The IRS has announced that the official beginning of the 2009 filing season will begin on January 15, 2010 for most taxpayers. That is the first day individuals can transmit e-filed tax returns.
There are many new law provisions again for tax year 2009, and again, California tax law does not conform to any of them. In fact, there have been about 14 new federal tax acts in the past 5 years, each of which created many new tax laws, and California has not passed any conforming laws for any of them. The means the differences in the tax laws between the two are increasing and it is becoming difficult for taxpayers to do their own federal and state returns unless they have very simple situations.
Tax changes for 2009 and later years arise from various sources: new legislation; IRS regulations, rulings and other guidance; court decisions and phase-ins of previously enacted legislation. The most significant tax legislation in 2009 was the American Recovery and Reinvestment Act Act of 2009 (ARRA) and the Worker, Homeownership, and Business Assistance Act of 2009. However, the 2009 tax year is also affected by tax legislation enacted before 2009. Conformity by California will be noted by each change whenever possible. Here are the highlights and changes for individual taxpayers we’ll encounter most often:
New nonrefundable personal credits allowed against both regular tax and AMT are the Alternative Motor (hybrid) vehicle credit as well as the Plug-in electric vehicle credit. California does not conform.
Higher AMT exemption amounts are $46,700 for single and HOH, $70,950 for MFJ and $35,475 for MFS. California $59,114, $78,817, $39,407.
Tax-exempt interest on private activity bonds issued in 2009 and 2010 is not subject to AMT. California does not conform.
Credit for Additional Child Tax Credit earned income threshold is reduced to $3,000, down from $12,550; thus the credit is refundable to the extent of 15% of the taxpayer’s earned income in excess of $3,000. California does not conform.
Government Retirees Credit allows individuals receiving a government pension or annuity but ineligible to receive a 2009 economic recovery payment (because they were not covered by Social Security) are allowed a $250 refundable tax credit, or $500 for a joint return if both spouses are eligible. California does not conform.
Making Work Pay Credit allows individuals other than nonresident aliens and dependents to claim a refundable tax credit equal to lesser of 6.2% of earned income or $400 ($800 for joint return). Individual must have valid Social Security number and phases out at adjusted gross income over $75,000 ($150,000 for joint returns). California does not conform.
Plug-In Electric Vehicle Conversion Credit of 10% of cost of converting vehicle (after 2/17/09 to 12/31/11) to a qualified plug-in electric drive motor vehicle, up to $4,000 maximum credit. California does not conform.
Plug-In Electric Vehicle Credit for vehicles purchased 2009-2014, for $2,500 up to $7,500 for light-duty vehicles, and up to $15,000 for vehicles weighing over 26,000 pounds. The amount is determined by the kilowatt hours of battery power. California does not conform.
Plug-In Electric Vehicle Credit---Low-Speed and 2-and 3-Wheeled Vehicles for 10% of the cost up to maximum credit of $2,500 per vehicle for qualified vehicles which can be recharged from an external source of electricity and purchased after 2/17/09 and before 2012; cannot get both this credit and Plug-In Electric Vehicle Credit described above. California does not conform.
Changes to education credits: Hope Credit renamed American Opportunity Tax Credit increased to maximum of $2,500, now includes course materials, expanded to include first four years of college education in a degree or certificate program, increased the modified AGI phase-out range to $80,000-$90,000 ($160,000-$180,000 for MFJ); credit can be claimed against AMT; credit allows 40% to be refundable, except for child subject to kiddie tax rules. California does not conform.
Qualified Tuition Programs and ESAs expenses expanded to include purchase of computer technology, equipment, internet access and related services (does not include software for sports, games or hobbies unless predominantly educational). California does not conform.
