After much skirmishing in Congress, the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 has emerged a winner.
Most attention has been on the bill's provision that will keep the current six income tax rates that start at 10 percent and top out at 35 percent in place for two more years. If Congress had not acted, all taxpayers would pay higher taxes in 2011.
But that year is still more than a week away. There are still tax moves to make by Dec. 31 that could lower this year's tax bill, and some of them are part of the new tax bill. These are tax provisions that expired on Dec. 31, 2009, but which now are retroactively in effect for the 2010 tax year.
Here are answers to some questions about what the new tax bill means to those tax breaks.
Am I going to have to pay the alternative minimum tax?
Chances are that fewer taxpayers will face the alternative minimum tax, or AMT, when they file their 2010 tax returns. The tax bill includes a patch that increases the income level at which this costly parallel tax kicks in.
Can I deduct my state sales taxes?
Yes. If you live in a state that doesn't have a state income tax, you still can claim your state and local sales tax amounts as a deduction instead. Even if your state does assess an income tax, if the rate is low and your sales tax level is high, this deduction might be preferable. Remember, you have to itemize to claim this deduction.
Is the tuition and fees tax break still available?
This is one of the above-the-line deductions. You don't have to itemize to claim this tax break, which could be as much as $4,000. You take the deduction directly on your Form 1040 or Form 1040A.
I have a student loan. Can I still deduct the interest on the loan?
Yes. The tax bill continues the $2,500 annual interest deduction on qualified student loans. Older loans, interest paid beyond the first 60 months of the loan, also are still OK and the income levels at which this tax break is reduced will remain at the higher levels, adjusted for inflation, set by the previous and now-extended tax law. This, too, is done directly on 1040 and 1040A tax returns.
I'm a teacher. Will I still be able to deduct some of my expenses?
Educators are OK under the new tax bill. The ability to deduct some out-of-pocket expenses for classroom supplies will remain as an above-the-line deduction.
Are private mortgage insurance payments still deductible?
Private mortgage insurance, or PMI, generally is required if a homebuyer can't make at least a 20 percent down payment on a residence. Since 2006, some PMI payers have been able to deduct their policy premiums as itemized expenses on Schedule A. That option will remain in effect for a while, thanks to the just-passed tax bill. The existing limits (those that say if you make more than $110,000 you can't claim this deduction, and if you make between $100,000 and $110,000 the deduction is reduced) will stay on the tax books, too.
Other Deductions...Read More