April, 2010
For owners of small businesses and their workers, the recently enacted health reform legislation has some key provisions to pay attention to. The major ones include: tax credits; excise taxes; and penalties. But whether a business will be affected by them depends on a variety of factors, such as the number of employees the business has. I'm writing to give you an overview of the provisions in the new law with the biggest impact on small businesses. Please call our offices for details of how the new changes may affect your specific business.
Tax credits to certain small employers that provide insurance. The new law provides small employers with a tax credit (i.e., a dollar-for-dollar reduction in tax) for nonelective contributions to purchase health insurance for their employees. The credit can offset an employer's regular tax or its alternative minimum tax (AMT) liability.
Small business employers eligible for the credit. To qualify, a business must offer health insurance to its employees as part of their compensation and contribute at least half the total premium cost. The business must have no more than 25 full-time equivalent employees (“FTEs”), and the employees must have annual full-time equivalent wages that average no more than $50,000. However, the full amount of the credit is available only to an employer with 10 or fewer FTEs and whose employees have average annual full-time equivalent wages from the employer of less than $25,000.
Years the credit is available. The credit is initially available for any tax year beginning in 2010, 2011, 2012, or 2013. Qualifying health insurance for claiming the credit for this first phase of the credit is health insurance coverage purchased from an insurance company licensed under state law. For tax years beginning after 2013, the credit is only available to an eligible small employer that purchases health insurance coverage for its employees through a state exchange and is only available for two years. The maximum two-year coverage period does not take into account any tax years beginning before 2014. Thus, an eligible small employer could potentially qualify for this credit for six tax years, four years under the first phase and two years under the second phase.
Calculating the amount of the credit. For tax years beginning in 2010, 2011, 2012, or 2013, the credit is generally 35% (50% for tax years beginning after 2013) of the employer's nonelective contributions toward the employees' health insurance premiums. The credit phases out as firm-size and average wages increase.
Special rules. The employer is entitled to an ordinary and necessary business expense deduction equal to the amount of the employer contribution minus the dollar amount of the credit. For example, if an eligible small employer pays 100% of the cost of its employees' health insurance coverage and the amount of the tax credit is 50% of that cost (i.e., in tax years beginning after 2013), the employer can claim a deduction for the other 50% of the premium cost.
Self-employed individuals, including partners and sole proprietors, two percent shareholders of an S corporation, and five percent owners of the employer are not treated as employees for purposes of this credit. There is also a special rule to prevent sole proprietorships from receiving the credit for the owner and their family members. Thus, no credit is available for any contribution to the purchase of health insurance for these
individuals and the individual is not taken into account in determining the number of full-time equivalent employees or average full-time equivalent wages.
Most small businesses exempted from penalties for not offering coverage to their employees. Although the new law imposes penalties on certain businesses for not providing coverage to their employees (so-called “pay or play”), most small businesses won't have to worry about this provision because employers with fewer than 50 employees aren't subject to the “pay or play” penalty. For businesses with at least 50 employees, the possible penalties vary depending on whether or not the employer offers health insurance to its employees. If it does not offer coverage and it has at least one full-time employee who receives a premium tax credit, the business will be assessed a fee of $2,000 per full-time employee, excluding the first 30 employees from the assessment. So, for example, an employer with 51 employees who doesn't offer health insurance to his employees will be subject to a penalty of $42,000 ($2,000 multiplied by 21). Employers with at least 50 employees that offer coverage but have at least one full-time employee receiving a premium tax credit will pay $3,000 for each employee receiving a premium credit (capped at the amount of the penalty that the employer would have been assessed for a failure to provide coverage, or $2,000 multiplied by the number of its full-time employees in excess of 30). These provisions take effect Jan. 1, 2014.