First-Time Homebuyer Credit has been expanded to homes purchased 1/1/09-4/30/10, maximum credit is increased to $8,000; can claim credit on return the year before purchase year; removed the recapture (repayment) rule of the 2008 credit, except if the taxpayer disposes of the residence during a 36-month period beginning with date of purchase; after 11/6/09 rules also allow credit for long-time residents of the same principal residence, but limited to $6,500, modified AGI phase-out range is increased to $125,000-$145,000 ($225,000-$245,000 for MFJ), and the purchase price cannot exceed $800,000. California does not conform.
Personal Energy Property Credit is a nonrefundable credit equal to 30% of the cost of energy-saving improvements such as insulation, doors, windows, etc. to a personal residence, limited to combined total of $1500 for 2009 and 2010. California does not conform.
Principal Residence Gain—Nonqualified Use Portion Taxable for any period of time after 2008 that the property is not used by the taxpayer, spouse or former spouse as a principal residence; the $250,000 ($500,000 for MFJ and certain surviving spouses) exclusion from taxable gain is pro-rated based upon time. California does not conform.
Residential Energy Efficient Property Credit is a nonrefundable credit of 30% of the cost of residential energy efficient property (qualified solar water heating, solar electric property, etc.), with no maximum limit except qualified fuel cell property. California does not conform.
Required Minimum Distributions (RMDs) are suspended for 2009, so no RMD is required from defined contribution plans (such as 401k’s and 403b’s), 457b plans maintained by state agency or subdivision thereof, or IRA’s. California has no separate RMD requirement.
Section 179 Deduction deduction limit is $250,000, and the qualifying property limit is $800,000. This affects self-employed business taxpayers. California $25,000, $200,000.
Special (Bonus) Depreciation allowance equal to 50% of the adjusted basis of qualified property is allowed for both regular tax and AMT for property placed in service in 2009. This affects self-employed business taxpayers. California does not conform.
Casualty Losses per-casualty floor for personal-use property is increased from $100 to $500. California does not conform.
COBRA Premium Assistance provides eligible individuals with 65% subsidy for 9 months of coverage and is excluded the eligible individual’s income, for those taxpayers whose AGI does not exceed $125,000 ($250,000 for MFJ); this assistance was for taxpayers eligible for COBRA coverage between 9/1/08-12/31/09 and whose employment was involuntarily terminated during that time. California does not conform.
Limit on Percentage Depletion has been suspended; 100%-of-taxable-income limitation with respect to depletion claimed on oil and gas production from marginal properties is suspended. California does not conform.
Economic Recovery Payment of $250 should have been received from Social Security Administration for those eligible for those benefits between 11/08 and 1/09; for those individuals eligible for the Making Work Pay Credit, that credit must be reduced by this Economic Recovery Payment. California does not conform.
Estimated Tax Payments—Qualified Individuals safe harbor requirements have changed; estimated tax payments required are lesser of 90% of tax liability on 2009 return or 90% of tax liability shown on 2008 return. California does not conform.
Qualifying Child Definition has been revised to require that the child must be younger than the person claiming the child and the child cannot file a joint return with a spouse other than to claim a refund. California does not conform.
Qualifying Child Tax Benefits is a new provision that the tax benefits relating to a qualifying child are restricted to the child’s parents is either is eligible to claim the child; if neither may but does not claim the child, another taxpayer can claim the child-related benefits only if that taxpayer’s AGI is higher than each parent’s AGI. California does not conform.
New Vehicle Sales Tax Deduction is available for individuals who claim the standard deduction or who itemize and deduct state and local income taxes; they can also deduct the state or local sales or excise tax paid on the purchase of a new passenger vehicle, motorcycle or motor home; limited to first $49,500 of the purchase price, and phased out for taxpayers with AGI between $125,000 and $135,000 ($250,000 and $260,000 for MFJ). California does not conform.
Unemployment Compensation up to $2,400 can be excluded from the recipient’s gross income. California does not tax Unemployment Compensation.
Standard Mileage Rates for use of a vehicle are
. 55 cents per mile driven for business miles
. 24 cents per mile driven for medical or moving purposes; and
. 14 cents per mile driven for service of charitable organizations
