Diamond Tax Consultants Blog

For a limited time, both the PA Department of Revenue (4/26-6/18/10) and the City of Philadelphia (5/3-6/25/10) are offering tax amnesty for all taxpayers with delinquent taxes.

During this limited timeframe, the taxing authorities will waive 100% penalty and half of the interest on all delinquent tax balances.  Diamond Tax Consultants can help you to identify all delinquent tax issues and implement steps to resolve these issues, which include correspondence, tax preparation, appeal, and installment payment agreement.

For additional information on this subject, click below:

City of Philadelphia Tax Amnesty FAQ

Pennsylvania Tax Amnesty FAQ

This Amnesty is good for a limited time only. Act now!

Call (888) 456-0800
Email: info@diamondtaxconsultants.com
Schedule Appt Online 

 

During the first round of the government’s homebuyer tax-credit program, only first-time purchasers could qualify for up to $8,000 in tax credits. But this time, many current homeowners could get in on the deal, too.

The credit is renewed to home purchases under contract as of April 30th, as long as the purchase closes within 60 days. (That means you don’t have to rush to close escrow by the end of this month. Whew!)

On Thursday, the House and Senate passed an extension of the popular homebuyer program that would allow people who have owned their homes for at least five years to buy a new home and get up to $6,500 off their tax bill. Why the switch?

The move may be aimed at luring higher-end buyers into the real estate market, says Kevin Cottrell, a principal and cofounder of Kelsey Cottrell Realty in St. Louis. During the initial incentive program, which ends Nov. 30, over 70 percent of the contracts his firm inked were under $300,000, and 90 percent were under $400,000, the lower end of the real-estate spectrum. By extending the credit to current homeowners, the federal government is aiming to move a more upscale segment of the market into “a more normal cycle of buying and selling,” where people might move to a better home every seven or eight years, Mr. Cottrell says. The five-year ownership requirement discourages people from flipping houses the way they did during the real estate bubble.

President Obama is expected to sign the bill quickly. Here’s what it means for you:

– First-time homebuyers still qualify for up to $8,000 in tax credits; those who have owned their homes at least five years qualify for up to $6,500 in credits.

– Purchases must be secured by April 30, 2010 and closings finalized by June 30.

– Single taxpayers with an adjusted gross income under $125,000 (under $225,000 for joint filers) are eligible for the credit’s full benefits. Those with incomes up to $145,000 (single) or $245,000 (joint) may receive partial credits.

– Homes worth $800,000 and under are eligible for the program.

– Members of the military serving outside the United States for more than 90 days will have until June 30, 2011, to qualify for he incentive.

– The program is expected to cost the federal government $10.8 billion in lost taxes

Looking to take advantage of the First-time Homebuyers Credit this year? We’ll if you haven’t found your perfect starter home yet, it’s time to get cracking.

The current First-time Homebuyers Credit is for homes purchased on or after Jan. 1, 2009, and before Dec. 1, 2009. (There is a different tax credit for homes bought in 2008.) So, in order to get this credit, you must close on your home by Nov. 30. Factor in that the closing of a home can take on average 30 to 45 days, and this means that the home needs to be under contract by mid-October.

Yes, it’s confusing, but because of the 2009 Economic Stimulus that was signed into law on Feb. 17, 2009, there are effectively ‘two’ first-time homebuyer credits, and both can impact your 2008 federal return.

First-Time Home Buyer Credit 2008
As part of the Housing and Economic Recovery Act of 2008, eligible first-time homebuyers can receive a refundable credit of up to $7,500.

The credit:

• Applies to home purchases made after April 8, 2008, and before January 1, 2009
• Is equal to the lower of 10% of the purchase price of the home or $7,500 for most taxpayers ($3,750 for married filing separate filers)
• Is phased out based on modified adjusted gross income (MAGI). For a married couple filing a joint return, the phaseout range is $150,000 to $170,000 of MAGI. For other taxpayers, the phaseout range is $75,000 to
  $95,000 of MAGI
• Reduces a taxpayer’s tax bill or increases his or her refund, dollar for dollar
• Is fully refundable, meaning that the credit will be paid out to eligible taxpayers, even if they owe no tax or the credit is more than the tax that they owe.
• Is claimed on the 2008 return

Eligible taxpayers must not have owned a home at any time during the three years prior to the purchase. Eligible taxpayers claim the credit by filing IRS Form 5405 on their 2008 tax return. Form 5405, along with instructions on using the form to claim the first-time homebuyer credit, is available on the IRS website. If you may be eligible for the credit, you may wish to speak first to your tax professional for assistance in preparing your return.

