Santa Clara County, Property Taxes

In Santa Clara County: If you're 55 or older, you can sell your appreciated primary residence to buy a new primary residence and pay the same property taxes if the value of the new home is equal or less than the old home. It can only be done once...

i.e. You bought a home for $500,000 for a primary residence in Santa Clara County. You sold it for $750,000. You bought a new primary residence for $750,000. You might be able to pay the old property taxes.

Qualified Tuition Programs (Section 529 Accounts)

Distributions for qualified tuition programs (Section 529 accounts) are tax-free if they are used to pay a beneficiary’s qualified educational expenses. Other distributions are included in the beneficiary’s income and are subject to a penalty. In general, qualified educational expenses are tuition, fees, books, supplies, and equipment required for enrollment or attendance at an eligible educational institution, certain expenses of special-needs beneficiaries, and room and board expenses for students enrolled at least half time. However, for 2009 and 2010, the new law expands the definition of qualified educational expenses to include the purchase of computer technology or equipment, as well as Internet access and related services, if they are to be used by the beneficiary and the beneficiary’s family during any of the years the beneficiary is enrolled at an eligible educational institution. These expenses may include expenses for computer software, computer or peripheral equipment, and fiber optic cable related to computer use. However, the expansion does not apply to expenses for software designed for sports, games, or hobbies unless it is primarily educational in nature.

Tax on Purchase of New Vehicle

Starting on February 17, 2009, both itemizers and non-itemizers are allowed a deduction for sales and excise taxes incurred on the purchase of a new motor vehicle, motorcycle, or motor home during 2009.

Comment: Motor vehicles include passenger vehicles, light trucks, and SUVs.

If you are an itemizer, the new law expands the definition of deductible taxes to include qualified motor vehicle taxes, which are state or local sales or excise
taxes imposed on the purchase of a qualified motor vehicle. Until now, you generally could deduct these taxes only if you elected to deduct state and local sales taxes in lieu of state and local income taxes — and even then, only certain sales taxes were deductible. If you are a non-itemizer, the new law adds a new motor vehicle sales tax deduction to the standard deduction.

Comment: For both itemizers and non-itemizers, the deduction can be claimed in computing both regular tax and alternative minimum tax liability.

The deduction is not without limitations. First, the amount of tax you can deduct is limited to the tax on the first $49,500 of the purchase price. In the case of a car, truck, SUV, or motorcycle, the gross vehicle weight rating must not exceed 8,500 pounds. In addition, the deduction is phased out for taxpayers with modified adjusted gross income between $125,000 and $135,000 ($250,000 and $260,000 in the case of a joint return). Finally, the increased standard deduction is not available if you make the election to deduct sales tax rather than income taxes for the year.

Comment: A proposed deduction for car loan interest was not included in the final version of the Act.

Credit for First-Time Homebuyers-Extended and Expanded

If you buy a house in 2009 before December 1, you may be eligible for the newly expanded First-Time Home buyers Credit. This credit, which was to expire June 30, 2009, has been extended through November 30, 2009 — and has been made significantly more attractive. You can now claim $8,000 (up from $7,500)or 10 percent of the purchase price, whichever is lower. If you are married and file a separate return, however, the most you can claim is $4,000 (up from $3,750). As under prior law, the credit is phased out for taxpayers with adjusted gross income over $75,000 ($150,000 for married taxpayers filing jointly).

Comment
Perhaps more significant is the fact that the credit is no longer treated as a zero-interest loan that must be paid back over 15 years. Instead, the credit needs to be paid back only if, within 36 months of purchasing the home, you either sell it or you (and your spouse)stop using it as your principal residence. Even though the credit is available for houses purchased in 2009, you can claim the credit on your
return for 2008 by electing to treat the purchase as occurring in 2008. This election will not affect the application of the 15-year repayment provision — it
will not apply to purchases in 2009 even if they are treated as occurring in 2008 for purposes of claiming the credit in 2008.

The credit can now be claimed for the purchase of a residence financed by the proceeds of a mortgage revenue bond. For residents of Washington, D.C., this credit is now the default credit, instead of the $5,000 credit solely for D.C. fi rst-time homebuyers. Under the prior law, D.C. homebuyers were entitled to the D.C. credit, not the first-time homebuyer credit. However, no first-time homebuyer credit is available to any taxpayer who claimed the D.C. homebuyer credit in any prior year.

$250 Credit for Certain Government Retirees

Certain government retirees can claim a refundable $250 tax credit for their first tax year beginning in 2009. The credit is $500 on a joint return if both spouses are eligible. To be eligible for the credit, you must meet all the following tests:
(1) During your first tax year beginning in 2009, you must receive some amount as a pension or annuity for service performed in the employ of the United States, any state, or any instrumentality thereof, that is not considered employment for Federal Insurance Contributions Act (social security tax) purposes.
(2) You must not receive an economic recovery payment during the tax year.
(3) Your tax return must include your social security number. A joint return must include the social security number of at least one of the spouses.

Alternative Motor Vehicle Credit as Nonrefundable Personal Credit Against AMT

For tax years beginning after December 31, 2008, the alternative motor vehicle tax credit is treated as a nonrefundable personal tax credit. This means that, to the extent permitted at the time, you can use it to offset regular tax liability and alternative minimum tax liability. The alternative motor vehicle credit is available for each new qualified fuel cell vehicle, hybrid vehicle, advanced lean burn technology vehicle, and alternative fuel vehicle placed in service by the taxpayer during the tax year. In general, the credit amount varies depending on the type of technology used, the weight class of the vehicle, the amount by which the vehicle exceeds certain fuel economy standards, and,for some vehicles, the estimated lifetime fuel savings. The credit generally is available for vehicles purchased after 2005. The credit terminates after 2009, 2010, or 2014, depending on the type of vehicle, and is subject to phaseout based on the number of vehicles sold by the manufacturer.

Retirement planning

Year-end planning for 2009 also involves maximizing annual contributions to your retirement plan accounts, since one year's limit cannot be added to the next year's if not taken in time. While contributions to IRAs may be applied retroactively if made before the filing deadline, an individual's elective deferral contribution made as an employee to a qualified plan must be made before the end of the calendar year.

Maximizing contributions to your retirement plan (or plans) before year end also allows you to reduce your adjusted gross income in direct proportion to those contributions. This in turn can give you the benefit of increasing the deductibility of medical and other deductions subject to adjusted gross income floors.

As many 401(k) plan account owners have realized in 2009, managing a tax-deferred retirement account is not a "set it and forget it" proposition. Although sheltered from tax, a 401(k) or other defined contribution plan also requires careful management of the performance of those investments and re-allocation of assets whenever appropriate. Unfortunately, losses on any 401(k) plan are not tax deductible; nor can they offset capital gains in non-tax sheltered accounts.