As the new laws and acts unfold, there are certain changes in the law that we feel our clients/prospects should be aware of. Here is a current list. If you have any questions about these laws and their applicability, please contact us.

 
Roth IRA Conversions 
Amounts in a traditional IRA can be rolled over or converted into a Roth IRA but only if: (1) the taxpayer's adjusted gross income for the tax year does not exceed $100,000, and (2) the taxpayer is not married filing separately. Generally, amounts transferred or converted from a traditional IRA into a Roth IRA must be included in gross income but are not considered when determining the $100,000 AGI limit. For tax years beginning after 2009, the adjusted gross income limit will be eliminated, allowing higher income taxpayers to convert traditional IRAs to Roth accounts.
 
Here's the best scenario for this idea: Your traditional  IRA is (or was) loaded with equities and took a major beating during the stock market downturn. So, your account is now worth a lot less than it once was. Correspondingly, the tax hit from converting your traditional  IRA into a  Roth account right now would also be a lot less than before. While even the reduced current tax hit from converting is unwelcome, it may be a small price to pay for future tax savings. After the conversion, all the income and gains that accumulate in your  Roth account, and all withdrawals, will be totally free of any federal taxes—assuming you meet the tax-free withdrawal rules. In contrast, future withdrawals from a traditional  IRA could be hit with tax rates that are much higher than today's rates.

Of course, conversion is not a no-brainer. You have to be satisfied that paying the up-front conversion tax bill makes sense in your circumstances. In particular, converting a big account all at once could push you into higher 2009 tax brackets, which would not be good. You must also make assumptions about future tax rates, how long you will leave the account untouched, the rate of return earned on your  Roth account investments, and so forth. Taxes on income recognized in 2010 from a  Roth conversion are deferred until 2011 and 2012. So, 2010 may be an ideal time to convert, assuming your account doesn't appreciate substantially in the mean time.

Federal Tax Credits for Energy Efficient Purchases 

Tax credits are now available for home improvements:

  • must be "placed in service" from January 1, 2009 through December 31, 2010
  • must be for taxpayer's principal residence, EXCEPT for geothermal heat pumps, solar water heaters, solar panels, and small wind energy systems (where second homes qualify)
  • $1,500 is the maximum total amount that can be claimed for all products placed in service in 2009 & 2010 for most home improvements, EXCEPT for geothermal heat pumps, solar water heaters, solar panels, fuel cells, and small wind energy systems which are not subject to this cap, and are in effect through 2016
  • must have a Manufacturer Certification Statement to qualify
  • for record keeping, save your receipts and the Manufacturer Certification Statement
  • improvements made in 2009 will be claimed on your 2009 taxes (filed by April 15, 2010) — use IRS Tax Form 5695 (2009 version) — it will be available late 2009 or early 2010
  • If you are building a new home, you can qualify for the tax credit for geothermal heat pumps, photovoltaics, solar water heaters, small wind energy systems and fuel cells, but not the tax credits for windows, doors, insulation, roofs, HVAC, or non-solar water heaters.
For complete information about the different credits, including the product type, tax credit specifications and tax credit, go to http://www.energystar.gov/index.cfm?c=tax_credits.tx_index#s1.

Non-First Time Home Buyer's Credit 

Congress has enacted a tax credit to provide some tax relief for people downsizing.

Effective for purchases after November 6, 2009, the a credit is available to "long-time residents of the same principal residence." The new law treats as a first-time homebuyer an individual who has owned and used the same residence as his or her principal residence for any five-consecutive year period during the previous eight-year period ending with the date on which the new residence is purchased. The maximum credit will be $6,500 ($3,250 for married taxpayers.)

The new law raises the start of the phase-out for single individuals to $125,000 and the start of the phase-out for married couples filing joint returns to $225,000. For principal residences purchased in 2009 and 2010, there is generally no requirement to repay the credit. However, a taxpayer may have to repay the credit if the residence ceases to be his or her principal residence within 36 months from the date of purchase.

Congress set a ceiling on eligibility for the credit based on the purchase price of the principal residence. No credit is allowed if the purchase price of the principal residence exceeds $800,000.