2009 Tax Breaks

Here is a list of some of the tax breaks for 2009. Most of the credits and deductions are standard and available every year.

Click a tab below for quick info on each of the credits

First time and repeat home buyer's credit

If you bought a primary home in 2009 or 2010 and your income is within certain limits, you get up to $8,000 or $6,500.
For first time home buyers, the credit is the smaller of $8,000 and 10% of the home's value. For repeat home buyers, the credit is the smaller of $6,500 and 10% of the home's value.
In order to get the full credit: If you purchased on or before November/6/2009, your income must be less than $75,000 if single, and $150,000 if married. If your purchased or will purchase between November/7/2009 and April/10/2010, your income must be less than $125,000 if single and $225,000 if married.
If your income is over the above limits by up to $20,000, you get a partial credit.
The credit does not have to be paid back.
There are other restrictions.

Deduction for sales tax on the purchase of a new car

If you deduct your state income tax, you can also deduct the sales tax paid on the purchase of a new car between February/17/2009 and December/31/2009. You can only deduct the sales tax on up to $49,500 of the purchase price.
The deduction is phased out if your income is between $125,000 and $135,000 if single, and $250,000 and $260,000 if married.
If you itemize your deductions, this deduction is allowed under the alternative minimum tax (AMT), so high income tax filers in California will be able to utilize this deduction.
If you take the standard deduction, you increase the standard deduction by the sales tax.

Deduction for mortgage interest

You can deduct mortgage interest on loans on your primary and secondary homes as an itemized deduction.
You can only deduct the mortgage interest on up to $1,000,000 of loans.
The deduction is allowed under the alternative minimum tax (AMT).
There are other restrictions.

Deduction for property tax

You can deduct property tax on all of your homes, as well as on all of your cars as an itemized deduction.
However, the deduction is not allowed under the alternative minimum tax (AMT).
If you take the standard deduction, you can increase your standard deduction by up to $500 if single or $1000 if married.

Education credits and deductions

If you, your spouse, or any of your dependents are in the first 4 years of college pursuing an undergraduate degree, you can take the American Opportunity Credit. The credit is up to $2,500, and is phased out if your income is between $80,000 and $90,000 if single, and $160,000 and $180,000 if married. If your net tax is zero, you may be able to claim part of the credit (in technical terms, the credit is refundable).
Alternatively, you can take the Hope Credit. The credit is up to $1,800, or $3,600 if in a Midwestern disaster area, and is phased out if your income is between $50,000 and $60,000 if single, and $100,000 and $120,000 if married.
If you, your spouse, or any of your dependents are taking courses at any post-secondary school (including graduate school or courses at a community college), even if it's not for a degree, you can take the Lifetime Learning Credit. The credit is up to $2,000, or $4,000 in a Midwestern disaster area. It is phased out if your income is between $50,000 and $60,000 if single, and $100,000 and $120,000 if married.
If your income is too high, you will not qualify for the Hope and Lifetime Learning credits, but you may be able to take the tuition and fees deduction if your income is within certain limits. This deduction is limited to $4,000 if your income is less than $65,000 if single, and $130,000 if married. The deduction is $2,000 if your income is less than $80,000 if single, and $160,000 if married. Unlike most credits in the tax code, there is no gradual phase out. If your income is higher, you get no deduction.
None of the above education credits are allowed for California.
You may also deduct student loan interest. The amount you can deduct is phased out if your income is between $60,000 and $75,000 if single, and between $120,000 and $150,000 if married. California also allows the student loan interest deduction.

Deduction for medical, dental, and vision expenses

You can deduct qualified medical, dental, and vision expenses in excess of 7.5% of your income. There is no requirement that the hospital be located in the United States.
Health insurance, medicare premiums, and long term care premiums are also valid expenses. Don't forget these, because they add up!
Deduction for over the counter medicines are generally not allowed. However, you can use a flexible spending account (FSA) through your employer, if they support it, to pay for OTC medicines.
The FSA can also be used to pay for all medical expenses. The biggest advantage of FSA's is that they are funded with pre-tax dollars, and they are most helpful for people who can't meet the stringent 7.5% limit above. Note: You cannot claim a deduction for expenses paid with FSA, because the money in the FSA is already not taxed.
Miles you drive to get to the hospital are also deductible. For 2009 the rate is 24 cents a mile; for 2010 the rate is 16.5 cents a miles. You need to keep a detailed log of the miles you drive for medical purposes.
Travel and lodging for medical purposes is also deductible, within limits.
Please refer to our medical page for more details.

Credit for dependent care

You can take a credit for dependent care expenses on your tax return. Dependent care expenses are basically daycare and amounts you pay a nanny. If you pay a nanny you have to pay him/her legally in order to claim the credit — which means that you have to: file Schedule H, withhold social security and medicare (FICA) taxes from their paycheck, match those taxes from your own funds (the employer and employee each pay half of the net FICA taxes), pay state unemployment insurance, pay federal employment (FUTA) tax, pay state disability (SDI) tax, etc.
The credit is reduced for high income taxpayers but not phased out. For high income taxpayers, the credit is $600 for one child, and $1200 for two or more.
If you are a high income taxpayer, you might be better off using a dependent care reimbursement account account (DCRA) through your employer to pay for dependent care expenses, if your employer supports it. This way you can pay for $5,000 worth of dependent care expenses with pre-tax dollars,. If you have two or more kids, you can also claim a credit of at least $200.
The state of California has a dependent care credit too, but it is phased out completely if your income is over $100,000.
There are other restrictions. For example, if you are married, both of you must be working, looking for work, or in school to get the credit or use the DCRA.

Deduction for energy efficiency credits

You may get a credit for adding energy efficient fixtures to your home. This includes things such as solar panels, solar water heaters, double pane windows, etc. The manufacturer of the fixture should be able to tell you if the product qualifies.
You may have to recapture the credit when you sell your home. This is because the credit lowers your cost basis, and thereby increases your capital gain.

Credit for adoption expenses

You can claim a credit for qualified adoption expenses, up to $12,150 per child. If you adopt a special needs child, you get the full credit.
The credit is phased out if your income is between $182,180 and $222,180.

Deduction for charitable donations

If you itemize deductions, you can deduct charitable donations to qualified 501(c)(3) charities, schools, the government, etc made in 2009.
A special rule says that certain cash donations made to Haiti made between January/11/2010 and March/1/2010 are deductible on your 2009 return. These include cell phone donations.
There are limits on how much you can deduct. The IRS has 20%, 30%, and 50% limits. For example, you may be able to deduct only 30% of your income if you donate stock to a 50% organization. The remaining amount is carried over to future years, but only for the next 5 years.

California renter's credit

This credit is worth $60 or $120, and is available if you live and rent in California and your income is within limits.
The credit is not available if your income is over $34,412 if single, and over $68,824 if married or head of household.

Deduction for investment interest

If you itemize your deductions, you can deduct investment interest. Investment interests includes interest you paid to short a stock, dividends you paid when you shorted a stock, mortgage interest on a home held for investment, and so on.
Note: If you held the short position for 45 days or less, you have to add the short interest and dividends to your cost basis instead.
The amount of investment interest you can deduct must be less than or equal to your investment income. Investment income is the sum of your interest, non-qualified dividends, short term capital gains, and long term capital gains you elect to treat as short term capital gains. You have to have investment income in order to deduct investment interest.
Any amount of investment interest not allowed is carried over to future years.

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