For a home purchased in 2008, the credit must be repaid, making it more of an interest-free loan than an actual tax credit. The maximum repayment period is 15 years, but this period applies only if the property remains the taxpayer’s main home and is not sold, foreclosed on, or converted to business or rental property during that 15-year period.

If such changes take place, the buyer may have to repay the outstanding credit amount back to the government right away. Fortunately, the recapture of the credit in this situation cannot exceed the gain realized from the sale or other disposition.

Taxpayers who purchased their homes in 2008 must begin repaying it as an additional tax added to their returns beginning in 2010. The credit repayment amount is added to the taxpayer’s tax liability each year of the repayment period as an additional tax.

Taxpayers should consider the credit recapture amount when computing estimated income tax payments or withholding taxes to avoid underpayment penalties.

First-Time Home Buyer Credit 2009
There’s better news for first-time homebuyers in 2009!

For eligible first-time homebuyers who purchase a home on or after Jan. 1, 2009 and beforeDec. 1, 2009, the first-time homebuyer credit is increased from $7,500 to $8,000 and, and. . . this is BIG, . . .the individual no longer has to repay the credit unless the home owner sells or moves out of the home within 3 years of purchase.

As under prior law, the $8,000 credit begins to phase out for individuals with MAGI over $75,000 ($150,000 for married couples filing jointly). It is fully phased out for individuals with MAGI of $95,000 ($170,000 for joint filers).

Tax Year 2008 Return Filing
The IRS has modified the 2008 Form 5405 to incorporate the new law as it applies to individuals who purchased a home in 2009 and want to take the credit on their 2008 return. As of 2/24/09, the new Form 5405 is not able to be electronically filed. So, you can go ahead and postal mail your form and tax return, until the IRS has enabled the electronic filing of this form.

If you’ve already filed your 2008 tax return and qualify for a credit greater than $7,500, We recommends that you file an amended return (Form 1040X) to claim the additional credit, up to $500.

• If you haven’t yet filed your 2008 return, you may file a paper return now or wait to e-file your return until Form 5405 may be electronically filed.
• If you purchased your home in 2009, you may wish to wait until you file your 2009 return (in 2010) to claim the credit. Generally, it would be financially wisest to claim the credit on the 2008 return so that you can receive this credit as soon as possible.

The best advice is to always talk with your tax professional to determine a course of action that may be best for your individual financial situation.

Remember that our affliate company Innovative Real Estate Investing, LLC has several resources that may benefit those looking to buy, sell, or fix up their home.  Visit the website for more details: www.innovativerealinvest.com

The Credit Card Accountability Responsibility and Disclosure Act of 2009 (CCARD) passed this week. Great news for folks who run up balances and pay interest. Not such great news for folks who always pay their bills on time, or who take advantage of the the 0% interest rates. Expect annual fees. The companies want to make money on you.

However, CCARD does include protections against sudden and arbitrary increases in your interest rate. And it prevents credit card companies from billing for back interest, on the previous month. If you cancel your card and have a balance due, the interest rate gets frozen. They can’t raise your interest rate once you cancel. Be sure to cancel in writing to prove the date of your cancellation.

Overlimit fees will be discouraged. I don’t understand them anyway. How can you be overlimit if the credit card company has to approve all charges? Why would they approve a charge if it’s over your limit, anyway?

Aaaah…no interest on fees, like late fees, etc. Charging interest on the fees is kind of like a double penalty. 

Read the bill summary. It’s only three pages.

http://snurl.com/c-card

IRS HAS DROPPED ITS
      INTEREST RATES AGAIN

If you underpaid your taxes and did not pay-up by April 15,
here’s some minor “good news.” The interest you will pay
has been reduced to four percent. Of course, there may
be late-payment penalties on top of that.

 

GOOD NEWS (if you already got hit with “bad news”):
 HAVE YOU JOINED THE RANKS OF
   THE UNEMPLOYED THIS YEAR?

If so, the American Recovery and Reinvestment Act of
2009 says that the first $2,400 you receive in unemployment
benefits, will be considered “tax free” when you file your
taxes next year.

This tax-exclusion is per person, so if both husband and
wife lose their jobs and both receive unemployment, they
may each exclude $2,400.

