May 19 2008
Several changes occurred in the tax laws this year. The biggest change, and the one likely to affect many more taxpayers, occurs with the Alternative Minimum Tax. There's also a new deduction, for one year only, for mortgage insurance premiums. Some deductions are expiring at the end of 2007, so this year will be your last time to claim those deductions (unless Congress decides to extend them).
Alternative Minimum Tax
The Alternative Minimum Tax (AMT) is a parallel tax calculation method. Unlike the regular tax computation, the AMT disregards certain deductions, adds in certain income, and has a higher exemption amount. For 2007, the AMT exemption amount increased slightly: $44,350 for single filers, $66,250 for married people filing jointly and for qualifying widows or widowers, and $33,125 for married people filing separately. By comparison, the 2006 exemption amount for single filers was $42,500. The AMT exemption amounts are scheduled to decrease in 2008.Starting in 2007, taxpayers may receive a refundable credit for any used prior year minimum tax credit that has been carried forward from year 2003 or earlier. Taxpayers should get out any carryover worksheets they have or AMT tax forms from earlier years in order to prepare their 2007 returns.
Congress has passed last-minute legislation to provide temporary relief against the alternative minimum tax and make other corrections to the tax laws.
New Recordkeeping Requirements for Charity
Starting in 2007, taxpayers must keep receipts and other records for charitable donations. Receipts are required for all donations, whether of cash or property, and regardless of the amount or value of goods donated. Acceptable records would include canceled checks, a bank or credit card statement showing the name of the charity along with the amount and date of the donation, or a written acknowledgment letter from the charity.Also, donated property must be in good condition or better. This applies not just to cars and vehicles, but to clothes and household items as well. Additionally, you must keep records indicating what you donated and their value.
Mortgage Insurance Premiums May Be Deductible
Many homeowners get saddled with paying mortgage insurance premiums if they don't have enough of a down payment. Mortgage insurance premiums are now deductible as part of the mortgage interest deduction, but for four years only. That's right, this deduction begins at the start of 2007 and expires at the end of 2010. Mortgage insurance provided by the Veterans Administration, the Federal Housing Administration, the Rural Housing Administration, and private mortgage insurance companies all qualify for the deduction. For additional information see the Mortgage Insurance Premiums section of IRS Publication 936.
Tax Relief for Foreclosures and Mortgage Restructuring
People who have lost their homes through foreclosure or who have restructured their mortgage loans may qualify for tax relief. Normally, debts that are canceled by a lender are considered taxable income. But a change in the tax law makes mortgages on a main home exempt from the tax on canceled mortgage debts.
Expiring Tax Benefits
Tax laws often impose timelines during which a particular deduction or credit can be claimed. The following tax breaks are scheduled to expire at the end of 2007:- Classroom expenses deduction
- Tuition and fees deduction
- Deduction for mortgage insurance premiums
- Excluding charitable IRA distributions from income
- Itemized deduction for sales taxes
- Nonbusiness energy tax credit
- First-time homebuyer credit (District of Columbia)
- Election to include non-combat pay for the purposes of calculating the Earned Income Credit.
