Congress Passes Last Minute Tax Legislation
One-Year Fix for the Alternative Minimum Tax
The AMT Relief Act of 2007 (H.R. 4351) increased the exemption amounts, thereby preventing the alternative minimum tax from affecting some middle-income filers. My article on the alternative minimum tax has been updated with the new 2007 exemption amounts and has the 2008 exemption amounts too, which are scheduled to decrease.
Because of the late passage of the AMT fix, the IRS has said it will need additional time to update its tax forms, publications, and reprogram its computers. As a result, processing of returns and issuing refund checks may be delayed. Changes to the AMT rules also means that all tax software publishers will need to reprogram their software and issue updates. You may want to wait to file your return until all updates have been issued to prevent any tax calculation errors.
Excluding Canceled Debt from Mortgage Foreclosures from Tax
People who have lost their homes due to foreclosure, or have refinanced their mortgages in order to prevent foreclosure, may be facing tax liabilities on any debt that was canceled by their lenders. To prevent this situation, Congress has passed the Mortgage Forgiveness Debt Relief Act of 2007 (H.R. 3648). The legislation provides relief from owing tax on canceled mortgage debt for three years, retroactive to the beginning of 2007. Only "qualified mortgage debt" is excluded under the law, which means mortgage debt incurred to build, build, or substantially improve a taxpayer's principal residence. Home equity debt and debt on second homes would not qualify.
Widows and widowers will also find welcome tax relief in this legislation. Widows and widowers can using the higher $500,000 capital gains exclusion available to joint filers if they sell their primary residence within two years of the date of date of their spouse.
The legislation also extends for three more years the deduction for private mortgage insurance. This deduction was scheduled to be a one-time only deduction for 2007. The deduction is now extended until the end of 2010.
For all the details on the new tax laws, see
- Congress Averts Higher Tax Bill for Middle Class, news coverage from the New York Times.
- The TaxBook Update on the AMT legislation, a nice 2-page PDF file containing all the changes regarding the alternative minimum tax and a handy chart showing at what income level a taxpayer would be subject to AMT.
- CCH Tax Briefing, a comprehensive 7-page PDF file covering all the major and minor tax law changes from the new legislation.
- Tax relief for homeowners struggling to pay PI and PMI, Don't Mess With Taxes covers the mortgage relief provisions.
- AMT Winners and Losers, also from Don't Mess With Taxes, covers the political wrangling of the AMT relief provisions.
I owned a home starting in June 2002, in sept of 2005 I refi’d for a variable rate (i did NOT cach out any money, it was a basic refi) However i purchased a new home at this time (2005) and wasn’t able to sell it. We foreclosed in Mar 2007. Do I qualify for the exemption?
For clarification… I foreclosed on the first house, the house I purchased in 2002. We have lived in the new house since 2005
Hi William.
Do you know if the Mortgage debt relief act of 2007 which is due to expire on 1/1/10 is been planned for extension. As I have short listed my property in Chicago. I am out of work for 22 months. If the house is sold as a short sale or Foreclosure, will I be liable for any negative amount owed to the Bank. I was told by my attorney that hopefully the Govt will extend the H.R 3648 ACT for Mortgage debt releif as the previous President did.
Thanks
Riz
The mortgage debt relief provisions were previously extended through the end of the year 2012 as part of the Emergency Economic Stabilization Act (a/k/a the “bailout” legislation)