estate tax limit by harvey2

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									    Tax Updates

                                                                                                    February 20, 2008


                          Presented by Ivan Ketterman & Darryl Nitta


[Circular 230 Disclaimer: This presentation was not intended or written to be used, and it may not be used, for the purposes of avoiding U.S. federal, state or
local tax penalties. The reader should consult with a tax professional with respect to the application of any of the material contained herein to his or her
particular factual situation.]
Overview
1.    One-year Patch for AMT
2.    Mortgage Debt Relief
3.    Tax Technical Corrections Act of 2007
4.    Energy Legislation
5.    Virginia Tech Victims Tax Relief
6.    Consolidated Appropriations Act of 2008
7.    Pension Protection Act of 2006
8.    Looking Ahead
9.    Other Key Provisions for 2007
10.   Bush’s Stimulus Plan
One-year Patch for AMT
  The House passed Senate amendment to the
  Tax Increase Prevention Act of 2007 on
  12/19/2007
  AMT exemption amount - $66,250 for joint
  filers; $44,350 for individuals; $33,125 for
  married filing separate returns
  $40,000 exemption for corporations and $22,500
  exemption for estates or trusts remains
  unchanged for tax years beginning in 2007


                        3
One-year Patch for AMT (cont.)
  Threshold levels for calculation of the phase-out
  remain unchanged
  The exemption amount is still reduced by 25% for
  each $1 of AMTI in excess of thresholds
    1)     $150,000 in the case of married filing joint,
           surviving spouses and corporations
    2)     $112,500 in the case of unmarried
    3)     $75,000 in the case of married filing separate
           or an estate or trust


                          4
One-year Patch for AMT (cont.)
 Use of nonrefundable personal credits allowed to individual taxpayers
 against regular tax and AMT liability is extended to tax years beginning in
 2007 (but not beyond).
    dependent care credit,
    credit for the elderly and disabled,
    adoption credit,
    child tax credit,
    credit for interest on certain home mortgages,
    HOPE Scholarship and Lifetime Learning credits,
    retirement savings contributions credit,
    credit for certain non-business energy property,
    credit for residential energy efficient property,
    personal use portion of alternative motor vehicle credit,
    personal use portion of alternative fuel vehicle refueling property credit,
    District of Columbia first-time homebuyer credit.


                                         5
One-year Patch for AMT (cont.)
  Neither exemption amounts nor threshold
  amounts are indexed for inflation; number of
  individuals affected by AMT will increase.
  IRS has indicated that 2007 filings will be
  delayed because these AMT revisions occurred
  so late in 2007.




                        6
Technical Corrections Act of 2007

  Revises tax computation when the
  foreign earned income exclusion is
  claimed
  Revises rules for contributions of
  appreciated property to S corporations
  AMT refundable credit amount is
  liberalized


                      7
Technical Corrections Act (cont.)
  AMT refundable credit amount is an
  amount [not in excess of long-term
  unused minimum tax credit (“MTC”)]
  equal to greater of:
    $5,000
    20% of the long-term unused minimum tax credit,
    and
    AMT refundable credit amount for prior tax year –
    the preceding year’s credit amount – before any
    reduction by reason of adjusted gross income


                           8
Technical Corrections Act (cont.)

 Comparison for year 2007 (example
 assumes unused long-term MTC of
 $100,000 and no other MTC’s):
    Old law (pre-TCA law) - $20,000 (.20 x $100,000)
    New law (TCA law) - $20,000 (.20 x $100,000
    long-term unused MTC), because it’s more than
    $5,000, reducing TP’s long-term unused MTC to
    $80,000.



                           9
Technical Corrections Act (cont.)

  Comparison for year 2008
     Old law (pre-TCA law) - $16,000 (.20 x ($100,000
     - $20,000))
     New law (TCA law) - $20,000 (2007 AMT
     refundable credit amount – the preceding year’s
     credit amount), because that amount is more than
     $16,000 (.20 x $80,000) or $5,000, reducing TP’s
     long-term unused MTC to $60,000.




