top $125,000 if you are single or $250,000 if you are married filing jointly. A
partial deduction is available for individuals with incomes between $125,000 and $135,000 (and between $250,000 and $260,000
for joint filers). The deduction is available whether or not you itemize your deductions. If you claim the standard deduction, file the
new Schedule L ("Standard Deduction for Certain Filers"). If you itemize your deductions, you can claim the deduction for the
sales tax on your vehicle purchase on either line 5 or line 7 of Schedule A.
Jobless Benefits
Unemployed workers are allowed to exclude the first $2,400 of unemployment benefits received in 2009.
KNOWLEDGEFINANCIAL.COM
You'll find lots of new deductions, credits and expanded eligibility rules when you prepare your 2009 tax return.
There's no denying that 2009 was a challenging year for millions of Americans. But filling out your 2009 tax return could bring
some welcome relief in the form of a big refund. There are a slew of new and expanded tax breaks for home buyers and car
buyers, college students and their parents, homeowners who installed energy-efficient improvements, and the unemployed.
Together, these tax savings are expected to boost average tax refunds above last year's level of about $2,800, says IRS
spokeswoman Nancy Mathis. The sooner you file, the sooner you'll get your money back.
Here are highlights of what's new for 2009 tax returns.
Education Credit
More parents and students can use a federal education credit to offset part of the cost of college under the new American
Opportunity Credit. The maximum $2,500 credit is available to eligible taxpayers who paid at least $4,000 in qualified college
tuition, fees and required course materials, including books, in 2009. The full credit is available to individuals with incomes up to
$80,000, phasing out above that level and disappearing completely at $90,000. (For married couples filing jointly, the full credit is
available to those with incomes up to $160,000 and disappears above $180,000.) Those income limits are higher than under the
existing Hope and Lifetime Learning credits.
If you claim the credit and owe no tax, you may receive a refund of 40% of the credit, up to a maximum of $1,000 for each eligible
student. Other education credits are not refundable. The American Opportunity Credit can be applied only to expenses paid
during the first four years of college. Graduate students are not eligible for this new credit, but they still qualify for the Lifetime
Learning credit, of up to $2,000 per household, or a tuition-and-fees deduction of up to $4,000. (A credit, which reduces your tax
bill dollar for dollar, is more valuable than a deduction, which merely reduces the amount of income that is taxed.)
Parents of some college freshmen and sophomores should bypass the new American Opportunity Credit and opt instead for the
supercharged Hope Credit available to students in Midwestern seven states affected by 2008's flooding disaster (Arkansas,
Illinois, Indiana, Iowa, Missouri, Nebraska, and Wisconsin). The top credit on 2009 returns for qualified students is $3,600.
Home-Energy Credits // KNOWLEDGEFINANCIAL.COM
If you weatherized your home or bought alternative-energy equipment in 2009, you may qualify for either of two expanded
home-energy credits, regardless of your income.
You may claim a credit worth 30% of the cost of eligible home improvements on your principal residence, up to a maximum
$1,500. The cost of certain high-efficiency heating and air-conditioning systems, water heaters and stoves used for home
heating qualify for the credit, along with labor costs for installing them. The cost of energy-efficient windows, doors, skylights
and insulation also count, but installation costs do not. You would have to spend at least $5,000 to qualify for the full $1,500 credit.
A second tax credit is designed to spur investment in alternative-energy equipment, such as solar electric systems, solar water
heaters, geothermal heat pumps and wind turbines, in new and existing homes. The credit is worth 30% of the cost, including
installation, with no cap on the amount of the credit.
Home Buyer's Credit
If you bought your first home in 2009, you may be able to claim a tax credit worth 10% of the cost of the house, up to a maximum
$8,000, subject to income eligibility rules. You are considered a first-time home buyer if you, or you and your spouse, didn't own a
principal residence for at least three years before purchasing a house in 2009.
Different income eligibility limits apply depending on when you bought the house. If you purchased it before November 7, 2009,
you are eligible for the full first-time home buyer's tax credit if you are single and your income didn't top $75,000 or if you are
married and your joint income didn't exceed $150,000. The credit phases out for individuals with incomes up to $95,000 and
married couples with joint incomes up to $170,000, disappearing above those income levels.
Income Eligibility Limits // KNOWLEDGEFINANCIAL.COM
Limits are higher for those who bought homes on or after November 7, 2009. And a new 10% credit, with a maximum of $6,500, is
available to longtime homeowners who bought a new principal residence on or after that date. The full home-buyer credits are
available to individuals with incomes up to $125,000 and married couples with joint incomes up to $225,000. The credit is phased
out for individuals with incomes up to $145,000 and joint filers with incomes up to $245,000 and disappears for those with
incomes above those levels.
Taxpayers claiming either credit on their 2009 returns must use the new Form 5405, "First-Time Homebuyer Credit". If you claim
the credit, you cannot file your 2009 tax return online; you must print it out and mail it to the IRS. See more details in our FAQ on
the home-buyer credits.
New-Vehicle Purchases
If you bought a new car, light truck, motorcycle or motor home on or after February 16, 2009, through the end of the year, you
may be able to deduct the state or local sales tax or excise tax you paid on the vehicle on your 2009 tax return. The deduction is
limited to the tax you paid on up to $49,500 of the purchase price of the vehicle, but there is no limit on the number of qualifying
vehicles.
To qualify for the full deduction, your income can't top $125,000 if you are single or $250,000 if you are married filing jointly. A
partial deduction is available for individuals with incomes between $125,000 and $135,000 (and between $250,000 and $260,000
for joint filers). The deduction is available whether or not you itemize your deductions. If you claim the standard deduction, file the
new Schedule L ("Standard Deduction for Certain Filers"). If you itemize your deductions, you can claim the deduction for the
sales tax on your vehicle purchase on either line 5 or line 7 of Schedule A.
Jobless Benefits
Unemployed workers are allowed to exclude the first $2,400 of unemployment benefits received in 2009.
KNOWLEDGEFINANCIAL.COM
