The Homa Files

Excerpted from WSJ: “The Bailout Includes Lots of Treats”,  Tom Herman, Oct. 12, 2008

 
The historic bailout package (includes) relief for millions of taxpayers. The new law “makes almost 300 changes” to the Internal Revenue Code.

Part of the new law prevents many people from being ensnared this year by the alternative minimum tax. Other provisions extend popular tax breaks that expired at the end of last year or were scheduled to disappear after the end of this year.

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AMT Quick Fix

If Congress had done nothing, about 26 million people would have been affected this year by the alternative minimum tax, or AMT, up from four million last year, The new law, which includes raising the AMT income-exemption levels for 2008, essentially slaps a patch on the AMT problem.

The AMT is a parallel system to the regular tax system but operates under significantly different rules and can be mind-numbingly complex. For example, under the AMT, you can’t deduct state and local taxes. That’s why among the most common victims of the AMT are people who live in high-tax areas, such as California and New York City, and who make between about $100,000 and $500,000.

Under the new law, the AMT income-exemption level for 2008 rises to $69,950 for married couples who file jointly and $46,200 for most singles.

http://tax.cchgroup.com/Legislation/2008-Emergency-Economic-Stabilization-Act.pdf

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Some Restored Deductions

The new law also restores deductions for state and local taxes, higher-education tuition and teachers’ school supplies.

Sales-tax deduction: If you itemize your deductions, you can choose to deduct state and local sales taxes, instead of state and local income taxes. You can’t deduct both, however. The sales-tax deduction is especially popular in Florida, Texas, Washington and other states that have no state income tax.

Charitable deductions from IRAs: Congress also revived a popular provision allowing people age 70½ or older to transfer as much as $100,000 a year directly from an IRA to charity without owing income taxes on the money. This transfer is counted toward the taxpayer’s required minimum distribution for the year. Many donors care deeply about this provision.

Non-Itemizers Property Taxes: Lawmakers also extended a provision that helps many people who don’t itemize. It allows them to claim an additional standard deduction for real-estate taxes of as much as $1,000 for joint filers, or $500 for most singles.

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Full article:
http://online.wsj.com/article/SB122377122797726287.html?mod=sunday_journal_primary_hs

Comprehensive analysis:
http://tax.cchgroup.com/Legislation/2008-Emergency-Economic-Stabilization-Act.pdf

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This entry was posted on October 21, 2008 at 7:10 am and is filed under Taxes. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.