Tax Changes Affecting Nolo's Essential Retirement Tax Guide

Two pieces of legislation in the early days of the Obama administration brought about some changes to the tax code. The two laws are The Worker, Retiree and Employer Recovery Act of 2008, signed into law on December 23, 2008, and The American Recovery and Reinvestment Act of 2009, signed into law on February 17, 2009. Here are the most significant changes affecting the book.

Residential Energy Credit

As discussed in Chapter 2 of Nolo's Essential Retirement Tax Guide, the Residential Energy Credit allows you to claim a credit for certain energy efficient improvements you make to your principal residence. This credit has been extended through 2010. The amount of the credit has also been increased. For 2009 and 2010, you may claim a credit for 30% (up from 10% in 2006 and 2007) of the cost of eligible improvements. In addition, the lifetime credit amount has been increased from $500 to $1,500.

New "Making Work Pay" Credit

For 2009 and 2010 only, many taxpayers who have income from a job (including self-employment) may claim a tax credit based on that income.  Here are the key details:

1. The credit amount is 6.2% of your earned income (income from your work), up to a maximum credit of $400 for single filers and $800 for couples who file a joint tax return.
2. The credit is phased out for high-income taxpayers. The phase-out begins at $75,000 for single filers and $150,000 for joint filers.
3. The credit is refundable, which means you will receive the credit amount even if you have no tax liability.

Hope Credit

Chapter 6 of the book covers tax benefits are available to those who are paying education expenses. One such benefit is the Hope Credit, which has been enhanced for tax years 2009 and 2010 only. The enhancements include the following:

1. The credit will apply to expenses incurred in the first four years of college (rather than only the first two years).
2. The maximum credit has been increased to $2,500 per qualified individual per year (up from $1,800 in 2008).
3. Up to 40% of the credit will be refundable. You will be able to receive the refundable portion even if you have no tax liability.
4. The credit is phased out for high-income taxpayers.  However, for 2009 and 2010, the phase-out threshold has been raised to $80,000 for single filers and $160,000 for couples filing a joint return.

New Sales Tax Deduction for Vehicles

For 2009 only, taxpayers will be able to claim a tax deduction for the sales tax they pay when they purchase a new vehicle. Here are the details:

1. The vehicle must be new and must be a car, light truck, motor home, or motorcycle.
2. The vehicle must have been purchased after February 16, 2009 and before January 1, 2010.
3. The deductible portion of the sales tax is limited to the first $49,500 of the sales price.
4. If you itemize your deductions, you may claim the sales tax deduction on Schedule A.
5. If you do not itemize your deductions, you may claim the sales tax as an additional standard deduction.
6. The deduction is phased out for high-income taxpayers. The phase-out begins at $125,000 for single filers and $250,000 for couples filing a joint return.