A Tax Fact from The Tax Institute at H&R Block

Dozens of tax relief provisions that expired at the end of 2007 – and more set to expire on Dec. 31, 2008 – have been granted an “extension” by members of Congress as part of the $700 billion rescue legislation passed on Oct. 3, 2008. Others are tax changes for Tax Year 2008 and/or 2009.

And this is very good news for taxpayers. Many Americans, for example, would have been negatively impacted had these popular tax breaks not been extended. The IRS reported that without the extender passage, 19.2 million individuals would have been negatively affected by expiration of just three of the deductions in the package: state and local taxes, college tuition and fees, and teachers’ purchase of school supplies.

Let’s take a quick look at some of the tax provisions that are new or were modified and that apply for 2008 and in some cases, through 2009 or 2010:

AMT or Alternative Minimum Tax.  The exemption amounts increased to $46,200 (or $69,950 married filing jointly) up from 2007 amounts of $44,350 (or $66,250 married filing jointly) Extended through 2008

Child tax credit. For 2008 only, eligibility for the refundable child tax credit is expanded to include individuals who earn at least $8,500. Prior to the law change, only individuals who earned at least $12,050 were eligible to claim a refundable child tax credit. The maximum benefit from the change is about $530.

Long-term capital gains. Long-term capital gains are taxed at 0% to the extent the taxpayer’s taxable income is in the 10% or 15% tax brackets. The 0% rate applies for tax years 2008 through 2010. But parents beware the kiddie tax, which may require that your child pay tax on her unearned income over $1,900 as if you received it.

Refundable first-time homebuyer credit. Taxpayers who purchased a principal residence from April 9, 2008 through June 30, 2009 and who have not owned a principal residence in the last 3 years may claim a refundable credit equal to 10% of the purchase price of the home. The maximum credit is $7,500 ($3,750 married filing separately). Eligibility for the credit phases out for taxpayers with a Modified Adjusted Gross income between $75,000 and $95,000 ($150,000 and $170,000 married filing jointly). The credit is repaid in 15 equal installments starting two years after the year the credit is claimed. For example, if the credit is claimed on the 2008 return, repayment of the credit begins on the 2010 return; repayment is accelerated if the home is sold or no longer used as a principal residence.

Real property tax. Non-itemizers may claim an additional standard deduction for state and local real property taxes paid for tax years 2008 and 2009. The maximum deduction is $500 ($1,000 married filing jointly).

Recovery rebate credit. The rebate that was paid in 2008 will be reconciled on the 2008 tax return. Taxpayers will receive any additional credit due, but need not repay any “excess” credit received.

The following tax breaks were extended not only for 2008 but also for 2009:

Sales tax deduction. The deduction for state and local sales taxes in lieu of state and local income taxes.

Tuition & fees deduction. The deduction for up to $4,000 of higher education expenses.
Teacher’s Education Expenses: The $250 educator expense deduction.

IRAs – charitable contributions. The exclusion of taxable distributions of up to $100,000 from IRA funds contributed directly to a charity.

The deduction for mortgage insurance premiums paid on a qualified mortgage was extended through 2010.

Remember, the tax professionals at H&R Block can help ensure that you claim all of the tax breaks you qualify for.

This Tax Fact is brought to you by The Tax Institute at H&R Block.

To view other helpful tax information or listen to our Tax Fact podcasts, visit www.digits.hrblock.com

As always . . . everyone’s tax situation is different, so be sure to consult a tax professional or financial advisor before making important financial decisions.

This Tax Fact is for educational purposes only and is not intended to be a substitute for seeking personalized, professional advice, nor is it intended to be used to avoid IRS penalties.