Extension of Bonus Depreciation. Businesses are allowed to recover the cost of capital expenditures over time according to a depreciation schedule. Last year, Congress temporarily allowed businesses to recover the costs of capital expenditures made in 2008 faster than the ordinary depreciation schedule would allow by permitting these businesses to immediately write-off fifty percent of the cost of depreciable property (e.g., equipment, tractors, wind turbines, solar panels, and computers) acquired in 2008 for use in the United States. The bill would extend this temporary benefit for capital expenditures incurred in 2009. This proposal is estimated to cost $5.074 billion over 10 years.

 

 Election to Accelerate Recognition of Historic AMT/R&D Credits. Last year, Congress temporarily allowed businesses to accelerate the recognition of a portion of their historic AMT or research and development (R&D) credits in lieu of bonus depreciation. The amount that taxpayers may accelerate is calculated based on the amount that each taxpayer invests in property that would otherwise qualify for bonus depreciation. This amount is capped at the lesser of six percent (6%) of historic AMT and R&D credits or $30 million. The bill would extend this temporary benefit through 2009. This proposal is estimated to cost $805 million over 10 years.

 

Extension of Enhanced Small Business Expensing. In order to help small businesses quickly recover the cost of certain capital expenses, small business taxpayers may elect to write-off the cost of these expenses in the year of acquisition in lieu of recovering these costs over time through depreciation. Until the end of 2010, small business taxpayers are allowed to write-off up to $125,000 (indexed for inflation) of capital expenditures subject to a phase-out once capital expenditures exceed $500,000 (indexed for inflation). Last year, Congress temporarily increased the amount that small businesses could write-off for capital expenditures incurred in 2008 to $250,000 and increased the phase-out threshold for 2008 to $800,000. The bill would extend these temporary increases for capital expenditures incurred in 2009. This proposal is estimated to cost $41 million over 10 years.

 

 5-Year Carryback of Net Operating Losses for Small Businesses. Under current law, net operating losses (“NOLs”) may be carried back to the two taxable years before the year that the loss arises (the “NOL carryback period”) and carried forward to each of the succeeding twenty taxable years after the year that the loss arises. For 2008, the bill would extend the maximum NOL carryback period from two years to five years for small businesses with gross receipts of $15 million or less. This proposal is estimated to cost $947 million over 10 years.

 

Delayed Recognition of Certain Cancellation of Debt Income. Under current law, a taxpayer generally has income where the taxpayer cancels or repurchases its debt for an amount less than its adjusted issue price. The amount of cancellation of debt income (“CODI”) is the excess of the old debt’s adjusted issue price over the repurchase price. Certain businesses will be allowed to recognize CODI over 10 years (defer tax on CODI for the first four or five years and recognize this income ratably over the following five taxable years) for specified types of business debt repurchased by the business after December 31, 2008 and before January 1, 2011. This proposal is estimated to cost $1.622 billion over 10 years.

 

Incentives to Hire Unemployed Veterans and Disconnected Youth. Under current law, businesses are allowed to claim a work opportunity tax credit equal to 40 percent of the first $6,000 of wages paid to employees of one of nine targeted groups. The bill would create two new targeted groups of prospective employees: (1) unemployed veterans; and (2) disconnected youth. An individual would qualify as an unemployed veteran if they were discharged or released from active duty from the Armed Forces during the five-year period prior to hiring and received unemployment compensation for more than four weeks during the year before being hired. An individual qualifies as a disconnected youth if they are between the ages of 16 and 25 and have not been regularly employed or attended school in the past 6 months. This proposal is estimated to cost $231 million over 10 years.

The bill would cut taxes for more than 95% of working families in the United States. For 2009 and 2010, the bill would provide a refundable tax credit of up to $400 for working individuals and $800 for working families. This tax credit would be calculated at a rate of 6.2% of earned income, and would phase out for taxpayers with adjusted gross income in excess of $75,000 ($150,000 for married couples filing jointly). Taxpayers can receive this benefit through a reduction in the amount of income tax that is withheld from their paychecks, or through claiming the credit on their tax returns. This proposal is estimated to cost $116.199 billion over 10 years.

Economic Recovery Payment to Recipients of Social Security, SSI, Railroad Retirement and Veterans Disability Compensation Benefits.

 

The bill would provide a one-time payment of $250 to retirees, disabled individuals and SSI recipients receiving benefits from the Social Security Administration, Railroad Retirement beneficiaries, and disabled veterans receiving benefits from the U.S. Department of Veterans Affairs. The one-time payment is a reduction to any allowable Making Work Pay credit. This proposal is estimated to cost $14.225 billion over 10 years.

Refundable Credit for Certain Federal and State Pensioners.

