2008 tax laws by modestmouse

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									        2008 TAX LAW CHANGES RECAP
           Note: not all laws will apply to you personally. However, feel free to call with any questions.

  Congress has passed over 300 new and changed tax laws in 2008. Some are for 2008 and
 future years and some are retroactive to prior years. The list below may be overwhelming
however, be assured that Accounting & Tax Pros will apply all new or changed laws to your
         current year and see if there are any beneficial changes to your 2007 taxes.

Individuals
Mortgage Debt Relief Act - Legislation enacted in October 2008 extended this relief through 2012. Thus this relief
now applies to debt forgiven in calendar years 2007 through 2012. The new law applies to debt forgiven in 2007
through 2012. Debt reduced through mortgage restructuring, as well as mortgage debt forgiven in connection with
a foreclosure, may qualify for this relief.

The debt must have been used to buy, build or substantially improve the taxpayer's principal residence and must
have been secured by that residence. Debt used to refinance qualifying debt is also eligible for the exclusion, but
only up to the amount of the old mortgage principal, just before the refinancing.

Debt forgiven on second homes, rental property, business property, credit cards or car loans does not qualify for
the new tax-relief provision. In some cases, however, other kinds of tax relief, based on insolvency, for example,
may be available. See Form 982 for details.

Borrowers whose debt is reduced or eliminated receive a year-end statement (Form 1099-C) from their lender. For
debt cancelled in 2007, the lender was required to provide this form to the borrower by Jan. 31, 2008. By law, this
form must show the amount of debt forgiven and the fair market value of any property given up through
foreclosure.

The IRS urges borrowers to check the Form 1099-C carefully. Notify the lender immediately if any of the
information shown is incorrect. Borrowers should pay particular attention to the amount of debt forgiven (Box 2)
and the value listed for their home ( Box 7).

NOTE: If part of the forgiven debt doesn't qualify for exclusion from income under this provision, it may be
possible that it may qualify for exclusion under a different provision. The forgiven debt may qualify under the
"insolvency" exclusion. Normally, a taxpayer is not required to include forgiven debts in income to the extent that
the taxpayer is insolvent. A taxpayer is insolvent when his or her total liabilities exceed his or her total assets. The
forgiven debt may also qualify for exclusion if the debt was discharged in a Title 11 bankruptcy proceeding or if
the debt is qualified farm indebtedness or qualified real property business indebtedness.
(Please note California has passed its own laws regarding mortgage relief – all cases will vary and we will
review your situation when you come in if applicable).

Update: Federal and State Laws vary. We will need to sit down and go over options. Please bring in recent
loan documents as well as 1099 A or C for your initial appointment. We will need to meet a couple times to
ensure that we are taking full advantage of the tax laws.

The Recovery Rebate Credit is a one-time benefit for people who didn't receive the full Economic Stimulus
Payment last year and whose circumstances may have changed, making them eligible now for some or all of the
unpaid portion. Generally, a credit adds to the amount of a tax refund or decreases the amount of taxes owed.
Therefore, the amount you receive for the Recovery Rebate Credit will be included as part of your refund, as
shown on your tax return. Unlike the 2008 Economic Stimulus Payment, it will not be issued as a separate check.
Please let us know the amount of your 2008 payment so we can ensure you received full benefit.
AMT - There's good news for individuals who pay alternative minimum tax (AMT). Congress has passed an AMT
"patch." The patch is designed to insulate middle-income taxpayers from paying the AMT.
For 2008, the patch raises the AMT exemption amounts to $69,950 for married couples filing jointly and surviving
spouses, $46,200 for single taxpayers and heads of household and $34,975 for married couples filing separately.

Roth IRA RE-conversions - If you converted your traditional IRA into a Roth IRA when the market was doing
well and values were higher, paid tax on the converted amount and then watched as your portfolio plummeted in
value, you may want to consider "reconverting" your Roth back to the traditional IRA. If you meet certain
requirements, including the timing of the re-characterization, you can eliminate the hefty tax bill you paid (or will
pay). You generally have until October 15, 2009 to undo a Roth conversion if you file your tax return by the
normal due date (typically April 15).