                           10
Technical Corrections Act (cont.)

 Comparison for year 2009
    Old law (pre-TCA law) - $12,800 (.20 x ($100,000 -
    $20,000 - $16,000))
    New law (TCA law) - $20,000 (the preceding year’s
    credit amount – i.e., the 2007 AMT refundable
    credit amount), because that amount is more than
    $12,000 (.20 x $60,000) or $5,000, reducing TP’s
    long-term unused MTC to $40,000.




                           11
Technical Corrections Act (cont.)

 Comparison for year 2010
    Old law (pre-TCA law) - $10,240 (.20 x ($100,000 -
    $20,000 - $16,000 - $12,800))
    New law (TCA law) - $20,000 (the preceding year’s
    credit amount – i.e., the 2007 credit amount)
    because that amount is more than $8,000 (.20 x
    $40,000) or $5,000, reducing TP’s long-term
    unused MTC to $20,000.




                           12
Technical Corrections Act (cont.)

 Comparison for year 2011
    Old law (pre-TCA law) - $8,192 (.20 x ($100,000 -
    $20,000 - $16,000 - $12,800 - $10,240))
    New law (TCA law) - $20,000 (the preceding year’s
    credit amount – i.e., the 2007 credit amount)
    because that amount is more than $4,000 (.20 x
    $20,000) or $5,000, reducing TP’s long-term
    unused MTC to zero.




                           13
Technical Corrections Act (cont.)

 Comparison for year 2012
    Old law (pre-TCA law) - $6,554 (.20 x ($100,000 -
    $20,000 - $16,000 - $12,800 - $10,240 - $8,192))
    New law (TCA law) – Zero, because TP has no
    long-term unused MTCs for 2012.




                           14
 Technical Corrections Act (cont.)
               AMT Refundable Credit Amount

YEAR    2007       2008    2009    2010     2011     2012

OLD    $20,000    $16,000 $12,800 $10,240   $8,192   $6,554

NEW    $20,000    $20,000 $20,000 $20,000 $20,000     $0




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Mortgage Debt Relief
  Mortgage Forgiveness Debt Relief Act of 2007
  Mortgage debt forgiveness income exclusion of up to
  $2 million in debt on a principal residence for three
  years (2007-2009)
  Extends mortgage insurance premium deduction for
  three years (2007-2009)
  Income exclusion for benefits to volunteer firefighters
  and emergency medical responders
  Extends the joint return sale of principal residence
  exclusion
  Student housing now eligible for low-income housing
  credit

                             16
Mortgage Debt Relief (cont.)
  Alternative tests added for qualifying as a cooperative
  housing corporation
  Cancellation of debt income (“CODI”) on qualified
  principal residence (2007 – 2009) is excluded from
  gross income.
  Exceptions – CODI realized by debtors in Title 11
  bankruptcy cases or insolvent debtors, and CODI from
  certain student loans, farm debt and real property
  business debt.
  Qualified principal residence indebtedness is acquisition
  indebtedness (defined in Code Sec. 163(h)), but with a
  $2 million dollar cap ($1 million for marrieds filing
  separately).

                             17
Mortgage Debt Relief (cont.)
  “Acquisition indebtedness” is debt incurred in the
  acquisition, construction or substantial improvement of
  principal residence and secured by the residence.
  Includes refinancing of debt to the extent the amount
  of the refinancing does not exceed the amount of the
  original, or refinanced debt.
  The basis of the principal residence is reduced by the
  excluded amount, but not below zero.
  The mortgage forgiveness exclusion applies only to a
  principal residence, not to a vacation home.




                             18
Mortgage Debt Relief (cont.)
  Deduction for qualified mortgage insurance premiums is
  extended through December 31, 2010, with AGI limits.
  In case of home acquisition loans, an individual who does
  not have funds sufficient for a full down payment may be
  required to purchase or obtain mortgage insurance.
  Deduction for mortgage insurance premiums does not apply
  with contracts issued prior to January 1, 2007 nor apply to
  premiums paid or accrued, or properly allocable to any
  period, after December 31, 2010.




