What's New in Federal Tax Law

2010 Edition

Expired Provisions Not Being Extended

These provisions expired at the end of 2009. Congress didn't extend them for 2010 because they were part of a one-time economic stimulus initiative:

You can claim the new vehicle sales tax deduction in 2010 for a vehicle you purchased in 2009 and for which you paid sales tax in 2010. This is not common.

In reaching its year-end tax compromise, Congress also chose not to extend these expired provisions for 2010:

Extended Provisions

These provisions expired at the end of 2009, and Congress decided to extend them as part of its year-end tax compromise:

Alternative Minimum Tax (AMT) Exemption and Credits

Congress enacted the AMT 40 years ago to make it harder for high-income taxpayers to eliminate their tax with deductions.

Congress never indexed the AMT exemption for inflation. Congress has revisited the AMT exemption every year and, if necessary, enacted special legislation to keep it at a level high enough to prevent millions of people from paying AMT for the first time.

Congress acted just in time, and the 2010 AMT exemptions and rules for applying credits against AMT are almost identical to 2009's. You might notice an increase in your refund, or a decrease in the amount you owe, if you started your taxes before updating your program in January.

Roth IRAs

New Roth IRA rules include:

Homebuyer Credit for 2010 Home Purchases

You can get a credit of up to 10% of the purchase price of your main home if you purchased it after December 31, 2009 and before October 1, 2010.

If you purchased the home after April 30, 2010, you must have had a binding contract before May 1, 2010, to purchase the home before July 1, 2010.

Unlike the credit for 2008 home purchases, the credit for 2010 home purchases doesn't have to be repaid as long as you continue to use the home as your main home for 36 months.

The IRS won't accept homebuyer credit claims electronically due to fraud concerns. You'll need to print and mail your return.

You'll also need to include documentation of your home purchase with your return. We'll give you all the details when you need them.

Making Work Pay Credit

The Making Work Pay Credit provides up to $400 per worker, but you got it a little bit at a time in your paycheck throughout the year instead of all at once at tax time.

Your Making Work Pay Credit may be less than $400 if:

Basis of Inherited Property

In general, your basis in inherited property is the value of the property on the date of death. This is called the basis step-up.

In 2010, the executor has a choice between being subject to estate taxes and getting the basis step-up, or going estate-tax free and forgoing the basis step-up. This unusual option is due to the estate tax lapsing. Many heirs are better off subject to estate taxes because they'll pay little or no estate tax and can avoid capital gains taxes in the future.

Ask the estate's excecutor about the basis of inherited assets.

Economic Recovery Payment

Economic recovery payments (ERPs) of $250 were sent out automatically in 2010 to a limited number of recipients of these benefits who failed to receive an ERP in 2009:

You don't need to include your ERP in your income, but it will reduce any Making Work Pay Credit you'd otherwise receive.

If you don't know if you received an ERP in 2010, contact the paying agency for more information:

Small Business Jobs Act

Congress passed the Small Business Jobs Act in September 2010. The act contains these business-friendly provisions:

We'll help you take advantage of these new business deductions.

Standard Mileage Rates

The standard mileage rates for driving in 2010 are:

Tax Law Changes Affecting Tax Returns in 2011 and Beyond

Credit Card, Stock Basis, and Rental Expense Reporting

In 2011, rules will change for credit card, stock basis, and rental expense reporting.

New rules include:

Tax Cuts Extended

Many tax cuts were slated to expire at the end of 2010, most of which have been in place since 2001. Congress decided to extend them all for two years, including:

Payroll Tax Cut

To stimulate the economy, Congress included a 2% reduction in the rate at which employees and self-employed people pay Social Security tax in 2011. You'll see an increase in your take-home pay in 2011. If you're self-employed, you can reduce your 2011 estimated tax payments.

Staying Informed

Stay tuned for developments that affect you and your tax bill and check for updates at www.hrblock.com/software/2010/software.