On Oct. 3, 2008, the President signed into law the Emergency Economic Stabilization Act of 2008. Although virtually all of the press coverage of this law has concentrated on its hotly debated $700 billion financial industry bailout plan, the legislation also contains scores of tax changes, mostly beneficial, for individuals and businesses alike. Here’s a brief review of some of the tax provisions.
AMT Relief: In general terms, alternative minimum tax (AMT) was originally enacted to make sure that wealthy individuals did not escape paying taxes. However, it has wound up ensnaring many middle-income taxpayers. One reason is that many of the tax figures used to arrive at your regular tax bill are adjusted for inflation, but those used to calculate the AMT are not. For 2008 only, the maximum AMT exemption amount is increased over its 2007 level by $3,700 for joint returns and $1,850 for single returns. However, after 2008 the maximum AMT exemption will drop back to where it was in the year 2000 unless Congress provides another fix. Another provision in the new law provides AMT relief for those individuals claiming certain “nonrefundable” personal tax credits (such as the credit for dependent care and the Scholarship and Lifetime Learning credits). For 2008, these credits may offset an individual’s regular tax and AMT. After 2008, unless Congress acts, these credits will be allowed only to the extent that an individual has regular income tax liability in excess of the tentative minimum tax.
Retroactively resuscitated and extended tax breaks: The new law retroactively resuscitates several expired tax breaks for 2008, and further extends them so that they will apply for 2009 as well:
• The option to claim an itemized deduction for state and local general sales taxes instead of state and local income taxes.
• The above-the-line deduction for qualified tuition and related expenses for higher education paid during the tax year.
• The up-to-$250 eligible educator’s above-the-line deduction for books, supplies, computer equipment, etc., used in the classroom.
• The up-to-$100,000 annual exclusion from gross income for taxpayers age 70½ or older who make direct transfers of individual retirement account distributions to qualified charitable organizations.
The new law also extends into 2009 the nonitemizers’ additional standard deduction for state and local property taxes paid. The deduction can’t exceed the lesser of state and local property taxes actually paid or $500 ($1,000 for joint return filers). Furthermore, the end date for the exclusion from income for the discharge of qualified principal residence indebtedness has been extended from December 31, 2009 to December 31, 2012.
The new law also gives a number of extra tax breaks to victims of the storms and hurricanes that pummeled ten Midwest states during 2008.
Please be aware that this article describes only a few of the highlights of the new law, but they are points individuals should keep in mind when reviewing their tax situation and/or consulting with their tax advisor.
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