Tax Law Changes
Emergency Economic Stabilization Act of 2008/$700 Billion Bailout
What’s in it for Individual Taxpayers?
Over 100 tax changes to the IRS tax code will go into effect with the $700 billion Emergency Economic Stabilization Act of 2008. Individual taxpayers will benefit from some measures immediately. Some of the highlights for 2008 and 2009 include:
- Extended Tax Relief for Some Financially Distressed Homeowners
- Another Year of AMT Relief for Millions of Americans
- Child Tax Credit
- “Extender” Tax Measures Will Continue Through 2009
- Tax-Free Distributions from IRAs for Charitable Purposes
- Real Estate Tax Deduction for Non-itemizers Extended
- Residential Energy Efficient Property Credit Available Again in 2009
- A New RefundableTax Credit for First-Time Homebuyers
- Limited Property Tax Deduction for Non-Itemizers for 2008
- Foreclosure Protection for Military Personnel under the Servicemembers Civil Relief Act Provision
- Reduced Home Sale Exclusion
Extended Tax Relief for Some Financially Distressed HomeownersHomeowners experiencing “short sales” and foreclosures will get an extended break for “debt-forgiveness” tax consequences. Instead of treating cancellation of debt as taxable income on the foreclosure of a principle home, no taxes will be levied on discharges of indebtedness of up to $2 million dollars for married taxpayers filing jointly and of up to $1 million dollars for a married taxpayer filing a separate return through tax year 2012. TOP
Another Year of AMT Relief for Millions of Americans
An AMT “patch” for 2008 will prevent the Alternative Minimum Tax from applying to millions of middle-class Americans and increasing their taxes. This legislation sets AMT exemption amounts of $69,950 for married couples filing jointly; $46,200 for single taxpayers and those filing as head of household; and $34,975 for married taxpayers filing a separate return. Now taxpayers will be able to claim nonrefundable personal credits such as dependent care and education credits to reduce their AMT tax liability. TOP
For 2008, the child tax credit is refundable to the extent of 15 percent of the taxpayer’s earned income in excess of approximately $12,050. Under the new law, the earned income floor falls to $8,500. TOP
“Extender” Tax Measures Will Continue Through 2009
The tuition and fees deduction will continue to be available to eligible taxpayers to deduct up to $4,000 for qualified higher education expenses for themselves or immediate family members.
Taxpayers will continue to have the option to deduct their state and local sales taxes instead of state and local income taxes when they itemize. This option is especially beneficial to taxpayers living in states which have no state income tax.
The educator expenses deduction for teachers and other qualifying educators is extended for tax years 2008 and 2009. They can continue to deduct up to $250 a year for out-of-pocket expenses paid for classroom supplies whether they itemize or not. TOP
Tax-Free Distributions from IRAs for Charitable Purposes
Taxpayers can again make tax-free distributions from IRAs for charitable purposes through December 31, 2009. This charitable contribution option had expired January 1, 2008. The maximum contribution limit for 2008 and 2009 is $100,000. TOP
Real Estate Tax Deduction for Non-itemizers Extended
Homeowners who are not able to itemize deductions can deduct their real estate taxes as an additional standard deduction of up to $500 ($1,000 if MFJ) for tax years 2008 and 2009. TOP
Residential Energy Efficient Property Credit Available Again in 2009
Certain energy efficient home improvements such as windows, insulation materials and other property placed in service during 2009 can yield a credit of up to $500. The residential energy credit may offer a tax break on a 2009 return if all installation is done and/or work was completed in 2009. Residential energy credits apply to homes, houseboats, mobile homes, condominiums, and qualifying manufactured homes. This credit expired at the end of 2007 and is not available for 2008. TOP
Provisions of the American Housing Rescue and Foreclosure Prevention Act of 2008
A New RefundableTax Credit for First-Time Homebuyers
This would provide an interest-free loan of up to $7,500.00 for first-time home buyers who purchase residences between April 9, 2008 and July 1, 2009. Because this essentially functions as a loan, taxpayers would have to pay this back to the government in equal installment payments over 15 years. There’s a beginning income phase-out level of $75,000 for single taxpayers and $150,000 for taxpayers filing joint returns. The credit must be claimed on a 2008 or 2009 tax return.
Unmarried persons buying a home jointly for the first time may qualify for this credit by splitting the credit. TOP
Limited Property Tax Deduction for Non-Itemizers for 2008
Makes tax relief available to homeowners who have paid their mortgage in full, but still must pay local and state property taxes. The Act increases the standard deduction for non-itemizers by the lesser of the amount of real property taxes paid during the year or $500 for a single taxpayer/$1000 for a married couple. TOP
Foreclosure Protection for Military Personnel under the Servicemembers Civil Relief Act Provision
Mortgage lenders must reduce the interest rate of home loans granted to active duty military personnel to no more than six percent. TOP
Taxpayers who used their primary residence as a vacation home or rental property and sell this property after December 31, 2008 may no longer be able to take full advantage of the $250,000 exclusion for single taxpayers/$500,000 exclusion for married filing jointly on the gain from the sale of their personal residence. The taxpayer will only be able to utilize this exclusion to the extent that it relates to the period of time when the home was used as a principal residence. The exclusion of the gain will be pro-rated such that the gain attributable to the period of time the house was not used as the primary residence cannot be excluded. This will apply to nonqualified usage after January 1, 2009. TOP
