By James A. Horchak, Esq., CPA
As you plan for and prepare your income tax return, here are some points to keep in mind. You will notice that some of these concepts are brand new to the tax law while others are “back by popular demand.”
The standard deduction has been enhanced for 2008. If you pay real estate taxes on your principal residence but do not meet the threshold to itemize deductions, you may now add a portion of the amount of real estate taxes paid to your standard deduction. For single taxpayers, up to $500 may be added, and married taxpayers filing jointly may add up to $1,000 to this deduction.
Several popular tax breaks that expired at the end of 2007 were renewed for tax years 2008 and 2009:
- If you are an educator and purchased supplies out-of-pocket, you may be entitled to the educator expense adjustment on your tax return.
- If you or any dependent pay tuition, you may be entitled to an adjustment or a credit.
- If you pay little or no state and/or local income taxes, you may qualify for a sales tax deduction. You may deduct the greater of the income tax paid or the estimated sales tax according to IRS guidelines.
The Residential Energy-efficient Property Credit is extended through 2016. In general, solar electric, solar water heating and fuel cell property qualify for this credit. Starting in 2008, small wind energy and geothermal heat pump property also qualify. While not available for tax year 2008, returning in 2009 are credits for insulation, exterior windows, exterior doors, furnaces, water heaters and other energy-saving improvements to a primary residence.
The Recovery Rebate Credit is similar to the economic stimulus payment issued to eligible taxpayers in 2008. The Recovery Rebate Credit is a one-time benefit for people who didn’t receive the full economic stimulus payment last year. If your circumstances changed during 2008, such as having a child or a reduction in income, then you may qualify to receive some or all of the unpaid portion as a credit on your 2008 return.
New homeowners who purchase their home between April 9, 2008, to June 30, 2009 may qualify for the First-Time Homebuyer Credit. This unique credit of up to $7,500 works much like a 15-year interest-free loan and is repaid each year as an additional tax. It is available for a limited time only. Income limits and other special rules apply.
Generally speaking, the IRS views any amount of a debt that is forgiven as income and therefore subject to income tax. Under the Mortgage Forgiveness Debt Relief Act of 2007, taxpayers may be able to exclude income from the discharge of debt on their principal residence or mortgage restructuring. This exception does not apply to second homes or vacation homes. In some cases, you may be able to file an amended tax return for previous tax years.
For assistance with your 2008 income tax return, please contact Jim at 888-534-6016.