TaxACT has compiled a list of top tax law changes for 2011 federal returns due April 17, 2012. TaxACT 2011 will guide you through all the tax law changes for your biggest guaranteed refund.
Children & Dependents
Adoption Credit
Child Tax Credit
Expanded Earned Income Credit
Expanded Child and Dependent Care Credit
Overview
- Worth a maximum of $13,360 for 2011 returns and up to $12,650 for 2012
- Fully refundable as long as the credit is claimed on your 2011 tax return
- In addition to Form 8839, Qualified Adoption Expenses, one or more adoption-related documents must be mailed with 2011 returns. It takes 6-8 weeks for mailed returns to be processed, so the IRS encourages choosing direct deposit to speed refunds.
Overview
- Worth up to $1,000 per eligible child and remains fully refundable for taxpayers with an earned income of over $3,000 for 2011 and 2012
Overview
- 45% of the first $12,570 of earned income for families with 3 or more qualifying children through 2012, up to $5,657
- Phased out at $48,279 modified adjusted gross income if married filing jointly with 3 or more qualifying children
Overview
- Worth between 20% and 35% of qualifying child care expenses for 2011 and 2012 for children under the age of 13 (if parents work or attend school)
- Maximum amount of qualifying expenses is $3,000 per qualifying dependent or $6,000 for 2 or more qualifying dependents
- Credit amount is reduced by 1% for each $2,000 of adjusted gross income of $15,000, but not below 20%
Higher Education
American Opportunity Tax Credit (modified HOPE Credit)
Tuition and Fees Deduction
Expanded Student Loan Interest Deduction
Expanded Coverdell Education Savings Accounts
Overview
- Maximum credit of $2,500 per student in 2011 and 2012 (covers 100% of the first $2,000 and 25% of the next $2,000) for tuition, fees and course materials (books) for the first 4 years of post-secondary education in a degree or certificate program
- 40% of the credit is refundable unless student is subject to kiddie tax rules
- Phased out at modified adjusted gross income $80,000 - $90,000 ($160,000 - $180,000 if married filing jointly)
Overview
- Eligible taxpayer, spouse or dependent enrolled in an eligible postsecondary institution may deduct up to $4,000 paid for tuition and fees in 2011
- Above-the-line deduction, meaning it can be can be claimed by those taking the standard deduction or itemizing
Overview
- Annual limit of $2,500 in undergraduate and graduate student loan interest can be deducted on 2011 and 2012 returns
- Phases out at $40,000 to $55,000 ($110,000 to $140,000 for joint returns)
- Student must have been at least half-time enrolled in a degree program
- Applies to interest paid on loans for tuition, required enrollment fees, books, supplies, equipment, room & board, transportation and other necessary expenses
- Above-the-line deduction
Overview
- Annual contribution limit of $2,000 (vs. $500) was extended for 2011 and 2012
- Also allows tax-exempt distributions for qualified elementary and secondary education expenses
Homeowners
Nonbusiness Energy Property Credit
Residential Energy Efficient Property Credit
Deduction for Mortgage Insurance Premiums
Reminder: Repayment of 2008 First-time Homebuyer Credit
Overview
- Individual homeowners can claim 10% for property improvements made during 2011, up to $500 (decreased from the collective 2009 and 2010 amount of $1,500)
- Credits claimed on 2009 and 2010 returns count against the $500
- Qualifying property must meet higher efficiency standards and include some insulation; exterior windows, skylights and doors; electric heat pumps; central air conditioners; natural gas, propane or oil water heaters; biomass stoves; furnaces and boilers
- There are caps on some items (e.g. $150 for furnaces and water boilers, $200 for windows, $300 for water heaters, air conditioners, and biomass stoves)
Overview
- Credit of 30% for expenditures related to larger residential energy improvements (solar hot water property, geothermal heat pumps and wind energy property) placed in service before Dec. 31, 2016
- Limit on credit amount removed for solar electric property
- Credit caps are also eliminated for qualified solar water heating, geothermal pumps, and small energy property; $500 cap for each half kilowatt of capacity of the qualified fuel cell property
Overview
- Mortgage insurance premiums paid on a qualified mortgage can be deducted as mortgage interest for 2011, subject to the taxpayer's adjusted gross income.
Steps to take now
- Review your federal withholding using the IRS withholding calculator. To adjust your withholding, submit Form W-4 to your employer.
- If you used TaxACT to file your 2011 return (due April 17, 2012), sign in and click on the "Next Year" tab to adjust your estimated payments.
Overview
- If you claimed the First-Time Homebuyer credit for a home purchased in 2008, you should have started repayment on your 2010 return (that was due April 18, 2011). Repayment will continue on your 2011 return and beyond until the credit is repaid.
- The 2008 credit is like a 15-year interest-free loan, with the amount repaid in 15 equal annual payments as additional tax on your federal return. You have the option of paying more than the annual amount due on Form 5405.
