9 New Tax Credits and Deductions Coming in 2009

By Michelle Vullo Pastor   

The economy may be in turmoil, but there's a bright side to the financial downturn we've been experiencing recently. Now is an excellent time to take a close look at your tax situation to see if you qualify for any of the new tax breaks. And according to new 2009 tax brackets, you may discover you're eligible for deductions and credits you didn't qualify for before. Here are a few things to consider:

Deductions for stock market losses

Many investors incurred huge stock market losses last year — now would be a great time to unload some of the shrinking stocks that have little chance of recovery. Capital losses can be used to offset capital gains on a dollar-for-dollar basis. If there are no gains, or if your losses exceed your gains, you can deduct up to $3,000 per year ($1,500 if single or filing separately) from income. Losses over these amounts can be carried forward into future years. Keep in mind that if you do sell a stock at a loss, you'll have to wait 30 days to repurchase that stock if you want to deduct the loss on your taxes.

Tax credits for new home purchases

Are you looking to purchase a home this year and haven't owned a home for three years? If so, there's a tax credit for 10 percent of the purchase price, up to a maximum of $8,000. You'll qualify if your income is less than $150,000 for joint filers or $75,000 for single filers.

Deductions for job searches

Do you have job-search costs? You may be able to deduct expenses such as resume preparation, headhunter or career coach's fees, and certain travel expenses. To be eligible, you must be looking for work in the same occupation, and you can't deduct expenses if you're looking for a job for the first time. You must itemize your deductions on your return, and expenses are deductible only to the extent that your total expenses exceed two percent of your adjusted gross income.

Deductions for medical and dental expenses

You may also be able to deduct medical and dental expenses that you previously weren't able to. Medical and dental expenses are deductible only if they exceed 7.5 percent of your adjusted gross income, but if you're unemployed or your hours or wages have been cut, you may now meet that income threshold.

Traditional IRA minimum withdrawal rules suspended for 2009

Normally, you must begin making minimum withdrawals from your traditional IRA and 401(k) six months after you turn 70. In 2009, the required minimum distributions have been waived, giving your account a chance to rebound while also reducing your taxable income.

Home improvement and car purchase tax credits

In 2008, Congress renewed and expanded some tax credits that were set to expire. Depending on fuel economy and weight, some hybrid vehicles purchased in 2009 entitle you to receive a tax credit of $250 to $3,150.

For home improvements, the tax credit amount is 30 percent of installation costs for heating and cooling equipment, and a 30-percent tax credit on product costs for windows, insulation, and other parts of the building "shell." The lifetime cap on the credit is $1,500. For complete details, visit the Alliance to Save Energy website. 

Deductions for education

You can deduct up to $4,000 of your dependent child's tuition bills and enrollment fees.

Keep your money in your paycheck, not with Uncle Sam

The average federal income tax refund for 2008 was $2,705, and while that feels great, essentially what you're doing is giving the Treasury Department an interest-free loan. (Check out our tax refund calculator to estimate your amount.) If you'd like to see more of your cash in your paycheck rather than loaning it to Uncle Sam for the year, visit www.irs.gov, and click on "withholding calculator." This will help you determine the correct number of exemptions to claim to maximize your paycheck.

Stay vigilant this year, and watch for any upcoming changes that could provide big payoffs!

Footnote

¹ "Now Is the Time to Plan for Next Year's Taxes," Wall Street Journal, April 19, 2009