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American Opportunity Credit
The Hope Education credit is renamed the America Opportunity credit and is increased to 100% of the first $2,000 of qualified expenses and 25% of the next $2,000 of qualified expenses, for a total credit of $2,500. Part of the credit (40%) is now refundable for most taxpayers. AGI phase-out ranges have been increased, and the right to claim the credit is also expanded to include the first four years of education. Course materials, including books and computers, needed for enrollment or attendance are qualified expenses
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Divorced or Separated Parents
A noncustodial parent claiming an exemption for a child can no longer attach certain pages from a divorce decree or separation agreement instead of Form 8332 if the decree or agreement was executed after 2008. The noncustodial parent will have to attach Form 8332, or a similar statement, signed by the custodial parent and whose only purpose is to release a claim to exemption.
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First-Time Homebuyer Credit
Currently, the credit is the smaller of 10% of the purchase price or $8,000 ($4,000 MFS), for first-time homebuyers, or $6,500 ($3,250 MFS) for certain long-time residents treated as first-time homebuyers, if the home is purchased before July 1, 2010 and a written binding contract is signed before May 1, 2010. An $800,000 limit applies to the home purchase price. The buyer must be age 18 or older and cannot be a dependent of another taxpayer. The credit is phased out for higher-income taxpayers
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Nonbusiness Energy Property Credit
The credit for insulation, exterior windows and doors, energy efficient central air and water heaters, energy efficient central air and water heaters, energy efficient furnaces, advanced main air-circulating fans, and other energy efficient improvements has been extended for improvements placed in service during 2009 and 2010. The credit is 30% with an aggregate $1,500 cap on qualifying property.
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Sales and Excise Tax Deduction for New Motor Vehicle
Taxpayers may increase their standard deduction or increase their itemized deductions for state and local sales and excise taxes imposed on the purchase of each qualified motor vehicle. The deduction is either added to the standard deduction for taxpayers who do not itemize or taken as an itemized deduction. There is no limit on the number of vehicles purchased as long as the purchase price for each vehicle is limited to $49,500. The deduction is phased out for higher-income taxpayers.
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Increased Section 179 Expense Deduction
The maximum amount of equipment placed in service in 2009 that businesses can expense remains at $250,000. The annual investment limit remains at $800,000 for 2009..
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Special Depreciation Allowance
A 50% special depreciation allowance applies for new property acquired and placed in service during 2008 and 2009. This allows the taxpayer to expense 50% of the adjusted basis of qualified property placed in service during 2008 and 2009. The special depreciation allowance is in addition to regular depreciation and any Section 179 deduction claimed. The original use of the property must begin with the taxpayer. This means the purchase of used property does not qualify.
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Standard Deduction Additions
The standard deduction is increased by the lesser of the amount allowable to the taxpayer as a deduction for state and local real estate taxes, or $500 ($1,000 MFJ), and sales and excise taxes attributable to the purchase price of a new motor vehicle.
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Unemployment Compensation
The first $2,400 of unemployment compensation received in 2009 is not taxable. Amounts received that exceed $2,400 are taxable.
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Reduction in Capital Gains Tax Rates
Prior to 2008, long-term capital gains from the sale of assets held longer than one year were taxed at a maximum rate of five percent to the extent the seller was in the 10% or 15% tax brackets. In 2008, the 5% maximum rate drops to 0% through 2010. The 15% maximum tax rate on long-term capital gains for taxpayers in higher brackets stays the same.
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Reduction in Dividend Tax Rates
Similarly, in 2008, the special 5% maximum rate on dividends of taxpayers in the 10% and 15% tax brackets drops to 0% through 2010.
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