by Richard Schneider, CPA -inactive
Professor of accounting - retired
The bail out bill, H.R. 1424, the Emergency Economic Stabilization Act of 2008, signed into law on October 3rd, 2008, had a number of sweeteners added to get it passed. The sweeteners were all called pork, and indeed some of the provisions, such as the waiving of excise tax on wooden shafted children’s arrows, but there are many tax provisions affecting individuals and business, which I would not consider pork. Here are some, not all, of those that affect individuals.
1. Alternative Minimum Tax (AMT):
The limit is adjusted so many in the middle income group are not caught. This is extended only to 2008, and will have to be addressed again for 2009 and the future.
2. Home Mortgage Debt Forgiveness Relief:
Up to $2 million of qualified debt forgiveness on a principle residence is not taxable. This applies to debt forgiveness from 01/01/2007 to 12/31/2013. This act extended this provision from 2010 to 2013. Normally any forgiven debt is taxable income to the debtor.
3. Higher Education Costs – as an adjustment to Gross Income – Extended.
This provision had expired, and the Act extends it for 2008 and 2009. Generally higher education costs may qualify for the deduction or one of the education credits, Hope or Life Time Learning. The credits are still good, but it was the deduction that had expired. These three different treatments are confusing and need to be simplified.
4. Additional Standard Deduction for Property Tax:
This is extended through 2009. This deduction was put into place as part of the housing stimulus act of 2008, passed in late July. That act provided the deduction for 2008 only. This is a deduction of $1,000 ($500 – single) for married filing jointly, in addition to the standard deduction, for qualified property tax.
5. Tax Free Transfers from IRAs to Charities:
Provision extended to 2009. Taxpayers age 70 _ and older may transfer up to $10,000 directly to a qualifying charity from their IRA; there is no taxable income and no itemized deduction. This transfer counts toward the annual required minimum distribution.
6. Child credit of $1,000 per child:
This credit is used to offset tax and in some cases refundable where the credit exceeds the amount of tax, based on earned income. The Act modifies the computation for the refundable amount, lowering the earned income limit from $12,050 to $8,500, thus increasing the number of taxpayers that will qualify for this refundable credit.
7. The deduction, adjustment to gross income, for educator expenses of $250:
Extended through 2009.
8. Election to deduct Sales Tax rather than State Income Tax:
This is part of itemized deductions and is extended through 2009.
9. Home Improvement Energy Efficiency Improvement Credits:
This is extended through 2009. This is for qualified purchase and installation of insulation, windows, doors, biomass fuel stove, furnace, etc.
10. Plug-in Electric Drive Vehicle Credit:
For a qualified vehicle purchased between January 1, 2009 and December 31, 2014.
11. Tax Free Bicycle Commuter Employee Fringe Benefit:
Employers may pay employees extra, tax free, for commuting to work on a bicycle.
12. Energy Efficient Appliance Credit:
Manufactured before 1/1/2011, and includes clothes and dish washers, and refrigerators.
2008 Disaster Losses:
Relief is provided for 2008 and 2009 presidentially declared disaster areas. The 10% of AGI, and $100 limits are waived. Taxpayers may increase the standard deduction by the amount of the loss rather than itemizing. Any Net Operating Loss created maybe carried back for an optional 5 year period. Note: this does not affect the 2007 disaster losses here in Minnesota.
There are many other provisions of the Act, and you should contact your tax advisor to determine if you are affected. You may want to give your tax advisor a few weeks to catch up with the new laws, before contacting them. Our tax laws are becoming more and more complex, with a seemingly unending list of deductions and credits, making compliance more and more difficult.