There were few changes in the federal income tax code last year, but there are still quirks particular to 2011 that taxpayers should consider as they prepare returns.
Perhaps the most important: Taxpayers get a two-day extension this year. Since April 15 falls on a Sunday, and Washington, D.C., observes a local holiday the next day, the deadline for submitting federal returns is April 17.
But other factors - from last year’s wild weather to changes in retirement saving rules - could also affect this year’s returns. Here are some things to keep in mind:
Federally declared disasters. The snow, tropical storms, and tornadoes that hit Massachusetts in 2011 may have tax implications for some residents, said Maureen Donahue, tax adviser for H&R Block in Braintree.
Last year, the Federal Emergency Management Agency made five disaster declarations in Massachusetts - a record for the state. Each declaration covered specific affected counties.
The tax code allows property owners who suffered any significant damages from the storms to claim a deduction for the loss, regardless of whether they are located in one of the declared disaster areas. Those in the designated counties have the option of filing an amended return for 2010, likely speeding the delivery of any refund, Donahue said.
First-time home buyer credit. For some filers, the first-time home buyer tax credit offered from 2008 to 2010 may affect this year’s return. The initial version, created by Congress in 2008, applied to houses purchased between April 8 and Dec. 31 of that year and offered buyers a maximum credit of $7,500, with the requirement that the money be repaid over the course of 15 years. The second installment of that repayment - $500 for those who claimed the maximum credit - is due in this year’s tax bill.
The 2009 stimulus bill changed the program, giving home buyers a credit of up to $8,000 and eliminating the 15-year repayment requirement. However, buyers who received the credit in either version of the program, but sold the house they purchased or stopped using it as their primary residence in 2011, may have to repay the entire credit this year.
Some home buyers may still be eligible to use the credit. Members of the military, Foreign Service, or intelligence communities deployed abroad during the original window for the credit can claim the benefit for houses put under agreement before the end of April 2011.
Roth IRA conversions. In 2010, a change in the law allowed retirement savers of any income level to convert their standard individual retirement accounts into Roth IRAs.
Money saved in traditional IRAs is not taxed until it is withdrawn during retirement. Roth IRA contributions are made after taxes, but withdrawals, including investment gains, are tax-free. When an account is converted from a traditional IRA to a Roth, the money is subject to income taxes.
The new law allowed the income from 2010 conversions - and thus the tax owed on it - to be split between the 2011 and 2012 tax years. Those who converted to Roths in 2010 must include half the IRA income on their 2011 return.
Retirement savers who made the switch last year, however, must pay taxes on all of that income on their 2011 return.
Capital gains and losses. For those planning to claim capital gains or losses on 2011 returns, the tax rates haven’t changed, but the paperwork has become more complex, said Peggy Riley, New England spokeswoman for the Internal Revenue Service. The newly implemented Form 8949 requires filers to report more details about assets they have sold, including acquisition and sale dates, sales price, and cost basis, which is generally the initial purchase price of the asset.
Brokers should send their clients 1099-B forms, which will include all of the required information. Scott Kaplowitch, a partner at accounting firm Edelstein & Co. in Boston, said taxpayers should record and track all asset sales in an Excel spreadsheet to keep the information organized.
Home energy credits. Credits are still available to homeowners who improve their house’s energy efficiency, but the benefit is narrower than in previous years, said H&R Block’s Donahue. The energy-efficiency standards have been tightened, according to the IRS. For example, windows and doors must for the first time meet Energy Star program requirements to be eligible.
The credit has also decreased. For 2011, homeowners can generally claim a credit worth 10 percent of the cost of certain energy-saving improvements, such as adding insulation or energy-efficient exterior windows and doors. The maximum credit for 2011 is $500. For the previous two years, the credit was equal to 30 percent of expense, up to a combined total of $1,500.
Since any home energy credit claimed in 2006, 2007, 2009, or 2010 must first be subtracted, only homeowners who did their first energy-saving renovations in 2011 are likely to receive any benefit.
Regular reminders. Some considerations, though not unique to 2011, are worth a mention.
Jobless rates were still high last year, so it is important to remember that unemployment payments are taxable. Anyone who collected unemployment, but didn’t request that taxes be withheld will owe tax on that income. At the same time, the unemployed can deduct some job hunting expenses, such as resume preparation or travel for interviews, Donahue said.
Taxpayers should also keep in mind the Alternative Minimum Tax, a mechanism put in place to ensure that higher-income households still pay a minimum sum, even if they have deductions and credits that would otherwise lower their tax bill.
For 2011, a married couple may have to pay the AMT if they had a taxable income greater than $74,450; a single filer with a taxable income greater than $48,450 might incur the tax.
Wondering if you might be hit by the AMT? Use the AMT Assistant on the IRS website, www.irs.gov, to quickly determine your status.