The “Cadillac tax” on high-cost health plans. The new law places an excise tax on high-cost employer-sponsored health coverage (often referred to as “Cadillac” health plans). This is a 40% excise tax on insurance companies, based on premiums that exceed certain amounts. The tax is not on employers themselves unless they are self-funded (this typically occurs at larger firms). However, it is expected that employers and workers will ultimately bear this tax in the form of higher premiums passed on by insurers. The new tax, which applies for tax years beginning after Dec. 31, 2017.
November 2009
On November 6, the President signed into law H.R. 3548, the ''Worker, Homeownership, and Business Assistance Act of 2009.'' The new law extends and generally liberalizes the tax credit for first-time homebuyers, making it a much more flexible tax-saving tool. It also includes some crackdowns designed to prevent abuse of the credit. These important changes could it make it easier for you or someone in your family to buy a home. And because the changes generally aid buyers and aim to improve residential real estate markets nationwide, they also could make it easier for you or someone in your family to sell a home. This letter will hopefully help you in understanding the revised homeowners tax credit.
Homebuyer credit basics. Before the new law was enacted, the homebuyer credit was only available for qualifying first-time home purchases after April 8, 2008, and before December 1, 2009. The top credit for homes bought in 2009 is $8,000 ($4,000 for a married individual filing separately) or 10% of the residence's purchase price, whichever is less. Only the purchase of a main home located in the U.S. qualifies. Vacation homes and rental properties are not eligible. The homebuyer credit reduces one's tax liability on a dollar-for-dollar basis, and if the credit is more than the tax you owe, the difference is paid to you as a tax refund. For homes bought after Dec. 31, 2008, the homebuyer credit is recaptured if a person disposes of the home (or stops using it as a principal residence) within 36 months from the date of purchase.
Before the new law, the first-time homebuyer credit phased out for individual taxpayers with modified adjusted gross income (AGI) between $75,000 and $95,000 ($150,000 and $170,000 for joint filers) for the year of purchase.
Your guide to the revised homebuyer credit. The new law makes four important changes to the homebuyer credit:
(1) New lease on life for the homebuyer credit. The homebuyer credit is extended to apply to a principal residence bought before May 1, 2010. The homebuyer credit also applies to a principal residence bought before July 1, 2010 by a person who enters into a written binding contract before May 1, 2010, to close on the purchase of the principal residence before July 1, 2010. In general, a home is considered bought for credit purposes when the closing takes place. So the extra two-months (May and June of 2010) helps buyers who find a home they like but can't close on it before May 1, 2010. They can go to contract on the home before May 1, 2010, close on it before July 1, 2010, and get the homebuyer credit (if they otherwise qualify). Note that certain service members on qualified official extended duty service outside of the U.S. get an extra year to buy a qualifying home and get the credit; they also can avoid the recapture rules under certain circumstances.
(2) The homebuyer credit may be claimed by existing homeowners who are "long-time residents." For purchases after November 6, 2009, you can claim the homebuyer credit if you (and, if married, your spouse) maintained the same principal residence for any 5-consecutive year period during the 8-years ending on the date that you buy the subsequent principal residence. For example, if you and your spouse are empty nesters who have lived in your suburban home for the past ten years, you are potentially eligible for the credit if you "move down" and buy a smaller townhome. There's no requirement for your current home to be sold in order to qualify for a homebuyer credit on the replacement principal residence. Thus, the replacement residence can be bought to beat the new deadlines (explained above) before the old home is sold. For that matter, you can hold on to your prior principal residence in the hope of achieving a better selling price later on.
The maximum allowable homebuyer credit for qualifying existing homeowners is $6,500 ($3,250 for a married individual filing separately), or 10% of the purchase price of the subsequent principal residence, whichever is less.
(3) The homebuyer credit is available to higher income taxpayers. For purchases after November 6, 2009, the homebuyer credit phases out over much higher modified AGI levels, making the credit available to a much bigger pool of buyers. For individuals, the phaseout range is between $125,000 and $145,000, and for those filing a joint return, it's between $225,000 and $245,000.
