What Tax Breaks Are Officially Ending This Year?

The end of the 2009 will signal the death of quite a few tax breaks for both individuals and businesses. Some “temporary” credits and deductions will be extended by Congress for another year or two at the last minute but most of them will be gone. Taking advantage of the expiring credits or deductions should be a priority. Below is a list of important tax breaks expiring at the end of 2009 and 2010.

Expiring in 2009:

Higher education tuition deduction: The higher education tuition deduction, allowing taxpayers to take a deduction for tuition and related expenses, will expire this year.

Bonus Depreciation and Increased IRC 179 Amounts: Provisions originally intended to increase capital purchased included a bonus depreciation allowance and rules for immediate expensing of qualified property were also dramatically increased. These rules are set to expire at the end of 2009.

R&D Credits: The research and development, or R&D credit, is set to expire at the end of 2009. The credit is available for businesses that increase their research expenses.

Unemployment Compensation: Although unemployment compensation is typically taxable income, the 2009 tax year provides a respite from taxability for up to $2,400 of unemployment income. However, the exclusion from taxable income for unemployment compensation is only available for 2009, and will expire at the end of the year.

AMT Exemption Amounts: For 2009, the AMT exemption amounts increased to $46,700 for individuals and $70,950 for married taxpayers filing jointly. However, these exemption amounts will decrease in 2010 to $33,750 for single taxpayers and $45,000 married taxpayers filing jointly. So the creep of the AMT continues.

Expiring in 2010:

Estate Tax Exemptions and Rates: The 2001 Tax Act included several provisions which gradually eliminated the estate tax by increasing the amount that is exempt from tax, reduced the top rate over a period of years, and finally included a repeal of the estate tax for individuals dying after 2009. To comply with budgetary rules, the 2001 Act contained a so-called sunset rule in which the pre-2001 Act rules would return after 2010 unless congress provides otherwise. This means that the estate tax is repealed only for those who die in 2010. These changes are highly complex and we urge you to contact your White, Nelson service provider to determine the proper course of action.

Dividends taxed at capital gains rates: Under the provisions of the 2003 Jobs Act, certain dividends were taxed at preferential rates of 15% and dramatically decreased the requisite amount of tax on these dividends. Called “Qualified Dividends”, this provision is set to expire at the end of 2010.

Homebuyer Tax Credit: The first-time homebuyer tax credit was set to expire November 30. The credit is equal to 10 percent of the purchase price of a principal residence, up to $8,000. The credit has recently been extended. It applies to homes purchased after December 31, 2008, and before May 1, 2010.

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