                             19
Mortgage Debt Relief (cont.)
  Increased exclusion for surviving spouses who sell a
  principal residence within two years of their spouses’ death;
  can exclude up to $500K of gain on such sales like joint
  returns filers, rather than the $250K exclusion amount for
  single taxpayers.
  New exclusion only applies to surviving spouse who remains
  unmarried on the date of sale of the principal residence.




                              20
Mortgage Debt Relief (cont.)
  Income exclusion of state and local tax benefits and
  payments provided to volunteer emergency response
  personnel
  Penalty for failure to file partnership return modified –
  extended from 5 months to 12 months; penalty increased
  from $50 to $85 per partner
  New entity-level penalty for S corporations that fail to meet
  information filing obligations.
  Limitation on disclosure of returns to partners,
  S corporation shareholders, and trust and estate beneficiaries




                               21
Energy Legislation

  Energy Independence and Security Act
  of 2007
  Extension of the additional 0.2% FUTA
  surtax and seven year amortization of
  geological and geophysical expenditures
  for certain major integrated oil
  companies


                     22
Virginia Tech Victims Tax Relief
  Virginia Tech Victims and Family
  Assistance Act
  Excludes from income payments received
  by shooting victims’ families from
  Virginia Tech & Hokie Spirit Memorial
  Fund
  Funded by $1 increase per partner for
  failure to file partnership penalty ($86 vs.
  $85)

                        23
Consolidated Appropriations Act of 2008

  Includes budget appropriation for
  Treasury Department
  Of $12 billion budget, $10.9 billion
  allocated to IRS
  Increase of $300 million over prior year




                      24
Pension Protection Act of 2006
 Obsoletes IRS Form 8271 – Investor
 Reporting of Tax Shelter Registration
 Number
    Replaced by Forms 8082 and 8886
 New Form 8925 – Report Employer-
 Owned Life Insurance Contracts
 New Form 990-N
    E-postcard
    Small non-profit organizations


                           25
Looking Ahead
 Farm-related tax incentives
 Military tax breaks
 More energy tax incentives
 Transparency on tax shelters
 Lower corporate tax rate
 “More-likely-than-not” for tax preparers
 Extenders


                     26
Other Key Provisions for 2007
 IRA deduction still $4K (with $1K catch-
 up for 50+ years old)
 Dividend/capital gain rates (5%, 15%)
 Estate tax shelter amount - $2 Million
 Gift tax shelter amount - $1 Million
 Annual gift exclusion - $12,000
 Payroll (except FICA) taxes
 Hope/Lifetime credits
 Charitable auto mileage still $.14
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Other Key Provisions for 2007
 FICA maximum base increased from
 $94,200 to $97,500
 Business auto mileage increased from
 $.445 to $.485
 Medical and moving auto mileage
 increased from $.18 to $.20
 Section 179 deduction increased from
 $108,000 to $125,000


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Other Key Provisions for 2007
 Standard deductions / exemptions /
 Itemized phase-outs raised for inflation
 Max defined benefit plan raised from
 $175K to $180K
 Max defined contribution plan raised
 from $44K to $45K
 Max 401(k) contribution raised from
 $15,000 to $15,500


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Key Numbers for 2008
 Annual gift tax exclusion - $12,000
 Auto mileage allowance:
    Business: 50.5 cents
    Charitable: 14 cents
    Medical and Moving: 19 cents
 Section 179 expense: $128K to $250K
 FICA maximum base $102,000
 dividend/capital gain rates (0%)
 Kiddie tax $1,700 of unearned income

                          30
Bush’s Stimulus Plan
 Stimulate the sluggish U.S. economy
 Rebate of $600 for individuals
    Income < $75K
 Rebate of $1,200 for married
    Income < $150K
 Rebate$300 per child
 As early as May 2008
 Section 179 increases to $250K
 Bonus depreciation of 50%
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   QUESTIONS?
Contact Ivan Ketterman
     531-3406 or
     Darryl Nitta
       531-3455
   THANK YOU
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