(4) There's a new home-price limit for the homebuyer credit. For purchases after Nov. 6, 2009, the homebuyer credit cannot be claimed for a home if its purchase price exceeds $800,000. It's important to note that there is no phaseout mechanism. A purchase price that exceeds the $800,000 threshold by even a single dollar will cause the loss of the entire credit.
The new purchase price limitation applies whether you are buying a first-time principal residence or are a qualifying existing homeowner purchasing a replacement principal residence.
Other homebuyer credit changes. The new law includes a number of new anti-abuse rules to prevent taxpayers from claiming the homebuyer credit even though they don't qualify for it. The most important of these are as follows:
Beginning with the 2010 tax return, the homebuyer credit can't be claimed unless the taxpayer attaches to the return a properly executed copy of the settlement statement used to complete the purchase of the qualifying residence.
For purchases after Nov. 6, 2009, the homebuyer credit can't be claimed unless the taxpayer has attained 18 years of age as of the date of purchase (a married person is treated as meeting the age requirement if he or his spouse meets the age requirement).
For purchases after Nov. 6, 2009, the homebuyer credit can't be claimed by a taxpayer if he can be claimed as a dependent by another taxpayer for the tax year of purchase. It also can't be claimed for a home bought from a person related to the buyer or the spouse of the buyer, if married.
Beginning with 2009 returns, the new law makes it easier for the IRS to go after questionable homebuyer credit claims without initiating a full-scale audit.
What hasn't changed. The tax law still gives you the extraordinary opportunity to get your hands on homebuyer credit cash without waiting to file your tax return for the year in which you buy the qualifying principal residence. Thus, if you buy a qualifying principal residence in 2009 you can treat the purchase as having taken place this past December 31, file an amended return for 2008 claiming the credit for that year, and get your homebuyer credit cash relatively quickly via a tax refund. Similarly, you can treat a qualifying principal residence bought in 2010 (before the new deadlines) as having taken place on December 31, 2009, and file an original or amended return for 2009 claiming the credit for that year.
February 2009
The recently enacted “American Recovery and Reinvestment Act of 2009” (the 2009 economic stimulus act) contains a wide-ranging tax package that includes tax relief for low and moderate-income wage earners, individuals and families with college expenses, and home and car purchasers. I'm writing to give you an overview of the more widely applicable tax changes affecting individuals and families in the new law.
Making Work Pay credit. The new law provides an individual tax credit in the amount of 6.2 percent of earned income not to exceed $400 for single returns and $800 for joint returns in 2009 and 2010. The credit is phased out at adjusted gross income (AGI) in excess of $75,000 ($150,000 for married couples filing jointly). The credit can be claimed as a reduction in the amount of income tax that is withheld from a paycheck, or through a credit on a tax return.
Tax break for new car purchasers. The new law allows taxpayers to deduct State and local sales taxes paid on the purchase of a new automobile, including light trucks, SUVs, motorcycles, and motor homes. The tax break phases out starting with taxpayers earning $125,000 per year ($250,000 for joint returns). The deduction is allowed to both those who itemize their deductions as well as to nonitemizers. However, the deduction cannot be taken by a taxpayer who elects to deduct State and local sales taxes in lieu of State and local income taxes.
Economic recovery payment. The new law provides for a one-time payment of $250 to retirees, disabled individuals and Social Security beneficiaries and SSI recipients receiving benefits from the Social Security Administration and Railroad Retirement beneficiaries, and to veterans receiving disability compensation and pension benefits from the U.S. Department of Veterans' Affairs. The one-time payment is a reduction to any allowable Making Work Pay credit. The new law also provides a one-time refundable tax credit of $250 in 2009 to certain government retirees who are not eligible for Social Security benefits. This one-time credit is a reduction to any allowable Making Work Pay credit.
Unemployment compensation exclusion. A provision temporarily suspends federal income tax on the first $2,400 of unemployment benefits received by a recipient in 2009.
