Jan 9 2009
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. The deduction for mortgage insurance premiums was scheduled to last for 2007 only, but has now been extended through 2010. There's a new additional standard deduction, for 2008 only, for homeowners who paid property tax. And for those who did not receive their full economic stimulus rebate, there's a rebate recovery credit to make up the difference.
Recovery Rebate Credit
The recovery rebate credit is a special federal tax credit for 2008 only. The credit is available for individuals who did not apply for the economic stimulate rebate in 2007. The recovery rebate credit is also available for people who's rebate is higher when calculated using their 2008 financial information.
Additional Standard Deduction for Homeowners
For 2008 only, homeowners can take an additional standard deduction of $500 (or $1,000 for married couples filing jointly). This will benefit homeowners who don't have enough deductions to itemize but who paid property tax in 2008 for their personal residence.
First Time Home Buyer Tax Credit
There's a new, refundable tax credit of up to $7,500 for the purchase of a primary residence. The credit is available to first-time home-buyers. The credit is available for real estate purchased after April 9, 2008, and before July 1, 2009. Unlike other credits, the home-buyer credit must be repaid over 15 years.
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 2008, the AMT exemption amount increased slightly: $46,200 for single filers, $69,950 for married people filing jointly and for qualifying widows or widowers, and $34,975 for married people filing separately. The AMT exemption amounts are scheduled to decrease in 2009, meaning that individuals will need to be vigilant about planning for the possibility of AMT taxes even if they avoid the AMT for this year.
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. This deduction began at the start of 2007 and will expire at the end of 2010 (unless Congress extends the deduction). 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.
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 debts.
More 2008 Tax Resources
2008 Tax Rates
The rates for 2008 feature broader tax brackets, meaning more income will be taxed at lower tax brackets.