- Review your federal withholding and/or make quarterly estimated tax payments to make up for the repayment amounts
- Exceptions to the repayment rule can be found here.
For more information, visit the following IRS web pages: Homes purchased in 2008 and Tax Topic 611 
Vehicles
Green Vehicles
Plug-in Electric Drive Vehicle Credit
- Credit ranging from $2,500 to $7,500 for qualified plug-in electric drive vehicles purchased after Dec. 31, 2009
- Credit phases out when manufacturers sell at least 200,000 vehicles
- Vehicle's battery capacity must be at least 4 kilowatt hours – credit amount increases for each kilowatt hour above 5
Plug-In Electric Vehicle Credit (low speed or 2- or 3-wheeled vehicles)
- 10% of the cost of a qualified plug-in electric vehicle placed in service during the taxable year, up to $2,500
- Vehicle must have a battery capacity of at least 4 hours (or 2.5 kilowatt hours if a 2- or 3-wheeled vehicle)
- Credit applies to purchases made after Feb. 17, 2009 and before Jan. 1, 2012
Alternative Motor Vehicle Credit Plug-in Conversion
- 10% of the cost of converting, up to $4,000
- Must be placed in service after Feb. 17, 2009 and before Jan. 1, 2012
- May claim even if the vehicle qualified for a previous hybrid credit
Miscellaneous
Payroll Tax Holiday
Standard Deduction Amounts for 2011
Income Phaseouts for Itemized Deductions & Personal Exemptions
State & Local General Sales Tax Deduction
Standard Mileage Rates for 2011
Educator Expense Deduction
Alternative Minimum Tax (AMT) patch
Exclusion for Employer-Provided Educational Assistance
Estate Tax
Lower Capital Gains and Dividend Tax Rates
Steps to take now
- Review your federal withholding using the IRS withholding calculator. To adjust your withholding, submit Form W-4 to your employer.
- Self-employed workers should consider changing estimated tax payments, but be leery of quarterly underpayment. If you used TaxACT to file your 2011 return (due April 17, 2012), sign in and click on the "Next Year" tab to adjust your estimated payments.
Overview
- For 2011 only, the employee and self-employed portion of the FICA-OASDI Social Security taxes are decreased by 2%, so that the tax rate is 4.2% for employees and 10.4% for self-employed.
- Due to the earned income limit of $106,800, the maximum amount a worker can receive by the end of 2011 is $2,136.
- This essentially replaces the Making Work Pay Credit that expired at the end of 2010.
- The Temporary Payroll Tax Cut Continuation Act of 2011 temporarily extended the reduced payroll tax rate for wages paid Jan. 1, 2012 through Feb. 29, 2012; higher-income employees who earn more than $18,350 in wages during the 2-month timeframe will be taxed an additional 2% of wages in excess of $18,350 (and not greater than $110,100).
Overview
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Single $5,800
- If 65 or older, $7,250
-
Married $11,600
- If 65 or older, $12,750; if both spouses 65 or older, $13,900
-
Head of Household $8,500
- If 65 or older, $9,950
- Blind receive $1,150 more ($1,450 if unmarried and no surviving spouse)
Overview
- The Tax Relief Act of 2010 extended the absence of income phaseouts for itemized deductions and personal exemptions for 2011 and 2012.
- Personal exemptions are $3,700 for each person claimed on 2011 returns.
Overview
- For 2011, taxpayers who itemize can deduct state and local sales tax paid in lieu of state and local income taxes paid.
Overview
The following apply to cars, vans, pickups and panel trucks:
| Purpose | Rates 1/1 through 6/30/11 | Rates 7/1 through 12/31/11 |
|---|---|---|
| Charitable | 14 cents | 14 cents |
| Business | 51 cents | 55.5 cents |
| Medical/Moving | 19 cents | 23.5 cents |
Overview
- Elementary and secondary educators can deduct up to $250 for classroom supplies purchased out of pocket in 2011.
- Above-the-line deduction, meaning it can be claimed by those taking the standard deduction or itemizing
- Qualified expenses include books, supplies, computer equipment, other equipment and supplementary materials that are used in the classroom.
Overview
- Amounts were extended and increased by the Tax Relief Act of 2010 (meaning fewer taxpayers have to pay the AMT)
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Exemption amounts for 2011:
- Single and head of household $48,450
- Married filing jointly and qualifying widow(er) $74,450
- Married filing separately $37,225
Overview
- Up to $5,250 in employer-provided graduate education costs can be excluded from gross income for 2011 and 2012 (previously only applicable to undergraduate education).
- Note: You cannot use tax-free education expenses paid by your employer as the basis for any other deduction or credit.
Overview
- The 2010 rate reductions for long-term capital gains remain in effect for 2011 and 2012.
