Must Know Tax Changes for 2008

Tax changes occur every year like clockwork. These changes make tax season all the more difficult. This year is no exception and the tax changes are more extensive than usual. There have been nine pieces of tax legislation passed for 2008. Below are some important tax changes that will affect individual filers for the 2008 tax year.

Amt Relief

The one year patch provides some relief by raising the exemptions above the 2007 level, and allows some personal credits for both regular tax and AMT. This is seen by some as a temporary measure to help with the economic crisis in the country.

First Time Homebuyer credit

The credit is 10% capped at $7500, it is a loan that must be paid back and it is limited by adjusted gross income. This one is pretty complex and the average tax payer may not understand it. Its purpose is to help stimulate the housing market.

Stimulus Payment Rebates

The rebates from last year where an advance for 2008 based on 2007 number;, If a taxpayer received less than the maximum rebate and also experienced a reduction in income for 2008 he/she may be entitled to an additional rebate credit.

Additional Standard Deduction

The new $500 addition to the standard deduction for property tax is designed to help those that do not itemize. Whether or not this changes the way a particular tax payer files will need to be evaluated on a case by case basis.

Forgiveness of indebtedness

The emergency bailout legislation of fall 2008 allows for the exclusion of mortgage debt forgiveness from income on a primary residence through 2013. This exclusion does not include real estate other than primary residences. So rental units and/or second homes do not qualify.

Energy Incentives

Incentives were included in the bailout legislation for alternative energy use and development and for general energy conservation. The residential energy generation credit has been extended; the credit of residential energy efficiency improvements was reinstated; a credit of for the installation of small wind turbines was created (30% of cost); and, tax breaks for bicycling to work and/or using electric cars were created.

Contributions Limits rise for IRAs and other retirement plans

Phase out rates rise across the board except for married filing separately for traditional IRAs. Deferral limits for 401(k), 403(B), and most 457 plans stays the same for 2008 but increases in 2009. The same with the catch up provisions for those 50 to 791/2.. The AGI phase-out range for Roth IRAs is increasing as well.

Zero Percent Capital Gain

Low and moderate income tax payers can qualify for 0% tax on long term capital gain income in 2008. The exclusion applies to the extent that the income would be taxed below 25%ordinary income rate if the preferential capital gain tax rates did not exist. The tax free gain could indirectly increase the AGI thus increasing the tax due.

Section 179 Expensing

The section 179 limit has been increased to 250,000. This is important for the self employed.

Bonus Depreciation

If you take the bonus you may need two sets of depreciation schedules because many states are not recognizing the bonus. It may be impractical for some to take the bonus because of the extra work.

These are the tax law changes from 2008 that will affect individual filers the most. There are many other changes that will need to be considered on a case by case basis by tax preparers, as well. The 2009 tax season will be especially complex given all of the tax law changes that occurred during 2008.