IRS Revises Inflation Adjustment Amounts

On Friday, the IRS issued Rev. Proc. 2009-21, which modifies the inflation-adjusted amounts to be used for certain tax credits in 2008 and 2009. The modified numbers reflect recent statutory changes by the Tax Extenders and Alternative Minimum Tax Relief Act of 2008, PL 110-343 (Tax Extenders Act), and the American Recovery and Reinvestment Act of 2009, PL 111-5 (ARRA).

Child tax credit: The Tax Extenders Act temporarily increased the refundable portion of the child tax credit for tax years beginning in 2008: $8,500 is the amount to be used for determining the refundable amount of the credit, instead of the previously issued inflation-adjusted amount. For tax years beginning in 2009 and 2010, the amount is $3,000, instead of the inflation-adjusted amount.

American opportunity tax credit: The maximum Hope scholarship credit allowable for tax years beginning in 2009 is $2,500. For tax years beginning in 2009, a taxpayer’s modified adjusted gross income in excess of $80,000 ($160,000 for a joint return) is used to determine the reduction in the amount of the Hope scholarship credit otherwise allowable under IRC § 25A(a)(1). For tax years beginning in 2009, a taxpayer’s modified adjusted gross income in excess of $50,000 ($100,000 for a joint return) is used to determine the reduction in the amount of the lifetime learning credit otherwise allowable under section 25A(a)(2).

Earned income credit: The table below shows the threshold phaseout amounts and the completed phaseout amounts. The threshold phaseout amount is the amount of adjusted gross income (or, if greater, earned income) above which the maximum amount of the credit begins to phase out. The completed phaseout amount is the amount of adjusted gross income (or, if greater, earned income) at or above which no credit is allowed. The amounts in the table for married taxpayers filing a joint return include the $5,000 increase provided in section 32(b)(3)(B)(i).

                                                  Number of Qualifying Children

*(single, surviving spouse, or head of household)

**(married filing jointly) 

Qualified transportation fringe: For tax years beginning in 2009, in months beginning after Feb. 17, 2009, the monthly limitation on the aggregate fringe benefit exclusion amount for transportation in a commuter highway vehicle and any transit pass increases to $230. For January and February 2009, the monthly limitation is $120.

Section 179 expensing: For tax years beginning in 2009, the aggregate cost of any section 179 property a taxpayer may elect to treat as an expense cannot exceed $250,000. The $250,000 limitation is reduced (but not below zero) by the amount by which the cost of section 179 property placed in service during the 2009 tax year exceeds $800,000.