The bill would provide a one-time refundable tax credit of $250 in 2009 to certain government retirees who are not eligible for Social Security benefits. This one-time credit is a reduction to any allowable Making Work Pay credit. This proposal is estimated to cost $218 million over 10 years.

Increase in Earned Income Tax Credit.

 

The bill would temporarily increase the earned income tax credit for working families with three or more children. Under current law, working families with two or more children currently qualify for an earned income tax credit equal to forty percent (40%) of the family’s first $12,570 of earned income. This credit is subject to a phase-out for working families with adjusted gross income in excess of $16,420 ($19,540 for married couples filing jointly). The bill would increase the earned income tax credit to forty-five percent (45%) of the family’s first $12,570 of earned income for families with three or more children and would increase the beginning point of the phase-out range for all married couples filing a joint return (regardless of the number of children) by $1,880. This proposal is estimated to cost $4.663 billion over 10 years.

  The bill would increase the eligibility for the refundable child tax credit in 2009 and 2010. For 2008, the child tax credit is refundable to the extent of 15 percent of the taxpayer’s earned income in excess of $8,500. The bill would reduce this floor for 2009 and 2010 to $3,000. This proposal is estimated to cost $14.830 billion over 10 years.

 

“American Opportunity” Education Tax Credit.

The bill would provide financial assistance for individuals seeking a college education. For 2009 and 2010, the bill would provide taxpayers with a new “American Opportunity” tax credit of up to $2,500 of the cost of tuition and related expenses paid during the taxable year. Under this new tax credit, taxpayers will receive a tax credit based on one hundred percent (100%) of the first $2,000 of tuition and related expenses (including books) paid during the taxable year and twenty-five percent (25%) of the next $2,000 of tuition and related expenses paid during the taxable year. Forty percent (40%) of the credit would be refundable. This tax credit will be subject to a phase-out for taxpayers with adjusted gross income in excess of $80,000 ($160,000 for married couples filing jointly). This proposal is estimated to cost $13.907 billion over 10 years.

Computers as Qualified Education Expenses in 529 Education Plans.

Section 529 Education Plans are tax-advantaged savings plans that cover all qualified education expenses, including: tuition, room & board, mandatory fees and books. The bill provides that computers and computer technology qualify as qualified education expenses. This proposal is estimated to cost $6 million over 10 years.

Refundable First-time Home Buyer Credit.

Last year, Congress provided taxpayers with a refundable tax credit that was equivalent to an interest-free loan equal to 10 percent of the purchase of a home (up to $7,500) by first-time home buyers. The provision applies to homes purchased on or after April 9, 2008 and before July 1, 2009. Taxpayers receiving this tax credit are currently required to repay any amount received under this provision back to the government over 15 years in equal installments, or, if earlier, when the home is sold. The credit phases out for taxpayers with adjusted gross income in excess of $75,000 ($150,000 in the case of a joint return). The bill eliminates the repayment obligation for taxpayers that purchase homes after January 1, 2009, increases the maximum value of the credit to $8,000, and removes the prohibition on financing by mortgage revenue bonds, and extends the availability of the credit for homes purchased before December 1, 2009. The provision would retain the credit recapture if the house is sold within three years of purchase. This proposal is estimated to cost $6.638 billion over 10 years.

 The bill provides all taxpayers with a deduction for State and local sales and excise taxes paid on the purchase of new cars, light truck, recreational vehicles, and motorcycles through 2009. This deduction is subject to a phase-out for taxpayers with adjusted gross income in excess of $125,000 ($250,000 in the case of a joint return). This proposal is estimated to cost $1.684 billion over 10 years.

Temporary Suspension of Taxation of Unemployment Benefits.

Under current law, all federal unemployment benefits are subject to taxation. The average unemployment benefit is approximately $300 per month. The proposal temporarily suspends federal income tax on the first $2,400 of unemployment benefits per recipient. Any unemployment benefits over $2,400 will be subject to federal income tax. This proposal is in effect for taxable year 2009. This proposal is estimated to cost $4.740 billion over 10 years. Extension of AMT Relief for 2009. The bill would provide more than 26 million families with tax relief in 2009 by extending AMT relief for nonrefundable personal credits and increasing the AMT exemption amount to $70,950 for joint filers and $46,700 for individuals. This proposal is estimated to cost $69.759 billion over 10 years.

 The bill would increase the eligibility for the refundable child tax credit in 2009 and 2010. For 2008, the child tax credit is refundable to the extent of 15 percent of the taxpayer’s earned income in excess of $8,500. The bill would reduce this floor for 2009 and 2010 to $3,000. This proposal is estimated to cost $14.830 billion over 10 years.