Final Year of Recovery Act May Hold Tax Benefits for You

The American Recovery and Reinvestment Act (ARRA) of 2009 was passed by Congress to try and stimulate the economy. Among its provisions are tax breaks, many of which apply to individuals.

The tax benefits were approved for tax years 2009 and 2010, though a few have been extended in the tax package Congress approved last month. But taxpayers should make sure they take advantage of all the provisions of the earlier legislation.

Perhaps the best known is the Homebuyer Tax Credit, which was originally scheduled to expire in November 2009 but was extended through the first half of last year. As we've discussed in previous articles, if you bought a house last year you may qualify.

Education

Some of the lesser-known tax benefits include those for education. Under ARRA, more parents and students will qualify for a tax credit, the American Opportunity Credit, to pay for college expenses. The new credit modifies the existing Hope Credit for tax years 2009 and 2010, making the Hope Credit available to a broader range of taxpayers, including many with higher incomes and those who owe no tax.

It also adds required course materials to the list of qualifying expenses and allows the credit to be claimed for four post-secondary education years instead of two. Many of those eligible will qualify for the maximum annual credit of $2,500 per student.

The full credit is available to individuals whose modified adjusted gross income is $80,000 or less, or $160,000 or less for married couples filing a joint return. The credit is phased out for taxpayers with incomes above these levels. These income limits are higher than under the existing Hope and Lifetime Learning Credits.

Energy

The new law increases the energy tax credit for homeowners who make energy efficient improvements to their existing homes. The new law increases the credit rate to 30 percent of the cost of all qualifying improvements and raises the maximum credit limit to $1,500 for improvements placed in service in 2009 and 2010.

The credit applies to improvements such as adding insulation, energy efficient exterior windows and energy-efficient heating and air conditioning systems.

A similar credit was available for 2007, but was not available in 2008. The Internal Revenue Service (IRS) says homeowners should be aware that the standards in the new law are higher than the standards for the credit that was available in 2007 for products that qualify as "energy efficient" for purposes of this tax credit.

For property purchased before June 1, 2009, homeowners generally can rely on the manufacturers' certifications and Energy Star labels that were available at the time for those products. Manufacturers have been advised that they should not continue to provide certifications for property that fails to meet the new standards.

Earned Income Tax Credit

ARRA provides a temporary increase in the earned income tax credit (EITC) for taxpayers with three or more qualifying children. The maximum EITC for this new category is $5,657.

ARRA also increases the beginning point of the phaseout range for the credit for all married couples filing a joint return, regardless of the number of children. These changes apply to 2009 and 2010 tax returns.

The EITC is a refundable credit intended to help people who work but earn modest incomes. The credit begins to phase out at $21,420 for married taxpayers filing a joint return with children and completely phases out at $40,463 for one child, $45,295 for two children and $48,279 for three or more children. For married taxpayers filing a joint return with no children, the credit begins to phase out at $12,470 and completely phases out at $18,440.