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DC Hightlights

First-Time Homebuyer Credit The First-Time Homebuyer Credit has been extended through April 30, 2010. The credit now applies to higher-income earners as well as current homeowners who meet certain requirements. For homes purchased after November 6, 2009, the credit begins to phase-out for individuals with modified adjusted gross income in excess of $225,000 for married filing joint taxpayers and $125,000 for single taxpayers. Taxpayers who have owned a home for five consecutive years out of the last eight can qualify for a tax credit of up to $6,500 if they purchase a new principal residence. The following restrictions apply: homes costing over $800,000 do not qualify, homes purchased from relatives (including in-laws) do not qualify and dependents and taxpayers under the age of 18 cannot claim the credit.


Mortgage Interest The IRS has issued a memorandum allowing a taxpayer to deduct interest on the first $1.1 million of his mortgage. Generally, a taxpayer can deduct interest paid on two types of debt secured by his residence: acquisition indebtedness and home equity indebtedness. Acquisition indebtedness cannot exceed $1 million and home equity indebtedness cannot exceed $100,000. This recent memo adopts a new interpretation stating that a taxpayer with a mortgage larger than $1 million can treat the first $100,000 in excess of the $1 million as home equity indebtedness because it is other debt secured by the home.


NOL Carryback Businesses of all sizes can now elect to carry back their 2008 or 2009 net operating loss (NOL) three, four, or five years. Qualified small businesses with average gross receipts of $15 million or less that elected the extended carryback in 2008 can also make the election for 2009. An NOL carried back five years may offset no more than 50 percent of the taxpayer's taxable income in that fifth preceding year. The remaining balance of the NOL can be carried forward to the fourth and third preceding year, and so on until the loss is utilized or expired. The 90 percent limitation on the use of an NOL for purposes of alternative minimum tax is suspended for any applicable NOL where the extended carryback period is used. This election must be made by the extended due date for filing the return for the taxpayer's last tax year beginning in 2009. Once made, the election cannot be revoked.


Standard Mileage Rate Starting January 1, 2010, the standard mileage rate for owned or leased autos will decrease. The rate will be 50 cents per mile for business travel and 16.5 cents per mile for travel for medical or moving purposes. The standard mileage rate will remain at 14 cents per mile for service to charitable organizations.


Federal Employment Tax Audits Starting in February 2010, the IRS National Research Program will begin a study on employment taxes. For each of the next three years, the IRS will randomly select 2,000 taxpayers for comprehensive employment tax examinations. Records pertaining to employment tax returns and issues will be subject to review. The goals of this study are to secure statistically valid information for computing the employment tax gap, and to determine compliance characteristics so the IRS can focus on the most noncompliant employment tax areas. The IRS is expected to focus on worker classification, fringe benefits, non-filers and officers' compensation.


Foreign Account Tax Compliance The Foreign Account Tax Compliance Act of 2009 was recently introduced to Congress. This bill is intended to curb offshore tax abuse and will force foreign financial institutions, foreign trusts and foreign corporations to provide information about their U.S. account-holders, grantors and owners, respectively. The bill is expected to generate over $8 billion in revenues for the Treasury and includes five major segments: increased disclosure of beneficial owners, underreporting of foreign assets, other disclosure provisions, foreign trust provisions and dividend equivalent payments received by foreign persons treated as dividends.

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