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New or Updated Tax Deductions for 2010

In these uncertain economic times, saving is more important than ever. But all too often, people who are trying to cut expenses end up overpaying on their taxes. In fact, as many as 2 million Americans shell out more money to Uncle Sam than they really owe every year.

The good news is, there are hundreds of deductions in the tax code, and familiarizing yourself with some of the new and updated deductions could have a big impact on your bottom line. Are you overlooking tax breaks that could save you money? Read on to learn more.

  1. Refinancing Deductions: With interest rates continuing to remain low, many homeowners have refinanced their homes. Any points you pay to refinance a mortgage can be deducted on a monthly basis over the life of the new loan. This means that on a 30-year mortgage, you can deduct 1/30th of the points a year. Additionally, you can deduct all of the as-yet-undeducted points at once in the year you pay off the loan. The one exception being, if you refinance a refinanced loan with the same lender, you must add the points paid on the latest loan to the leftovers from the previous refinancing, and then deduct the amount over the life of the new loan.
  2. Continuation of the Incentives for Home Buyers: On June 30, 2010, Congress passed an extension of the Home Buyer Tax Credit closing deadline to September 30, 2010. Under the Extended Home Buyer Tax Credit, as long as a written binding contract to purchase was signed by April 30, 2010, and the purchaser closed by September 30, 2010, he or she still qualifies for the credit. This Extended Credit applies to first-time home buyers who purchased homes between November 7, 2009 and April 30, 2010, and current home owners who purchased a new home between November 7, 2009 and April 30, 2010, who had resided in the home being sold as a principal residence for any five-consecutive-year period during the past eight years. The maximum allowable credit for first-time home buyers is $8,000, and the maximum allowable credit for current homeowners is $6,500, and the credit may only be awarded on homes purchased for $800,000 or less.
  3. Student Higher-Education Expenses: For 2010 through 2012, the Hope credit has been replaced by the American Opportunity Tax Credit, which provides a credit of up to $2,500 per student per year for four years of college, and now covers the cost of books. This credit begins to phase out at $80,000 of Adjusted Gross Income for those filing as a single, and $160,000 for those filing jointly.
  4. Previously Paid State Tax: If you owed money when you filed your 2009 state income tax return last spring, be sure to include the amount you paid on your 2010 state tax return, along with the state income taxes that were withheld from your paychecks or paid through quarterly estimated payments.
  5. Credit for Energy-Saving Home Improvements: You can still claim a tax credit equal to 30% of the cost of specific energy-saving home improvements, up to a maximum of $1,500. This cap, however, applies to both 2009 and 2010 combined, so if you claimed the maximum $1,500 in 2009, you cannot claim any additional costs in 2010. The credit covers qualifying skylights, windows and outside doors, high-efficiency furnaces, water heaters and central air conditioners, as well as biomass fuel stoves.
    The credit given to consumers who install solar water heating equipment, geothermal heat pumps, or small wind turbines in their primary residence or second home is now unlimited in 2010. The credit for fuel cell property, however, cannot exceed $500 per half-kilowatt capacity.
  6. Extended Tax Breaks for Teachers: For most teachers, the job doesn't end when the bell rings. Many U.S. educators, particularly those who work in under-funded schools, routinely pay out-of-pocket for classroom supplies, such as books, pencils, and computer equipment. For this reason, the IRS has extended the educators' deduction that allows teachers to deduct up to $250 in classroom supplies each year through the end of 2011. The deduction can be claimed directly on your 1040 form (so you don't have to itemize), and even if you're not technically a teacher, you may be eligible (teacher's aides, principals, and counselors generally qualify).
  7. Earned Income Tax Credit (EITC): The maximum Earned Income Tax Credit for 2010 rose by $628.50 for families with three or more children. Additionally, more joint filers are now able to claim the credit, since the phase-out of the credit starts at higher income levels as of 2010.
  8. Credits for Out-of-Pocket Charitable Contributions: While receiving tax credits for charitable gifts and donations is nothing new, this year you can also write off out-of-pocket costs incurred while actually doing good deeds. Now you can write off the cost of the ingredients purchased to prepare food for a nonprofit soup kitchen, or the cost of the stamps bought to mail your school's fundraising information. Just be sure to hold onto all of your receipts, and keep in mind that if your contributions total over $250 you will need an acknowledgement from the charity documenting the services provided.
  9. Jury Pay: Many employers that continue to pay employees' full salary while the workers serve on jury duty also require some of these employees to turn over the jury pay they receive to the company. The issue, however, is that the IRS requires that these jury fees be reported as taxable income. To solve this problem, you can deduct the amount of money you paid your employer by including the write-off on line 36 of the Form 1040, and writing "jury pay" on the dotted line to the left.
  10. Making Work Pay Credit: This credit was introduced in 2009 as part of the government's stimulus package. You have most likely been benefitting from it already through reduced payroll tax withholding throughout the year, but in order to lock in your savings you will need to claim the credit on your 2010 tax return. The credit can be claimed by using Schedule M, and is equal to 6.2% of your earned income, capped at $400 or $800. For single filers, it begins to phase out at $75,000 of adjusted gross income and is totally phased out at $95,000. For those filing jointly, it begins to phase out at $150,000 and is completely phased out at $190,000.

Once you've determined which deductions you may be eligible for, be sure to check the latest updates from the Internal Revenue Service. To learn more about what these deductions could mean to your bottom line, read our Tax Deductions Guide, and visit our Income Tax Center for more tips.

In addition, remember that eligibility for all of these tax breaks is dependent upon meeting certain income requirements. Although you may be eligible for some breaks, there's a limit to what you can reasonably deduct. According to experts, attempting to claim excessive deductions could earn you an audit. To protect yourself, be sure to save all your receipts, and if you do get audited, don't panic; check out our Audit Guide for more information on the process.

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    In these uncertain economic times, saving is more important than ever. But all too often, people who are trying to cut expenses end up overpaying on their taxes. In fact, as many as 2 million Americans shell out more money to Uncle Sam than they really owe every year.

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