Taxes: What's New for 2011, Part 2

The following is an excerpt from J.K. Lasser's Your Income Tax 2012: For Preparing Your 2011 Tax Return. It is reprinted with permission of John Wiley & Sons, Inc.

Here's a summary of what's new in the 2011 tax year (and the section of the book where the information is listed in detail). For previous items listed, see part 1:

• First-time homebuyer credit. -- For 2011, the credit for a home purchase by a first-time homebuyer or long-time resident is allowed only to members of the U.S. uniformed services or Foreign Service, or employees of the intelligence community who bought their home before May 1, 2011 (beofre July 1, 2011 if in contract before May 1, 2011) and who were on qualified official extended duty outside the United States for at least 90 days between January 1, 2009 and April 30, 2010 (25.23). Credits from 2008 must be repaid under the 15-year schedule that began in 2010. Unless an exception applies, credits from 2008–2010 have to be repaid in full on a 2011 return if the home for which the credit was claimed was sold in 2011 or the home was no longer used as a residence (25.23).


• IRA and Roth IRA contribution phaseout. -- For 2011, the contribution limit for traditional IRAs (8.2) and Roth IRAs (8.20) remains $5,000, or $6,000 for those age 50 or older. The deduction limit for 2011 contributions to a traditional IRA is phased out (8.4) for active plan participants with modified AGI (MAGI) of over $56,000 and under $66,000 for a single person or head of household, or over $90,000 and under $110,000 for married persons filing jointly. The phaseout range is MAGI over $169,000 and under $179,000 for a spouse who is not an active plan participant and files jointly with a spouse who is an active plan participant. The 2011 Roth IRA contribution limit is phased out (8.20) for a single person or head of household with MAGI over $107,000 and under $122,000, and for married persons filing jointly with MAGI over $169,000 and under $179,000.


• Reporting 50% of 2010 conversion to Roth IRA -- If you converted a traditional IRA to a Roth IRA in 2010, and you chose on the 2010 Form 8606 to use the special two-year deferral rule for 2010 conversions (rather than reporting the entire taxable conversion amount as 2010 income) you must report half of the 2010 conversion income as a taxable IRA distribution for 2011. The other half will be reported as a 2012 distribution (8.21).


• Eligibility for saver’s credit. -- The adjusted gross income brackets for the 10%, 20%, and 50% credits are increased for 2011. The AGI limit for claiming a 2011 saver’s credit is $28,250 for single taxpayers,  $42,375 for heads of households, and $56,500 for married persons filing jointly (25.16).


• Two-year limit for claiming equitable innocent spouse relief eliminated. -- In response to opposition from Congress and the National Taxpayer Advocate, the IRS withdrew its requirement that a request for equitable relief be made within two years of the first IRS collection activity (1.9). 


• Late election to aggregate real estate activities. -- The IRS will allow qualifying real estate professionals to make a late election to aggregate rental real estate activities on an amended return if there was reasonable cause for not making the election on the original return and other conditions are met (10.3).


• Partial exchange of commercial annuity. -- New IRS tests apply for determining whether a partial transfer of a commercial annuity on or after October 24, 2011 is a tax-free exchange (6.12).


• Restriction on health FSA reimbursement of over-the-counter medications. -- Starting in 2011, a health flexible spending arrangement cannot make a tax-free reimbursement of an over-the-counter medication other than insulin unless a physician has provided a prescription for it (3.16).


• Higher deduction limits for long-term care premiums. -- The maximum amount of age-based long-term care premiums that can be included as deductible medical expenses for 2011 (subject to the 7.5% of AGI floor) is $340 if you are age 40 or younger at the end of 2011; $640 for those age 41 through 50; $1,270 for those age 51 through 60; $3,390 for those age 61 through 70; and $4,240 for those over age 70 (17.15).


• Hybrid vehicle credit no longer available. -- The credit for hybrid,  advanced lean burn technology, and alternative fuel vehicles expired for vehicles purchased after 2010.


• MWP credit not allowed. -- The Making Work Pay credit is not allowed on 2011 returns; it expired at the end of 2010.


• Foreign earned income and housing exclusions. -- The maximum foreign earned income exclusion for 2011 is $92,900 (36.3). The maximum housing exclusion is generally $13,006, but the IRS may increase the exclusion for high cost localities (36.4).


• High-low reimbursement method. -- The IRS announced its intention to discontinue the “high-low” method of reimbursing employees for travel expenses but after opposition from business groups it relented and provided new high-low rates effective October 1, 2011 (20.32).


• Additional child tax credit. -- The child tax credit is refundable for 2011 to the extent of 15% of earned income in excess of $3,000, the same as for 2010 (25.3).


• Annual exclusion for gifts. -- For gift tax purposes, the per-donee exclusion for gifts of present interests in 2011 is $13,000, the same as for 2010 (39.2).


• Advanced earned income credit not allowed. -- 2010 was the last year for which advance payments of the earned income credit could be made (25.13).