The cliché goes that there are only two things remain constant in this world: death and taxes. With this year's April 15 deadline approach, do you know some important tax law changes that might affect your individual income tax return?
Below is a concise compilation from CCH CompleteTax of what you need to know about your 2008 tax return:
• Personal exemption. This increased to $3,500 per person for 2008.
• AMT exemption. The AMT exemption increased for 2008 to $69,950 for joint filers and surviving spouses, $46,200 for single filers and $34,975 for married persons filing separate returns.
• Standard deduction. This increased for 2008 to $10,900 for joint filers and surviving spouses; $8,000 for those filing as head of household; and $5,450 for single filers and married persons filing separate returns.
• Temporary property tax deduction added to standard deduction. A temporary deduction, available for 2008 only, allows taxpayers who do not itemize deductions a limited deduction for state and local real property taxes. This increases the amount of their standard deduction by the amount of real property taxes they paid in 2008 or by $500 ($1,000 for joint filers), whichever is less.
• Standard mileage rate. The standard mileage deduction rate for business and medical travel for 2008 split at mid-year. From January 1 through June 30, 2008, the deduction was 50.5 cents per mile for business and 19 cents for medical travel; and from July 1 through the end of the year, the deduction was 58.5 cents for business and 27 cents for medical travel. The standard mileage rate for charitable travel remained the same throughout 2008 at 14 cents per mile.
• IRA deduction. The maximum IRA deduction allowed per person increased to $5,000 in 2008. Those who were at least 50 years old can make an additional catch-up contribution of $1,000 to their IRA (through April 15, 2009).
• Recovery rebate credit. People who did not receive a full economic stimulus payment based on their 2007 income tax returns may be eligible for a recovery rebate credit. The recovery rebate credit is based on a taxpayer's 2008 tax situation, which may be different from 2007, making them eligible for additional rebate credit.
• First-time homebuyer credit. A first-time homebuyer credit of up to $7,500 can be claimed by taxpayers who purchased their first home after April 9, 2008. This credit also will be available in 2009 to taxpayers purchasing their first home before July 1, 2009.
• Estates. The amount that can be excluded from an estate for estate tax purpose remains $2 million for 2008.
• Gifts. The amount of gifts that can be excluded from taxes remains $12,000 per taxpayer for 2008.
• Tax relief. Taxpayers in two disaster areas: the Kansas disaster area (May 4, 2008 storms) and the Midwestern disaster areas (May 20 – July 30, 2008 storms and flooding) are subject to a variety of tax benefits including special rules to allow for borrowing from IRAs and other qualified retirement accounts.
One thing I didn't know before is the "First Time Homebuyer Credit". I probably won't jump the gun to buy a new property just because of this, but if you already bought one, the $7,500 15-year interest-free loan can be a nice cash flow enhancer for your financials.