Debra A. Simmons, CPA

What’s New for 2010

In Income Taxes on July 31, 2010 at 5:41 pm

Every year, there are changes to the tax code. Here are a few of the changes for 2010:

Roth IRAs. Half of any income that results from a rollover or conversion to a Roth IRA from another retirement plan in 2010 is included in income in 2011, and the other half in 2012, unless you elect to include all of it in 2010. In addition, for any tax year beginning after 2009, you can make a qualified rollover contribution to a Roth IRA regardless of the amount of your modified adjusted gross income (AGI).

IRA deduction expanded. You may be able to take an IRA deduction if you were covered by a retirement plan and your 2010 modified AGI is less than $66,000 ($109,000 if married filing jointly or qualifying widow(er)). If your spouse was covered by a retirement plan, but you were not, you may be able to take an IRA deduction if your 2010 modified AGI is less than $177,000.

Domestic production activities income deduction. The deduction rate for 2010 increases to 9%. However, the deduction is reduced if you have oil-related qualified production activities income.

Personal casualty and theft loss limit reduced. Each personal casualty or theft loss is limited to the excess of the loss over $100 (instead of $500).

Standard mileage rates. The rate for business use of your vehicle is reduced to 50 cents a mile. The rate for use of your vehicle to get medical care or move is reduced to 16½ cents a mile. The rate of 14 cents a mile for charitable use is unchanged.

Personal exemption and itemized deduction phaseouts. For 2010, taxpayers with AGI above a certain amount will not lose part of their deduction for personal exemptions and itemized deductions. Under current law, these phaseouts will resume in 2011.

Alternative minimum tax (AMT) exemption amount decreased. The AMT exemption amount is decreased to $33,750 ($45,000 if married filing jointly or a qualifying widow(er); $22,500 if married filing separately).

Certain credits not allowed against the AMT. The credit for child and dependent care expenses, credit for the elderly or the disabled, lifetime learning credit, nonbusiness energy property credit, mortgage interest credit, and the District of Columbia first-time homebuyer credit are not allowed against the AMT and a new tax liability limit applies. For most people, this limit is your regular tax minus any tentative minimum tax.

Qualified fuel cell motor vehicle credit reduced. For qualified vehicles with a gross vehicle weight rating of 8,500 pounds or less that are placed in service after 2009, the credit allowed for the purchase is reduced by 50%. For more information, see the instructions for Form 8910.

Earned income credit (EIC). You may be able to take the EIC if:

  • Three or more children lived with you and you earned less than $43,352 ($48,362 if married filing jointly),
  • Two children lived with you and you earned less than $40,363 ($45,373 if married filing jointly),
  • One child lived with you and you earned less than $35,535 ($40,545 if married filing jointly), or
  • A child did not live with you and you earned less than $13,460 ($18,470 if married filing jointly).

The maximum AGI you can have and still get the credit also has increased. You may be able to take the credit if your AGI is less than the amount in the above list that applies to you. The maximum investment income you can have and still get the credit is still $3,100.

Limit on deductible farming losses. Beginning in 2010, the farming loss of a taxpayer (other than a C corporation) who receives certain government subsidies will be limited to the greater of $300,000 ($150,000 if married filing separately) or the taxpayer’s total net farm income for the prior 5 tax years. Farming losses caused by casualty, disease, or drought are disregarded in calculating the limitation. Disallowed amounts can be carried forward indefinitely.

First-time homebuyer credit. This credit has been extended for purchases of a main home in the United States after 2008 and before May 1, 2010 (before July 1, 2010, if you entered into a written binding contract before May 1, 2010). The credit is generally 10% of the purchase price of the home but is limited to $8,000 ($4,000 if married filing separately).Also, the credit has been modified to allow a smaller credit (limited to $6,500, $3,250 if married filing separately) if you (and your spouse if married) owned and used the same main home for any period of 5 consecutive years during the 8-year period ending on the date you bought your new main home in the United States. For this credit, the replacement home must be purchased after November 6, 2009, and before May 1, 2010 (before July 1, 2010, if you entered into a written binding contract before May 1, 2010).You can choose to claim the credit on your 2009 return for a home you bought in 2010 that qualifies for the credit.See Form 5405 (Rev. December 2009) for more information, including special rules for certain members of the uniformed services, members of the U.S. Foreign Service, and employees of the intelligence community on official extended duty service.

Reminder.: Recapture of first-time homebuyer credit. If you claimed the first-time homebuyer credit for a home you bought in 2008, you generally must begin repaying it in 2010.

For additional changes to the tax law in 2010, contact Debbie Simmons at (310) 701-1825.

Advertisements