Expanded earned income tax credit. The new law provides tax relief to families with three or more children and increases marriage penalty relief. The changes apply for 2009 and 2010.
Expanded child tax credit. A measure increases the eligibility for the refundable child tax credit in 2009 and 2010 by lowering the threshold to $3,000 (from $8,500 in 2008).
Expanded and revised higher education tax credit. The new law creates a $2,500 higher education tax credit that is available for the first four years of college. The credit is based on 100% of the first $2,000 of tuition and related expenses (including books) paid during the tax year and 25% of the next $2,000 of tuition and related expenses paid during the tax year, subject to a phase-out for AGI in excess of $80,000 ($160,000 for married couples filing jointly). Forty percent of the credit is refundable. The new credit temporarily replaces the Hope credit.
Computers as an education expense. A provision permits computers and computer technology to qualify as qualified education expenses in 529 education plans for tax years beginning in 2009 and 2010.
Expanded first-time credit for first-time home buyers. Last year, Congress provided taxpayers with a refundable tax credit that was equivalent to an interest-free loan equal to 10% of the purchase of a home (up to $75,000) by first-time home buyers. The provision applied to homes purchased on or after April 9, 2008 and before July 1, 2009. Taxpayers receiving this tax credit were required to repay any amount received under this provision back to the government over 15 years in equal installments (or earlier if the home was sold). The credit phases out for taxpayers with adjusted gross income in excess of $75,000 ($150,000 in the case of a joint return). The new law enhances the credit by eliminating the repayment obligation for taxpayers that purchase homes on or after January 1, 2009. It also extends the credit through the end of November 2009, and increases the maximum value of the credit from $7,500 to $8,000.
Alternative minimum tax (AMT) patch. To hold the number of taxpayers subject to the AMT at bay, the new law increases the AMT exemption amounts for 2009 to $46,700 for individuals and $70,950 for joint returns, and allows the personal credits against the AMT.
Extension of enhanced small business expensing (Section 179). In order to help small businesses quickly recover the cost of certain capital expenses, small business taxpayers may elect to write off the cost of these expense in the year of acquisition in lieu of recovering these costs over time through depreciation. Last year, Congress temporarily increased the amount that small businesses could write off for capital expenditures incurred in 2008 to $250,000 and increased the phase-out threshold for 2008 to $800,000. The new law extends these temporary increases for capital expenditures incurred in 2009
Extension of bonus depreciation. Last year, Congress temporarily allowed business to recover the costs of capital expenditures made in 2008 faster than the ordinary depreciation schedule would allow by permitting these businesses to immediately write off 50% of the cost of depreciable property acquired in 2008 for use in the United States. The new law extends this temporary benefit for qualifying property purchased and placed into service in 2009.
I hope this information is helpful. If you would like more details about this or any other aspect of the new law, please contact the office.
October, 2008
The Social Security Administration(SSA) has announced that Social Security and Supplemental Security income benefits will increase by 5.8% in 2009. The SSA has also announced that the maximium amount of earnings subject to Social Security FICA tax will increase from $ 102,000 in 2008 to $ 106,800 in 2009.
The crisis in the financial markets, the housing slump and the credit crunch are straining our economy. On October 3, the President signed into law a $850 billion financial markets rescue package, the Emergency Economic Stabilization Act of 2008 with more than $150 billion in tax incentives. In order to get the bill passed Congress added tax extenders and incentives.
Troubled Assets Relief Program. Congress gave the Treasury Department sweeping powers to purchase "troubled assets" from banks and other institutions. Many of these troubled assets are linked to home mortgages. However, the housing slump has sent millions of homeowners into foreclosure, making these assets much less valuable.
If a bank or other institution seeks to participate in the rescue program, it must agree to new curbs on executive compensation. In some situations, the Treasury Department can set limits on the compensation of an entity's executives. On other cases, the Treasury Department can limit how much the company deducts for executive compensation. Congress also authorized the Treasury Department to prohibit or limit golden parachute payments.
