2008 Tax News Critical Updates
Several major legislative acts passed in 2008 will impact individual’s tax returns. From first-time homeowners and disaster victims, to parents and retirees, these eight tax law changes add a degree of complexity to taxpayer returns.
1. Real Property Tax Deduction
Non-itemizers may claim an additional standard deduction for state and local property taxes paid for tax years 2008 and 2009. The maximum deduction is $500 for a single or $1,000 for married filing jointly.
2. Recovery Rebate Credit
The 130 million Americans who received a 2008 stimulus payment last year actually received an advance payment of the Recovery Rebate Credit for their 2008 returns. Taxpayers, who did not receive the payment or may be due a higher amount, still can claim the credit when they file their 2008 taxes.
3. Child Tax Credit
Taxpayers with earned income of at least $8,500 may receive a refundable credit of up to $1,000 for each qualifying child under the age of 17. The $8,500 threshold is for 2008 only. Before the legislation passed, the income requirement was $12,050.
4. Disaster Relief
2008 was the second highest year of federal disasters since the data was initially collected in the 1950s. Hurricanes Gustav and Ike, Midwest flooding and tornados, and wildfires in California, dominated the headlines. As a result, Congress provided special tax relief for victims. Affected taxpayers include those living in disaster areas, those with tax records located in disaster areas, relief workers and businesses located in disaster areas. A new provision allows disaster victims with personal casualty losses to claim the losses as part of their standard deductions.
5. Capital Gain Rates
For taxpayers in the 10 and 15 percent tax brackets, net long-term capital gain rates drop to zero percent.
6. Wind Energy Property
The residential energy property credit has been expanded to include residential wind energy equipment used to provide electricity for the home. The maximum credit is $4,000.
In addition to the new legislation, several older provisions were extended and may impact 2008 tax returns:
1. AMT Patch
The alternative minimum tax patch was extended through Dec. 31, 2008. Income thresholds were adjusted for inflation to $46,200 for singles and $69,950 for married couples filing jointly. Also, nonrefundable personal credits, such as education credits, are allowed for AMT.
2. Teacher’s Deduction
The $250 educator expense was extended through Dec. 31, 2009.
3. Tuition and Fees Deduction
The deduction of up to $4,000 for higher education expenses was extended through Dec. 31, 2009.
4. Sales Taxes
The deduction for state and local sales taxes, in lieu of state and local income taxes, was extended through Dec. 31, 2009.
5. Mortgage Forgiveness Debt Relief Act
Extensions made in the last year to this legislation protect eligible taxpayers from paying federal income tax on as much as $2 million of debt forgiven on a principal residence.
6. Energy Credit
For 2009 only, the credit of up to $500 for home energy improvement costs was reinstated. The credit is not available to claim on 2008 tax returns.
7. Mortgage Insurance Deduction
The deduction for mortgage insurance premiums paid on a qualified residence was extended through 2010.
This is just a sample of items impacting tax returns for the years 2008 and potentially beyond.
If you have any questions, please contact Jeffrey S. Covey, CPA at Covey & Associates, P.C. (248)740-8743. Make sure that you mention Financial Architects, Inc. as a reference.
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