November 30, 2009 Relief Regarding Waiver of 2009 RMDs

On December 23, 2008, Congress enacted the Worker, Retiree, and Employer Recovery Act that included a provision suspending the application of the required minimum distribution (RMD) rules for 2009.  These rules state that the normal 2009 RMD is not required for 2009 for defined contribution plans and IRAs.  This includes lifetime distributions for those age 70 1/2 or older and also distributions to heirs of inherited accounts.  The suspension did not apply to those who turned age 70 1/2 in 2008 and who chose to defer the first RMD to 2009 (not later than April 1).  Some taxpayers were unaware of this new law and received distributions in 2009 that were intended to comply with the RMD.  The IRS has just issued Notice 2009-82  granting an extension of time until November 30, 2009 to rollover the unnecessary 2009 distribution that was received to comply with the 2009 RMD.  Certain requirements of the notice must be met.

First Time Homebuyer Tax Credit Ends November 30, 2009

The First Time Homebuyer Tax Credit was substantially revised in 2009.  Unlike the 2008 credit which must be repaid over 15 years, the 2009 credit does not have to be repaid.  Further, the maximum credit was increased from $7,500 to $8,000.  However, the credit expires on November 30, 2009.  Time is therefore of the essence as the purchase closing must be on or before that date.  For a newly constructed home, the purchase date is considered to be the move-in date.  A first-time homebuyer is defined to be someone who has not owned a principal residence in the USA during the three-year period ending on the date of purchase of the home qualifying for the credit.  If you are married, both spouses must pass the three-year test.  The amount of the credit is phased out for modified adjusted gross income of unmarried individuals between $75,000 and $95,000; and of married joint tax return filers between $150,000 and $170,000.  An election is available to claim the 2009 credit on the 2008 tax return.  Therefore, you have the option of choosing between 2008 or 2009 which can provide important flexibility as to the timing of receipt of the credit and as to qualifying for the credit if modified adjusted gross income is too high in one year or the other.  The credit must be repaid if the residence is sold or is no longer used as the principal residence during the 36-month period from the date of purchase (or the 15-year period for the 2008 credit).

UPDATE:  The Worker, Homeownership, and Business Assistance Act of 2009, signed into law on November 6, 2009, generally extends the credit until April 30, 2010.  The credit has also been made available to more people and certain anti-fraud provisions have been implemented.

Residential Energy Credits

The nonbusiness or residential energy property credit that expired in 2007 has been reinstated for 2009 and 2010. You may be able to claim an income tax credit of 30% of the cost of certain energy-efficient property or improvements you place in service in 2009 or 2010. The total cumulative amount of credit you can claim over the two years is limited to $1,500. Qualifying property that meet certain prescribed energy standards can include high-efficiency heat pumps, air conditioners, water heaters, energy-efficient windows, doors, insulation materials, and certain roofs. Under current law, this credit is allowed against the alternative minimum tax (AMT) for 2009 but not for 2010. Congress may later enact a “patch” that could permit the credit to reduce AMT in 2010, but this is uncertain. In addition to the Federal tax credit, many states and electric and natural gas utilities grant credits for energy efficiency improvements.  Now would be a good time to make these kinds of improvements in order to save tax and to reduce looming energy costs for winter.

Delinquent Foreign Bank Account Reporting (FBAR) Special Deadline Fast Approaching

Every U.S. citizen or resident, including all forms of organizations, having a financial interest in, or signature or other authority over a financial account in a foreign country must make an annual report to the U.S. Treasury Department.  The report is made for each calendar year using form TD F 90-22.1.  The report must be received (not postmarked) by June 30th of the next year.  No extension of time to file the report is permitted.  The report is a separate filing and is not included with your income tax return, although certain questions in your income tax return about foreign bank accounts must be answered.  No report is required if the aggregate value of all foreign accounts do not exceed $10,000 at any time during the calendar year.  The requirements regarding the need to file this report are complex and extensive, including for example, persons and organizations that own more than 50% of an entity (domestic or foreign) having foreign accounts.  Very significant financial penalties exist for late or non-filing.

The Treasury Department and the IRS have made a big push to improve taxpayer compliance.  A new "Voluntary Compliance Program" gives certain qualifying taxpayers until September 23, 2009 to file the FBAR for 2008 (which normally would have been due June 30, 2009) and avoid penalty.  See the IRS website for more details:  http://www.irs.gov/newsroom/article/0,,id=210174,00.html

UPDATE:  The IRS announced on September 21, 2009 a one-time extension of the September 23, 2009 due date until October 15, 2009.