USAREUR officials: major changes for tax year 2011

by Curtis A. Parker
Wiesbaden Legal Center chief of client services

HEIDELBERG, Germany — There are several changes in the tax laws for income tax year 2011. U.S. Army Europe tax experts have outlined nine of the major changes:

FILING DATE: This year’s filing date is April 17. Taxpayers get extra time because of the Emancipation Day holiday in the District of Columbia — even if you do not live in the district.

Taxpayers requesting an extension will have until Oct. 17 to file their 2011 tax returns. For personnel stationed overseas, the filing date is June 15.
Those recently deployed to a combat zone may have additional time to file and should check at their local tax center for more information.

STANDARD DEDUCTION INCREASES: The standard deduction for taxpayers who choose not to itemize deductions on Schedule A (Form 1040) has increased.
The 2011 standard deduction amounts are:
» $5,800 for unmarried taxpayers or married taxpayers filing separately
» $11,600 for married taxpayers filing
» $8,500 for taxpayers filing as head of household.
» The additional standard deduction allowed for blind taxpayers and taxpayers 65 or older at the end of the tax year will be $1,150 if married filing jointly and $1,450 if single.

EARNED INCOME CREDIT AMOUNT INCREASED: The Earned Income Credit applies to taxpayers who are within a certain income bracket and have at least $1 of earned income during

It is a refundable credit for those who work but do not have high incomes. 

For 2011, earned income and adjusted gross income must be less than:
» $43,998 ($49,078 if married filing jointly) with three or more qualifying children
» $40,964 ($46,044 if married filing jointly) with two qualifying children
» $36,052 ($41,132 if married filing jointly) with one qualifying child
» $13,660 ($18,740 if married filing jointly) with no qualifying children

The maximum credit is:  
» $3,094 with one qualifying child
» $5,112 with two qualifying children
» $5,751 with three or more qualifying children
» $464 with no qualifying children
» Taxpayers whose investment income is more than $3,150 cannot claim the Earned Income Credit.

THE AMERICAN OPPORTUNITY CREDIT: This credit replaces and expands the former Hope scholarship credit that was applicable in tax years 2009 and 2010.
Unlike other education tax credits, the American Opportunity Credit includes expenses for course-related books, supplies and equipment not necessarily paid to the educational institution.

It also differs from the Hope scholarship credit because it allows the credit to be claimed for four years of post-secondary education instead of two.
The credit can be used for up to $2,500 for the cost of tuition, fees and course materials paid during the taxable year.

Also, 40 percent of the credit (up to $1,000) is refundable. This means taxpayers could get it even if they owe no tax.

The following expenses do not qualify:
» Room and board
» Transportation
» Insurance
» Medical expenses
» Student fees unless required as a condition of enrollment or attendance
» Same expenses paid with tax-free educational assistance
» Same expenses used for any other tax deduction, credit or educational benefit

LIFETIME LEARNING CREDIT INCOME LIMITS INCREASED: Taxpayers may be able to claim a Lifetime Learning Credit of up to $2,000 for qualified education expenses paid for all eligible students.

Adjusted gross income has been increased from last year and must be less than $61,000 if single or $122,000 if married filing jointly.

This credit is nonrefundable, so it will only reduce tax to $0 and will not refund taxpayers any money beyond that. This credit is available for all years of postsecondary education and for courses to acquire or improve job skills.
Qualified expenses include tuition and fees required for enrollment (including amounts required to be paid to the institution for course-related books, supplies and equipment).   

NOTE: There are several differences between the American Opportunity Credit and Lifetime Learning Credit. For example, you can claim the American Opportunity Credit for the same student for no more than four tax years, but any year in which the Hope credit was claimed counts toward the four years.

However, there is no limit on the number of years for which you can claim a Lifetime Learning Credit based on the same student’s expenses.

MODIFIED ADJUSTED GROSS INCOME LIMIT FOR TRA-DITIONAL IRA CONTRIBUTIONS INCREASED: If a taxpayer has a retirement plan at work, such as the Thrift Savings Plan, the deduction for contribution to a traditional IRA is reduced if the modified adjusted gross income is:  
» More than $90,000 but less than $110,000 for those married filing jointly or widows or widowers
» More than $65,000 but less than $66,000 for those filing as single or head of household
» Less than $10,000 for a married taxpayer filing a separate return

FIRST-TIME HOME BUYER’S CREDIT CHANGED: Members of the military and certain other federal employees serving outside the U.S. have additional time to buy a principal residence in the U.S. and qualify for the first-time home buyer’s credit.

Members of the uniformed services, members of the foreign service
and employees of the intelligence community are eligible for this special rule.  
If you fall in this category, you may have an extra year to purchase a principal residence in the U.S. and qualify for a credit of up to $8,000.

An eligible taxpayer must have purchased, or enter into a binding contract to buy, a principal residence on or before April 30, 2011.

If a binding contract is entered into by that date, the taxpayer had until June 30, 2011, to close on the purchase. It applies to any individual (and, if married, the individual’s spouse) who serves on qualified official extended duty service
outside the U.S. for at least 90 days during the period beginning after Dec. 31, 2008, and ending before May 1, 2010.

NEW FORM FOR REPORTING FOREIGN FINANCIAL ASSETS: Taxpayers must report specified foreign financial assets on the new Form 8938 when the total value of specified foreign assets exceeds certain thresholds.

For example, a married couple living in the U.S. and filing a joint tax return would only file Form 8938 if their total specified foreign assets exceed $100,000 on the last day of the tax year or more than $150,000 at any time during the tax year.
The thresholds for taxpayers who live abroad are higher.

For example, a married couple living abroad and filing a joint return would file Form 8938 if the value of specified foreign assets exceeds $400,000 on the last day of the tax year or more than $600,000 at any time during the year.

FOREIGN EARNED INCOME EXCLUSION INCREASED: U.S. citizens or resident aliens of the U.S. who live abroad are taxed on their worldwide incomes earned in foreign countries.

However, taxpayers may be able to exclude from income up to an amount of your foreign earnings that is now adjusted for inflation ($91,400 for 2009, $91,500 for 2010, $92,900 for 2011, and $95,100 for 2012).

In addition, certain foreign housing amounts can be excluded or deducted. If you have foreign earned income, Form 2555 can be used to claim the Foreign Earned Income Exclusion.

It must be used to claim the foreign housing exclusion or deduction. In some circumstances you can use Form 2555-EZ to claim the Foreign Earned Income Exclusion.  

For more information on filing 2011 taxes or to make an appointment for free tax assistance, contact your local tax center.

A list of centers and other helpful tax info can be found on the U.S. Army Europe website at