Tax Relief and Tax Rule Changes

As you prepare your taxes this season remember that there are more than a few tax law changes in store for any tax preparer.

Economic Stimulus

As you know, there are several economic stimulus initiatives that have been implemented by President Obama and the Congress. The payments from the economic stimulus package are not taxable. Can you claim the Recovery Rebate Credit? It depends on what exactly you received as a stimulus payment.

The credit is determined in much the same way as the 2007 stimulus payment. Of course, the amounts credited will be for the 2008 tax year. If you had a child in tax year 2008 you may qualify for the Recovery Rebate Credit. If you did not receive the rebate for tax year 2007 then you may be eligible for the rebate for 2008.
The IRS can figure the credit for you most likely. See instructions for Forms 1040, 1040A and 1040EZ.

AMT exemptions rise

There is a new standard property tax deduction. There is also a special first-time home buyer credit. This credit is not available to all homeowners. Congress has raised the alternative minimum tax exemption.
 
It is $69,950 for a married couple if they file a joint return. This also applies to qualifying widows and widowers, up from $66,250 in 2007.

It is $34,975 for a married person filing separately, up from $33,125.

The deduction is $46,200 for singles and heads of household, up from $44,350

Under current law, these exemption amounts will drop to $45,000, $22,500 and $33,750, respectively, in 2009. Form 6251 and the AMT Calculator provide more information.

More information about these changes can be found at IRS.gov.

Popular Tax Breaks

Several popular tax breaks that had expired at the end of '07 were renewed for tax years 2008 and 2009.
As a result, eligible taxpayers can claim:

The District of Columbia first-time home buyer credit on Form 8859

The educator expense deduction on Form 1040, Line 23 or Form 1040A, Line 16

The deduction for state and local sales taxes on Form 1040 Schedule A , Line 5

And the tuition and fees deduction on Form 8917

The residential energy-efficient property credit has been extended through 2016.

Usually, solar electric, solar water heating and fuel cell property qualify for this credit. In 2008, small wind energy and geothermal heat pump property also qualify.

Form 5695 is used to claim the credit.

Standard Deduction Changes

The standard deduction has increased for Most Taxpayers

Almost 2/3rds of taxpayers choose to take the standard deduction instead of itemizing deductions like mortgage interest and charitable contributions. The basic standard deduction is:

     
$10,900 for married couples filing a joint return and qualifying widows and widowers, a $200 increase  
     
$5,450 for singles and married individuals filing separate returns, up $100 and
     
$8,000 for heads of household, up $150

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Tax Relief for The Midwest Disaster Zone

Special tax relief that is related to the severe storms, tornadoes or flooding, occurring after May 19, 2008, but before Aug. 1, 2008, is available to taxpayers in portions of Arkansas, Illinois, Indiana, Iowa, Kansas, Michigan, Minnesota, Missouri, Nebraska and Wisconsin that were affected by these costly disasters.

Tax benefits include:

Special rules for withdrawals and loans from IRAs and other qualified retirement plans
      
Liberalized rules for some personal casualty losses and charitable contributions
 
The option to use 2007 earned income to figure 2008 earned income tax credits (EITC) and additional child tax credits
    
An increased charitable standard mileage rate for the use of personal vehicle for volunteer work related to these costly disasters
        
One additional exemption amount for persons who provided housing for someone displaced by these storms