Non-itemizer property tax deduction - Earlier this year, Congress gave non-itemizers a limited property tax
deduction. For 2008 (and again in 2009) non-itemizers can take an additional, limited standard deduction for real
property taxes you paid in 2008, up to $500 ($1,000 for married couples).

State and local sales tax deduction - This deduction is one of the most popular. Unfortunately, it is only
temporary. The good news is that it is available for 2008. In lieu of deducting state and local incomes taxes for
2008, the recently passed Emergency Economic Stabilization Act of 2008 (EESA) retroactively allows taxpayers
to deduct state and local sales tax for 2008 and extends this benefit through 2009. Loading big-ticket sales tax
purchases into 2008 may make sense for those taxpayers able to take advantage of the optional sales tax deduction.
Those taxpayers could also defer any state income tax payments into 2008.

Child tax credit - For 2008, there is a new earned income formula for determining the child tax credit. Under
EESA, the child tax credit is refundable to the extent of 15 percent of the taxpayer's earned income in excess of
$8,500. Before EESA, the credit was refundable to the extent of 15 percent of the taxpayer's earned income in
excess of $12,050 (reflecting inflation adjustments from the original floor of $10,000).

Mortgage Interest Deduction - Audits of tax returns with large home mortgage interest deductions indicate that
many taxpayers and tax practitioners are not complying with the rules regarding the debt limitations home
mortgage interest deductions. To fully deduct the home mortgage interest, the interest must be paid on acquisition
or equity debt. The aggregate amount treated as acquisition debt for any period must not exceed $1 million (or
$500,000 in the case of a married individual filing a separate return). The maximum aggregate amount of home
equity debt for any period is $100,000 (or $50,000 in the case of a married individual filing a separate return).
Thus, the aggregate amount of the principal balance of all the mortgage loans used in computing the home
mortgage interest deduction may not exceed $1.1 million (or $550,000 in the case of a married individual filing a
separate return). The acquisition debt or the home equity debt must be secured by the principal residence of the
taxpayer, or one other residence of the taxpayer used as a residence and selected by the taxpayer for the taxable
year. New debt that a taxpayer incurs to refinance acquisition indebtedness also qualifies, but only up to the
amount of the refinanced debt. Taxpayers must figure the average balance of each mortgage to determine their
qualified loan limit. They can use the highest mortgage balance during the year, but they may benefit most by
using average balances.

First-time homebuyer tax credit - To encourage home sales, Congress created a new first-time homebuyer tax
credit. The first-time homebuyer credit, while valuable, operates more like a loan from the federal government
than a tax break. It must be repaid, interest-free, after 15 years in equal installments. The credit is equal to the
lesser of 10 percent of the purchase price or $7,500 ($3,750 for married individuals filing separately). The first-
time homebuyer credit is also temporary. It will expire after July 1, 2009. However, many members of Congress
want to extend it and enhance it. When Congress reconvenes in January, it could raise the credit to as high as
$15,000 and possibly make it retroactive.

Businesses

Business Mileage Rate - IRS lowers business standard mileage rate to 55 cents-per-mile for 2009. The IRS has
just released the 2009 optional standard mileage rates, effective beginning on January 1, 2009. The new standard
mileage rates are higher than the first half of 2008 but lower than the second half of 2008.

Bonus depreciation -. Generally most property, such as business equipment, machinery and most software, bought
and placed in service in 2008 qualifies for bonus depreciation. The placed in service date is extended through
December 31, 2009 for property with a recovery period of 10 years or longer, for transportation property and for
certain aircraft.

Code Sec. 179 expensing - The Economic Stimulus Act of 2008 also increased the amount of deductible Code Sec.
179 expensing for 2008 to $250,000 and raised the threshold for reducing the deduction to $800,000. The idea
behind Code Sec. 179 is that in the first year, a business can write off a substantial portion of a property's cost,
regardless of what the depreciation rules require. The 2008 amounts are significantly more generous than in prior
years.

Filing extension shortened - Starting immediately with the 2009 filing season for 2008 tax returns, the extension
for partnerships, estates and trusts is reduced from six to five months. Shortening by one month, to September
15, the time allowed for calendar-year partnerships and estates and trusts to file their returns on extension will ease
the problem that has affected individuals on six-month extensions waiting for their Schedule K-1 information from
these entities.




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