Tax cuts. Originally, the rescue package did not include the "extenders," energy incentives and disaster relief. Only after the House defeated the original rescue package on September 30 did the Senate add these "sweeteners" to win more support for the rescue plan. The Senate's strategy worked. On October 3, the House passed the Senate's version of the rescue plan including the tax incentives. President Bush signed the bill into law later that day.
Many of the tax incentives in the rescue are commonly known as extenders. These are popular but temporary tax breaks which expire every year or two years unless Congress extends them. Some of these temporary tax cuts have been extended so many times that individuals and businesses mistakenly believe they are permanent when, in reality, they are still temporary. The temporary nature of these incentives makes tax planning challenging because you may be able to take a credit or deduction in one year but not in a future year. Fortunately, the extenders under the new law have been passed soon enough to enable use of year-end tax planning strategies that can maximize 2008 tax savings retroactively to the start of 2008, as well as 2009.
Individual Incentives.
Many of individual incentives are familiar. The new law extends the state and local sales tax deduction (which you can take in lieu of deducting state and local income taxes), higher education tuition deduction, teachers' classroom expense deduction, and tax-free distributions from IRAs for charitable purposes. In all, more than a dozen important tax breaks has been given new life by being extended. These incentives are now available for 2008 and 2009.
Alternative Minimum Tax(AMT). The rescue package includes good news for individuals who pay alternative minimum tax. Congress has authorized an AMT "patch" for 2008 to help keep middle-income individuals out of the reach of the AMT by giving them higher exemption amounts and allowing taxpayers to take nonrefundable personal credits to reduce their AMT liability. New to the AMT patch for 2008 is targeted help for individuals with worthless stock options
First Time Home Buyers. Earlier this year, Congress created new tax incentives to help homeowners: the first-time homebuyer's tax credit and the additional standard deduction for real property taxes. Individuals who do not itemize their deductions may be eligible for the additional standard deduction for real property taxes. This deduction was originally available only for 2008. The rescue package extends the deduction through 2009. However, the rescue package does not extend the first-time homebuyer's tax credit.
Mortgage Forgiveness When a lender forecloses on property, sells the home for less than the borrower's outstanding mortgage and forgives all or part of the excess mortgage debt, the Tax Code treats the cancelled debt as taxable income to the homeowner. The Mortgage Forgiveness Debt Relief Act, enacted in late 2007, excludes from federal tax those discharges involving up to $2 million of indebtedness ($1 million for a married taxpayer filing a separate return) secured by a principal residence and incurred in the acquisition, construction or substantial improvement of the residence. The new law extends this treatment from the end of 2009 through 2012.
Child Tax Credit. Additionally, the rescue package enhances the child tax credit. Before the new law, the child tax credit was refundable to the extent of 15 percent of the taxpayer's earned income in excess of approximately $12,050 (reflecting inflation adjustments from the original floor of $10,000). Under the new law, the floor falls to $8,500. Additionally, the rescue plan changes the definition of a "qualifying child" with respect to age and joint returns, clarifies certain tiebreaker rules and ties the child tax credit to the child dependency exemption.
Energy Conservation Credit. If you install qualifying energy conservation property, such as exterior windows and doors, in your home you may be eligible to a tax break. The new law extends a number of energy conservation tax incentives and creates a new tax credit for individuals who purchase a plug-in electric vehicle. Solar power, too, has been given a tremendous boost.
Business Tax incentives.
The business tax incentives in the rescue package are extensive. The largest business extender is the research tax credit. This credit is available for qualifying research expenses, including wages. The rescue package extends the research tax credit to amounts paid or incurred in 2008 and 2009. It also increases the alternative simplified research credit to 14 percent starting next year, a tremendous incentive now for smaller firms to finally use the research credit to grow their business.
