First-time Homebuyer Credit

The credit of up to 10.% of the purchase price (up to a maximum of $8,000) is free cash to use for home improvements, moving costs, etc. It does not have to be paid back and is even refundable (a check is issued by the government if the tax owed is less than $8,000).

Ideally, this credit is suited for those who haven't owned a home before and whose income falls below the $75,000 threshold ($150,000 for married couples).

While the home cannot be purchased from a close relative to qualify, parents or other close relatives can assist in the financing in order to help their kids puchase a home and get the credit.

All home purchases must be complete by 12/31/09.

Sales Tax Deduction for New Car Purchases

Taxpayers are allowed to deduct the sales tax paid (up to the sales tax paid on $49,500 purchase price) on new vehicles purchased between February 16, 2009 and January 1, 2010. Qualified motor vehicles include new cars, light trucks, motor homes and motorcycles.

The deduction is allowed whether a taxpayer itemizes or takes the standard deduction. In the latter case, the sales tax is added to the standard deduction.

This credit starts to phase out at a modified adjusted gross income of $125,000 for single taxpayers and $250,000 for married couples filing jointly.

American Opportunity Credit

For those of you with college-bound children, this credit expands the Hope credit for 2009 and 2010. The new credit is 100% of the first $2,000 plus 25% of the next $2,000 spent each year on tuition, fees and materials, for a maximum credit of $2,500.

Unlike the Hope credit, which applied to the first two years of college, the new credit applies to all four years.

The credit starts to phase out at modifiied adjust gross income levels of $80,000 for single filers and $160,000 for joint filers.

The credit cannot be claimed for expenses paid using funds from tax-deferred plans, such as 529 plans. On a related note, 529 funds can now be used for computers and related technology.