Before we start with 2009 changes, here's something to consider for 2010.

The income limitations to convert a traditional IRA to a Roth IRA have been eliminated effective January 1, 2010 (prior law prohibited conversions if adjusted income was greater than $100,000).  An individual can establish a Roth IRA and make a conversion even if he/she is not eligible to make regular Roth contributions because of income limitations.   There are many issues to factor in before making a decision, and your individual tax situation and investment strategy should be carefully considered before making a conversion.   

And now for 2009.  There are numerous changes in this "tax simplification" plan.  Here are a few that will affect many of you.

Education Credits for post-secondary education have been redesigned, with a total of four credits available.  For 2009 and 2010 only, a new American Opportunity Credit is available for the first four years of post-secondary education in degree or certificate programs. What is totally different is that course materials have been added to the definition of qualifying expenses.  So unlike the other credits which allow one to include the cost of tuition only, the cost of books and supplies as well as tuition can be included in the total cost when calculating this credit.  Please separate the cost of tuition from books and supplies to aid in the calculation of which credit is best.  Expenses for room and board are still not included in any of the credits. Also available are the Lifetime Learning Credit and Tuition and Fees Deduction, with the Hope Credit now available only in Midwestern Disaster Areas.

The first $2400 of unemployment benefits are exempt from federal taxation.  

The First-Time Homebuyer Credit has received a lot of press so the provisions are probably well known to many.  It is a credit of 10% of the purchase price of a home, up to a maximum credit of $8000, for a  first-time homebuyer.   A first-time homebuyer is anyone who has not owned a home in the last three years.  The credit does not have to be repaid if the homebuyer uses the home as his/her principle residence for 36 months or longer, beginning on the date of  purchase.  For something so seemingly simple, there are several provisions to be aware of.  They include the prohibition of purchasing the home from a related party, how to allocate the credit between unmarried taxpayers, and amount of credit to be repaid if the home is sold prior to the end of the 36 month period.  When this credit was extended in November, 2009, the income limitations were also expanded so more taxpayers will qualify.  A copy of the closing statement must be attached to the tax return claiming the credit for any homes purchased after November 6, 2009.  This credit has been extended to homes purchased by April 30, 2010.

The credit is also expanded for those who are not First-Time Homebuyers.  If you occupied the same principle residence for five consecutive years of the last eight years, you may qualify for a $6500 credit on the purchase of a new home purchased after November 6, 2009, and before May 1, 2010.  The full credit is available for qualifying taxpayers with modified adjusted income less than $125,000 on a single return or $225,000 on a joint return.

State and local sales tax paid on a NEW vehicle purchased between February 17 and December 31,2009,  is eligible to be added to the standard deduction amount.  Please note this credit does not apply to used car purchases or leased vehicles.

The residential energy credits from prior years are back, although in an expanded form.  There are two different credits, with different rules.  For the nonbusiness energy property credit, improvements include insulation material, exterior windows and doors, garage doors, and certain metal or asphalt roofs.  The allowable percentage is 30% of the amount paid for improvements, but does not include the cost of installation.  The cumulative credit of $1500 for 2009 and 2010 replaces the previous $500 lifetime credit. The residential energy efficient property credit is for solar hot water heaters, geothermal heat pumps and electric wind turbines.  Both credits apply to improvements to your principle residence only--no vacation property or rental properties.  More details can be found at www.energystar.gov.  Also, be sure to get the manufacturer's certification letter to include in your records which proves the improvements made qualify for the credit.  It can be obtained from the company you purchased the materials from, with many companies including the certificate on their company website.

Tax law provision extenders.  These are items set to expire December 31 but Congress has routinely extended on a one-year basis.  They are now scheduled to expire for tax years after 2009.

The sales tax deduction for taxpayers who itemize has been extended another year.  If you itemize your deductions you can choose to either claim the state and local sales tax paid or the amount of state income tax paid, whichever is most beneficial.  This applies to the purchase of new AND used vehicles and recreational vehicles as well as a standard amount based on income and number of family members.

Non-itemizers can add real estate taxes paid on their residence to their standard deduction amount.  This is limited to $500 for single and $1000 for married filing jointly.

For educators, the educator expense deduction has been extended also.  Unreimbursed expenses for books, supplies and supplementary materials used in the classroom can be deducted "above the line" .

Mortgage insurance premiums paid on mortgages taken out or refinanced in 2007 or later may be deductible.  Only mortgage insurance contracts taken out in 2007-2010 will qualify for this deduction.

To deduct any charitable donation of money, taxpayers must have a bank record or a written confirmation from the charitable organization showing the name of the organization, the date of the donation and the amount.  Written documentation is also required for any property donated.

Kansas Individual Tax

Homestead income limitations have been increased to $31,300.  The legislature has also clarified that persons receiving social security disability payments prior to attaining full retirement age will be able to exclude all social security payments received after reaching age 65 from household income for purposes of the Homestead return only.

Seniors and low income families with dependent children should also consider filing a Kansas tax return to claim the food sales tax refund even if they have no Kansas taxable income.  Income limits for this refund are $31,900.  To qualify you must be age 55 or older the entire year, have a dependent child living with you or be disabled

Social security benefits received and included in federal adjusted gross income may be excluded from Kansas taxable income if the taxpayer's federal adjusted gross income is less than $75,000.  This dollar amount remains the same for single or married filing jointly.

For taxpayers purchasing long term care insurance, a deduction not exceeding $900 per contract may be subtracted from Kansas taxable income.  

Contributions to the Learning Quest Education Savings Plan as well as any state's qualified 529 Plan are deductible from Kansas adjusted gross income up to $3000 per student or $6000 per student if married filing jointly.  The contributions do not have to be made for your dependent, so grandparents making contributions can claim the credit also.

KPERS lump sum retirement benefits rolled over to an IRA now retain their exemption from Kansas income tax upon distribution.

Last revised January 7, 2010