Depreciation. Many businesses remodel or otherwise make improvements to their facilities on a regular schedule. These improvements are usually depreciated over 39 years. The rescue package shortens that period to 15 years for qualifying leasehold, restaurant and retail improvements. However, this special treatment is temporary, so timing these improvements becomes critical.
Disaster relief. The rescue package helps individuals and businesses recovering from storms and tornadoes that hit the Mid-West earlier this year. Individuals in 10 Mid-West states may be eligible for special tax incentives, such as enhanced casualty loss deductions, expensing and depreciation. The rescue plan also includes more limited tax incentives to help victims of Hurricane Ike in Louisiana and Texas along with temporary national disaster relief.
Revenue raisers. To pay for a portion of these tax incentives, Congress included several revenue raisers in the rescue package. For those affected, they also are being referred to as "tax increases."
Broker Reporting. One of the most wide-reaching is broker basis reporting. The rescue package requires brokers to report the adjusted basis of publicly-traded securities and indicate whether gain is long-term or short-term. Securities subject to the new reporting requirement include stocks, bonds, debentures, commodities, derivatives, and other financial instruments designated by Treasury. The reporting requirement takes effect for stocks acquired in 2011, mutual funds acquired in 2012, and other securities acquired in 2013.
This is just some of the incentives included in the bill. Others which were passed will only effect specific industries and not most taxpayers. If you have any questions regarding any of the extenders or items in the bill please contact the office.
February 2008
To help jumpstart the economy, Congress recently passed the Economic Stimulus Act of 2008. It's designed to inject $152 billion into the U.S. economy. More than 100 million Americans will receive rebate checks this year, along with child payments for qualifying children. Businesses can take advantage of two tax breaks: enhanced Code Sec. 179 expensing and bonus depreciation. Finally, Congress also extended some help to the troubled housing sector.
Originally, Congress intended to limit the rebates to individuals and married couples who paid federal taxes in 2007. However, this left out a lot of people. Ultimately, Congress extended the rebates to seniors, disabled veterans and widows of veterans.
The rebates are technically a refundable credit against tax. To receive a rebate check from the IRS in 2008, you must file a 2007 income tax return. Based on that 2007 return information, the IRS figures the rebate for you and will send it by mail or direct deposit without your having to take any further action. If you don't have to file a 2007 tax return because your income is too low but you still qualify for a rebate because of your earned income level, combat pay, or receipt of Social Security benefits. The IRS has not yet announced procedures for those taxpayers who are not required to file a 2007 tax return.
The maximum rebate is $ 600 for a single taxpayer and $ 1200 for married filing jointly taxpayers. Taxpayers who qualify for the basic rebate credit are also eligible to receive an additional rebate credit equal to $ 300 per qualifying child. A qualifying child is a child who has not attained the age of 17 and is claimed as your dependent.
The rebates phase out when a single taxpayer’s AGI exceeds $75,000 and $ 150,000 for married filing jointly taxpayers.
The rebate checks will be mailed out in May and June, 2008.If your 2007 tax return is on extension the rebate will be delayed. These taxpayers will receive their rebate checks later in the year.
After 2008, those who missed out on the rebate or received only a partial rebate get a second shot at qualifying with 2008 data when they file their 2008 return in 2009. This group includes those who did not receive a full $600/$1,200 check either because their 2007 income was either too low or too high, or they did not receive a full $300 child credit because their income was too high or a child was born or adopted in 2008. They get another chance to claim the difference based on their 2008 tax return filed in 2009. If a taxpayer would have received a smaller rebate check if based on 2008 return information rather than his or her 2007 return, however, the taxpayer is not required to give back the difference.
Mortgage Foreclosure Help - The new law raises the maximum amounts of principal for mortgages issued by the Federal National Mortgage Association (Fannie Mae) and the Federal Home Loan Mortgage Corporation (Freddie Mac). These large mortgages are often called "jumbo mortgages." The government hopes that by backing these larger mortgages, lenders will lower interest rates.
