  PO Box 2214 Oregon City OR 97045 503-656-0699 |
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Date last modified:
01/11/10 |
November 2008 Tax Legislation Bills signed by President Bush in July and October include benefits for many taxpayers. The Housing and Economic Recovery Act has several provisions to help home owners. First-time homebuyers may qualify to take a tax "credit" of up to 10% of the purchase price of the home or a maximum of $7,500. The credit is effective for homes purchased between April 9, 2008 and June 30, 2009 (closing date of sale). The credit must be paid back to the federal government in equal installments over 15 years, in effect making the credit a loan. The payback will be included on the annual tax form in future years. If the home is sold or ceases to be the primary residence of the taxpayer before the 15 years is up, the remaining payback may be due in full in that year’s taxes.The Act allows non-itemizers to deduct up to $500 (single, married filing separately) or $1,000 (married filing joint) of property taxes paid during 2008, in addition to claiming the standard deduction. This is a unique benefit, so there is incentive to at least pay a portion of your property taxes before the end of the year.In the midst of stock market turmoil, the Emergency Economic Stabilization Act of 2008 was signed into law. Included was a patch for the Alternative Minimum Tax (AMT) to help protect middle-income taxpayers. The patch increased the AMT exemption amounts and allows taxpayers to take nonrefundable personal credits to reduce AMT liability. The Act also extends mortgage forgiveness provisions passed in 2007, through 2012. Taxpayers who lose their primary residence in foreclosures, short-sales, etc. will be able to exclude up to $2 million of forgiven indebtedness from federal taxes.Also included in this second Act was the extension of the State Sales Tax deduction, the "above-the-line" Tuition deduction and the Educator’s Expense deduction. All three of these have been extended through the 2009 tax year. The new property tax deduction for non-itemizers was also extended through the 2009 tax year. The Act extends the option to make tax-free distributions from IRAs to charities through 31 December 2009. The Child Tax Credit will be refundable to more taxpayers with lower incomes in 2008. Taxpayers can still take a credit for certain residential energy improvements to their primary residence made by 31 December 2009.Among the revenue offsets included in both bills, is a provision limiting the exclusion of gain from the sale of a principal residence if that residence has not been the taxpayer’s primary home for the previous five years. For example, if the taxpayer converts a rental property to a personal residence, lives there for two years and sells the home, only a portion of the gain will be excluded from taxes.Coming in 2011, brokerages will be required to report basis information on stocks and mutual funds sold. However, many companies may not have complete information on your portfolio, especially if it was brought in from another investment firm. It is a good idea to discuss this with your broker during the next review of your account holdings. The 2008 filing season begins in less than two months. Now is the right time to begin organizing your records. As always, be sure to call us if you have any questions. If you receive something that says it is an "Important Tax Document", put it in your "Mr. Bill" envelope! Rumors As of this writing, there is no second Federal stimulus payment in the works. Congress will have to reconvene, funds found and the president would have to sign a bill providing another economic stimulus payment to taxpayers. The presidential campaigns discussed tax plans and proposals, but that is all they are at this point. Nothing will happen until Congress votes on and passes a tax bill. The 2008 filing season is scheduled as usual, with the due date for timely-filed returns Wednesday, April 15. There is no Oregon "kicker" going out this year. Oregon leaders are also discussing a stimulus plan, but nothing is firm as of this writing. Reminder Your 4th Quarter Oregon tax estimate must be paid by 31 December 2008 to count as an itemized deduction on your 2008 taxes. The 4th Quarter Federal estimate is due 15 January 2009.Not a Rumor The IRS is stepping up audit action. An audit may be a full-blown, look at all the records affair; or it may be a "letter examination" where the taxpayer is asked to provide records justifying certain deductions. It is vital taxpayers save all documentation for at least 4-5 years after filing an original or amended return. In addition, it is important to record how expenses were paid, the date and amount paid. If your bank offers check copies with the monthly statement, consider signing up for this feature. Many receipts are printed on thermal paper which doesn’t age well and can be rendered illegible if something spills on the receipt. There are tools to scan and/or copy receipts. The IRS generally accepts electronically-preserved records. If you receive an "audit" letter, contact our office. We can advise you if you want to handle the audit yourself, or we can represent you before the IRS and guide the preparation of a response.Social Security "Do-Over" If you started collecting Social Security benefits "too early", did you know you could "restart" the clock? By stopping Social Security payments, you may be able to collect larger payments later. Benefits collected so far have to be paid back, but there is no interest charged. This may make sense for you if you have other assets to live on, have been collecting Social Security for a short period of time and/or if you have the potential to earn a high wage and can return to work. Explore this option with your financial planner as well as Bill. |
