Going, Going, Gone - 2010 Tax Benefits

Going, Going, Gone - 2010 Tax Benefits

Many tax provisions will expire at the end of the year

By Tiffany Clark, JD (tax specialist, Lima office)

March 2010

All good things must come to an end, right? Well, there are some popular tax provisions that will end on December 31, 2010, unless Congress takes action to keep them - and in most instances that scenario isn't very likely. The good news is that you can reduce your 2010 tax liability if you plan accordingly.

From education credits to mortgage insurance premium deductions, the following highlights some of the expiring provisions:

Capital gains

Rates will increase from 15 to 20 percent. Dividends will no longer be taxed at the favorable capital gain rate, but will instead be taxed as ordinary income, the top bracket of which is 35 percent.

Child tax credit

The floor of the refundable portion of the child tax credit reverts back to $8,500. In addition, the credit decreases from $1,000 to $500.

American Opportunity Tax Credit

Formerly known as the Hope Credit, this credit reverts back to being claimed only on the first two years of qualified education expenses. And it applies to 100 percent of the first $1,200 in expenses and 50 percent of the next $1,200. Books and other supplies like computers and Internet expense are no longer qualifying expenses. Along those same lines, computer technology and equipment are no longer qualified higher education expenses for 529 accounts.

Energy credit

The credit currently available for qualified energy efficient improvements will also expire. Currently, a credit of 30 percent of the cost, up to a maximum of $1,500 for 2009 and 2010, is available for these types of expenditures. Improvements that qualify include: insulation; exterior doors; exterior windows, metal or asphalt roofs; natural gas, propane and oil furnaces; natural gas, propane and oil hot water boilers; and main air circulating fans.

Making Work Pay Credit

On April 1, 2009, payroll withholding tables were adjusted for this credit which was enacted by American Recovery and Reinvestment Act of 2009 (ARRA). In both 2009 and 2010, the provision provides a refundable tax credit of up to $400 for working individuals and $800 for married taxpayers filing joint returns. The tax credit is calculated at a rate of 6.2 percent of earned income and will phase out for taxpayers with modified adjusted gross income in excess of $75,000 or $150,000 for married couples filing jointly. The amount of the credit will be computed on the employee's 2009 income tax return. Those who do not have taxes withheld by an employer during the year can also claim the credit on their 2009 tax return.

Work Opportunity Tax Credit

While this credit is not new, the ARRA added two additional targeted groups to the credit: unemployed veterans and disconnected youth. These groups no longer qualify after December 31, 2009.

Volunteer firefighter provision

At the end of this year, volunteer firefighters and emergency medical responders will no longer be able to exclude benefits provided to them from their income.

Mortgage insurance premiums

Before December 31, 2010, any premiums for mortgage insurance are deductible as interest. After this date, this is no longer allowable.

Section 179 expensing

The limits revert back to $25,000 and the amount eligible goes back to $200,000. Recently levels have been $250,000 and $800,000.

Tax planning is an important task, but if you are thinking about taking advantage of any of the credits above, it's even more important that you plan for them well in advance. And prepare yourself for any tax savings you currently receive that will soon disappear.