The Good, the Bad and the Ugly
Feb 28, 2009 04:00PM ● By Super Admin
In 2008, the economy played the largest role in influencing several changes in our tax system. Since there’s much more to each of the issues discussed below, we recommend that you consult your tax professional on the specifics. Here’s an overview of some of the changes affecting us in 2009.
THE GOOD
Economic Stimulus Checks – Get a second chance at those rebate checks, maximum of $1,200 for married couples and $300 per each qualifying child. If you were short changed last year because of various technical requirements from your 2007 tax filings, you can claim the difference based on your 2008 data when your return is filed in 2009. This is especially beneficial if you had a child or adopted a child in 2008. And if you would have received less based on 2008 data, you are not required to give back the difference on the amount you already received.
Homebuyer Credit – First time homebuyers, who are defined as anyone who has not purchased a principal residence in over three years, can receive a refundable tax credit of up to $7,500 or 10 percent of purchase price, whichever is less. The home must have been purchased after April 8, 2008 and before July 1, 2009. You can apply qualified 2009 purchases in the 2008 tax return. Unfortunately, you have to start repaying the credit to IRS over a 15-year period beginning in the second year after purchase. So technically, it’s more like an interest-free loan.
Property Tax Deduction – taxpayers who claim standard deduction can claim extra deductions for local real property taxes for 2008; maximum of $1,000 ($500 for single).
THE BAD
Oil – Due to severe changes in gas prices, Congress changed the standard mile deduction for business purposes in the middle of the year; first half at 50.5 cents per mile and second half at 58.5 cents per mile; moving and medical miles were 19 cents for first half and 27 cents for second half of the year. Charitable miles still stands at 14 cents.
Stock Market – No relief on the required minimum distribution (RMD) for 2008; only for 2009. The theory to not require RMD is that retirees should not be forced to take a distribution from their retirement accounts when the value of that account has plummeted, especially since the calculation or the RMD for 2008 is based on the account value as of December 31, 2007.
THE UGLY
Foreclosures and Short Sales – The real estate melt down has been the most prominent “Ugly” and largest contributor to the economic downturn. Luckily, Congress did come through here. Taxpayers can exclude from income up to $2 million of qualified principal residence indebtedness for discharges incurred on or after January 1, 2007, and before January 1, 2013. Generally, debt discharge would be considered income to taxpayers.
Auto Industry Bail Out– Even the tax incentives didn’t help the auto industry. Congress enacted a temporary increase in the allowable depreciation deduction for passenger vehicles under the luxury car rules. Basically, taxpayers could deduct over $11,000 as first-year depreciation on business use vehicles purchased and placed in service in 2008.
Again, these are just a few of the changes and only a brief discussion on each, making this a critical year to ensure you have expert advice.
<hr>John Choi, CPA JD is with Professional Solutions Group, LLP in Roseville. He can be reached at 916-791-3120 or [email protected].
THE GOOD
Economic Stimulus Checks – Get a second chance at those rebate checks, maximum of $1,200 for married couples and $300 per each qualifying child. If you were short changed last year because of various technical requirements from your 2007 tax filings, you can claim the difference based on your 2008 data when your return is filed in 2009. This is especially beneficial if you had a child or adopted a child in 2008. And if you would have received less based on 2008 data, you are not required to give back the difference on the amount you already received.
Homebuyer Credit – First time homebuyers, who are defined as anyone who has not purchased a principal residence in over three years, can receive a refundable tax credit of up to $7,500 or 10 percent of purchase price, whichever is less. The home must have been purchased after April 8, 2008 and before July 1, 2009. You can apply qualified 2009 purchases in the 2008 tax return. Unfortunately, you have to start repaying the credit to IRS over a 15-year period beginning in the second year after purchase. So technically, it’s more like an interest-free loan.
Property Tax Deduction – taxpayers who claim standard deduction can claim extra deductions for local real property taxes for 2008; maximum of $1,000 ($500 for single).
THE BAD
Oil – Due to severe changes in gas prices, Congress changed the standard mile deduction for business purposes in the middle of the year; first half at 50.5 cents per mile and second half at 58.5 cents per mile; moving and medical miles were 19 cents for first half and 27 cents for second half of the year. Charitable miles still stands at 14 cents.
Stock Market – No relief on the required minimum distribution (RMD) for 2008; only for 2009. The theory to not require RMD is that retirees should not be forced to take a distribution from their retirement accounts when the value of that account has plummeted, especially since the calculation or the RMD for 2008 is based on the account value as of December 31, 2007.
THE UGLY
Foreclosures and Short Sales – The real estate melt down has been the most prominent “Ugly” and largest contributor to the economic downturn. Luckily, Congress did come through here. Taxpayers can exclude from income up to $2 million of qualified principal residence indebtedness for discharges incurred on or after January 1, 2007, and before January 1, 2013. Generally, debt discharge would be considered income to taxpayers.
Auto Industry Bail Out– Even the tax incentives didn’t help the auto industry. Congress enacted a temporary increase in the allowable depreciation deduction for passenger vehicles under the luxury car rules. Basically, taxpayers could deduct over $11,000 as first-year depreciation on business use vehicles purchased and placed in service in 2008.
Again, these are just a few of the changes and only a brief discussion on each, making this a critical year to ensure you have expert advice.
<hr>John Choi, CPA JD is with Professional Solutions Group, LLP in Roseville. He can be reached at 916-791-3120 or [email protected].