Business Incentives - Although not as extensive as originally proposed, the business incentives are nonetheless very valuable with careful planning. The new law nearly doubles the amount of deductible Code Sec. 179 expensing for 2008 and also provides for bonus depreciation.
Small business expensing - Before the new law, a business could expense up to $128,000 of the cost of qualifying property in 2008. If the cost of qualified property placed in service during the year is more than $510,000, the ceiling for that business is reduced by the amount over the applicable limit. Under the new law, a business can expense up to $250,000 of the cost of qualifying property and the old $510,000 ceiling jumps to $800,000. These are some very generous changes.
Bonus depreciation - The other incentive is bonus depreciation. The new law provides qualifying taxpayers 50 percent first-year bonus depreciation of the adjusted basis of qualifying property. To be eligible to claim bonus depreciation, property must be (1) eligible for the modified accelerated cost recovery system (MACRS) with a depreciation period of 20 years or less; (2) water utility property; (3) computer software (off-the-shelf); or (4) qualified leasehold property. The property generally must be purchased and placed in service during 2008. Original use of the property must begin with the taxpayer and must occur after December 31, 2007 and before January 1, 2009.
The new law also increases the Code Sec. 280F limitations on "luxury" auto depreciation to accommodate a modified version of the 50 percent bonus depreciation available to other "MACRS" property. The first-year limit on depreciation for passenger automobiles placed in service in 2008 is projected to be $2,960 for passenger vehicles and $3,160 for vans and trucks. The new law increases this limit to $8,000 if bonus depreciation is claimed for a qualifying vehicle placed in service in 2008 (for a maximum first-year depreciation of no more than $10,960 for autos and $11,160 for vans or trucks). If the vehicle is not predominantly used for business in a subsequent year, then bonus depreciation must be recaptured.
As always, if you have any questions about the new law, don't hesitate to contact us.
January, 2008
During 2007 Congress passed a small business tax incentives bill, Small Business and Work Opportunity Act of 2007, coupled with an increase in the federal minimum wage. Many of the tax breaks are targeted to businesses. Before Congress adjourned in December a number of tax related bills were passed.
Charity Beginning in 2007 the only charity that can be deducted is contributions supported by a letter, cancelled check, or another form of documentation. Cash contributions are not deductible. This rule applies to all contributions.
Kiddie Tax.The act extends the reach of the Kiddie Tax by raising the age limit to include (1) all children under the age of 19 (previously under age 18) and (2) students under age 24. Both changes are effective for all tax years beginning after May 25, 2007. That means it is effective for most taxpayers beginning in 2008
Due to the fact that the change is not retroactive, it gives parents the option of recognizing income in 2007 before the change takes effect
Mortgage Insurance Premiums.For the years 2007 to 2010 premiums paid for qualified mortgage insurance will be deductible. This deduction phases out when AGI exceed $100,000.
Alternative Minimum Tax (AMT). In December a patch was enacted which set the 2007 exemption amounts. Without this patch the number of taxpayers subject to AMT would have increased.
Mortgage Debt Relief. The Mortgage Debt Relief Act contains changes that provide tax relief for taxpayers who are having their prime residence’s mortgages discharged. Previously the release of the mortgage obligation was taxable income, as debt forgiveness. Under the new law for mortgage debt discharged after January 1, 2007 and before January 1, 2010 up to $ 2 million of discharged indebtedness may be excluded from gross income.
Sale of Prime residence. For sales after 2007, a surviving spouse may take advantage of the $500,000 home sale exclusion provided the sale occurs no later than 2 years after the death of the spouse.
Section 179. Congress significantly extended and expanded small business expensing. The tax laws allow you to deduct some business expenses that would otherwise have to be depreciated. The new law raises the dollar limitation from $112,000 to $125,000 and the income limitation from $450,000 to $500,000, retroactive to the start of 2007. The amounts will be indexed for inflation in future years.