Economic Stimulus Payments: Those who did not receive checks or received a reduced amount will get a second chance when filing their 2008 tax return. Amounts received based on your 2007 tax return are not taxable and do not need to be repaid even if you qualify for a lower amount this year. These were an advance on the “recovery rebate credit”. The same rules apply to 2008 income and if you qualify for a higher amount this year, you will receive the difference.
First time homeowner’s tax credit: This is an interest free loan disguised as an income tax credit and is available for homes purchased from April 9, 2008 through June 30, 2009. The credit is available to first time homebuyers and is equal to the lesser of 10% of the purchase price of the home or $7,500.00 and phases out for taxpayers with higher incomes. Purchasers who have not owned a home for three years prior to the purchase qualify as first time home buyers and any single family residence qualifies for the credit. Any excess of the credit over income tax liability is refunded when the tax return is filed. The credit is repaid with no interest at a rate of 6.67% per year for fifteen years starting two years after the home is purchased. If the home is sold or ceases to be used as the taxpayers residence before repayment the remaining credit is added to the tax in that year. Those purchasing a home after April 15, 2009 could either extend the due date for the 2008 tax return and claim the credit or if the tax return has been filed, amend the 2008 tax return to claim the credit.
Additional Standard deduction for Real Estate Taxes: Homeowners who don’t qualify to itemize their deductions can now deduct real estate taxes paid on their personal residence (including a vacation home) up to a maximum of $500.00 ($1,000.00 for Married Filing Jointly).
Zero capital gains tax rate: This tax break is scheduled to remain in effect through 2010 and is available to taxpayers subject to the 10 and 15% tax brackets. The amount taxed at 0% depends on the amount of net capital gain and taxable income. Therefore, some taxpayers will not be taxed on their capital gains, some will get part of their capital gains taxed at 0% and some will be taxed at their normal rate. Suffice it to say that people in lower tax brackets and those with higher itemized deductions and exemptions are more likely to benefit by this change.
Gain from Sale of principal residence with non-qualified use: In 2008 if you sold your home and had used it as your principal residence for at least two of the previous five years, you could have excluded up to $250,000.00 of gain ($500,000.00 if married filing jointly). So, under this rule you could have sold your personal residence after living there for two years, then moved into your vacation home and sell that after two years of living there and could have excluded up to $250,000.00 ($500,000.00 if Married Filing Jointly) on each sale.
Starting January 1, 2009 any gain from the sale of a personal residence will be allocated between periods of “qualifying” and “non-qualifying” use. Non-qualifying use is defined as any period after January 1, 2009 that the property is not used as a personal residence. So, under the new rules, your exclusion will be reduced for periods you do not use property as a personal residence regardless of the fact that you qualify for the exclusion by owning and using it as such for at least two of the five preceding years.
Additional Child Tax Credit: The earned income threshold has decreased from $12,050.00 to 8,500.00 beginning for 2008 income tax returns. An increased number of lower income earners are now eligible for this credit.
Additional standard deduction for real estate taxes: Homeowners who pay real estate taxes on their personal residence, (including a vacation home) but do not itemize deductions can add the lesser of their real estate taxes paid or $500.00 ($1,000.00 if married filing jointly) to their standard deduction.
Qualified Tuition deduction: The deduction for qualified higher education expenses has been extended through 2009. This deduction is available whether you itemize deductions or not and is available to some taxpayers not eligible for the education credits.
Teacher expense deduction: This provision allows teachers a deduction for up to $250.00 of classroom expenses and is available whether you itemize or not. Expenses in excess of the $250.00 are allowed as an itemized deduction subject to an income limitation.
IRA Rollover provision: This provision allows qualified taxpayers to make tax free contributions from their IRA plans to qualified charitable organizations. This can provide tax savings for retirees who are required to draw from their IRA’s.
Residential Energy Efficient Property Credit: This act has reinstated the expired $500.00 credit for energy efficient property such as doors, windows, water heaters, and central air units. The act does not apply to 2008 but has been reinstated for 2009 through 2016. Individuals are allowed a residential energy efficient property tax credit for expenditures for qualified solar electric property, qualified solar water heating property, and qualified fuel cell property.
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