Here are tips for navigating the maze of changes in ’08 tax code
By Sandra Block, USA TODAY
Just as no two snowflakes are alike, no two tax years are the same. Last year, Congress made more than 500 changes to the tax code, according to tax publisher CCH.
Fortunately, you probably won’t have to wrestle with all of them when you file your 2008 taxes. But there are some changes you should be aware of, because they could increase the size of your refund, or shrink your tax bill. Here’s what’s new:
Larger standard deduction for homeowners
One of the benefits of owning a home is that you immediately become eligible for a raft of tax breaks. You can deduct interest payments on your mortgage, along with your state and local property taxes. In the past, though, these deductions were limited to homeowners who itemized.
This year, homeowners will be allowed to increase their standard deduction by the amount of their state and local real estate taxes, up to $500, or $1,000 for married couples who file jointly.
The main beneficiaries of this tax break will be homeowners who have paid off most or all of their mortgages, says Robert Houskeeper, an accounting professor at San Diego State University. These homeowners are still required to pay property taxes, he says, but in many cases, they don’t have enough deductions to justify itemizing.
First-time home buyer’s credit
To encourage more people to buy homes for the first time, Congress created a $7,500 credit for homes purchased between April 9, 2008, and July 1, 2009. Taxpayers who purchase a home during the first six months of this year are allowed to treat the purchase as if it were made on Dec. 31, 2008, and claim the credit on their 2008 tax return.
But the term “tax credit” is a misnomer, because it’s really an interest-free loan. Taxpayers who claim the credit will be required to pay it back in equal installments over 15 years, starting in the second year after the home is purchased. Taxpayers who sell their homes before 15 years have elapsed are liable for the balance, unless they sell at a loss.
The credit phases out for taxpayers with modified AGI of $75,000 to $95,000, or $150,000 to $170,000 for joint filers, in the year the home is purchased.
A provision in the Senate’s economic stimulus package would increase the credit to $15,000, eliminate the repayment requirement and make it available to anyone who purchases a home.
Higher standard deduction for disaster losses
If your property was damaged by a hurricane, flood, fire or other natural disaster last year, you may be eligible for a new tax break that will make it easier to deduct casualty losses.
Disaster-relief legislation enacted last year lets taxpayers who suffered losses in presidentially declared disaster areas increase their standard deduction by the amount of their losses, says Jackie Perlman, tax analyst for H&R Block. The legislation also waives a requirement that limited casualty losses to those that exceeded 10% of the taxpayer’s adjusted gross income.
The change means taxpayers will be able to deduct disaster losses, even if they don’t itemize, Perlman says. For example, if you suffered $4,000 in casualty losses but don’t have enough other deductions to itemize, “This is a great benefit to you,” Perlman says. “It lets you just tack that casualty loss on to your standard deduction.”
The deduction is limited to unreimbursed losses. You can’t claim losses that were covered by your homeowners insurance or other insurance policies, Perlman says.
To determine whether you live in a federally declared disaster area, go to http://www.fema.gov. The IRS offers a workbook you can use to calculate personal property losses. Find it by searching for Publication 584 at http://www.irs.gov.
More flexible home-sale tax break for surviving spouses
A law that became effective last year will give widows and widowers more time to sell their homes without giving up a valuable tax break.
Married couples who sell their primary homes can exclude up to $500,000 in profit from taxes, as long as they’ve lived in the home for two out of the past five years. However, in the past, if one spouse died, the surviving spouse had to sell the home in the year of the death to receive the full exclusion. Otherwise, the amount of tax-free gains would drop to $250,000 — the maximum for single homeowners.
Now, widows and widowers will have more time to decide whether they want to move. The new law lets surviving spouses qualify for the full $500,000 exclusion if the home is sold within two years after the spouse’s death.
Find this article at:
http://www.usatoday.com/money/perfi/taxes/2009-02-05-tax-code-changes-2008_N.htm
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