Tax Tips & Calculators

Besides providing the U.S. Treasury the authority to purchase and insure certain types of troubled assets to restore U.S. credit markets, the Emergency Economic Stabilization Act of 2008 (H.R. 1424) also provides incentives for energy production and conservation, and extends certain expiring tax provisions.

Alternative Minimum Tax (AMT)

The AMT exemption amounts are increased to $46,200 ($69,950 MFJ) up from 2007 amounts of $44,350 ($66,250 MFJ).

Nonrefundable personal credits will not be limited by AMT. When credits aren't limited by AMT, it means the credit can reduce the individual's tax liability below the tentative AMT.

These are the affected credits that are allowed against AMT through 2008:

• Child and Dependent Care credits
• Credit for the elderly or the disabled
• Mortgage Interest Credit for interest paid or accrued on certain home mortgages of low-income persons
• Hope and Lifetime Learning credits
• Residential Energy Credit
• D.C. First-time Homebuyer Credit

Other AMT-related items in the bill include a reduction of federal tax liability related to certain incentive stock options and an increase in the AMT refundable credit percentage. Visit the IRS Web site or
talk to your tax professional for more detailed information.

Extenders

Sales Tax Deduction — The choice to deduct state and local sales tax instead of state and local income tax on Schedule A was extended through Dec. 31, 2009.

Tuition and Fees Deduction — The above-the-line deduction for up to $4,000 of qualified higher education expenses ($2,000 for higher-income taxpayers) was extended through Dec. 31, 2009.

Educator Expenses — Above-the-line $250 deduction for out-of-pocket classroom expenses for teachers K–12 was extended through Dec. 31, 2009.

Qualified Charitable Distributions — Taxpayers age 70 1/2 or older may contribute up to $100,000 tax-free from an IRA to a qualified charity. The transfer is taken into account for meeting the required minimum distribution for the year. Extended through Dec. 31, 2009.

Nonbusiness Energy Property Credit — Reinstated for 2009. It's a credit of up to $500 for energy-efficient home improvements to a main residence. The credit is limited to 10% of the cost of building envelope improvements (insulation, exterior windows and doors, etc.) and various dollar amounts for qualifying heating and hot water equipment. In addition, qualifying home heating property (maximum $300 credit) is expanded to include energy-efficient biomass fuel stoves (such as corn stoves).

Credit for Energy Efficient Appliances — The credit is extended and the definition of qualified appliances is expanded. The credit amount for appliances manufactured after 2007 is modified. Extended for appliances manufactured through Dec. 31, 2010.

Child Tax Credit

The Child Tax Credit is refundable to the extent of the greater of either:

• 15% of earned income above the annual threshold
• In the case of an individual with 3 or more qualifying children, the excess of Social Security taxes paid over the Earned Income Credit on the return.

Under the new law, the threshold is reduced to $8,500 for tax year 2008 only. Reminder: Excludable combat pay is considered earned income for purposes of the refundable Child Tax Credit.

Federal Disaster Relief

The federal disaster portion of the bill includes 3 important changes related to a disaster incurred in a federally declared disaster area:

• Additional standard deduction for federally declared disaster losses in 2008–2012
• Five-year net operating loss (NOL) carryback
• Qualified Disaster Expense Deduction

Midwestern Disaster Relief

The Act provides many forms of disaster relief for severe storms, flooding and tornadoes that occurred on or after May 20, 2008, and before Aug. 1, 2008, in Arkansas, Illinois, Indiana, Iowa, Kansas, Michigan, Minnesota, Missouri, Nebraska and Wisconsin. Additional relief is available for areas in these states (referred to as the Midwestern disaster area) that qualify for individual (or individual and public assistance) from the federal government. These are the 12 provisions:

• Special exemption for individuals who house displaced individuals
• Hope and Lifetime Learning credits
• Discharge of indebtedness
• Casualty loss limitations
• EIC and Additional Child Tax Credit
• Charitable provisions
• Retirement plan provisions
• Taxpayer and dependency status
• Employee Retention Credit
• NOL carryback
• Demolition and clean-up costs
• Temporary housing

Hurricane Ike Disaster Relief

Disaster relief for Hurricane Ike doesn't include individual tax benefits, but does expand availability of the low-income housing credit for Texas and Louisiana and authorizes issuance of a special class of private activity bonds in those states.

Other New or Modified Tax Provisions Affecting 2009 and Later Tax Years

The following provisions come into effect after 2008.

• Property tax deduction of up to $500 ($1,000) for non-itemizers is extended through 2009.
• The energy credit for solar and fuel cell heating equipment is extended through 2016. The credit is expanded to include residential small wind energy equipment and geothermal heat pumps as qualifying property. (Note: the expansion for wind and heat pump equipment applies to 2008.) Also, the cap is raised from $2,000 to $4,000 for solar heating property (the cap remains at $2,000 for other property).
• The $500 lifetime credit for home energy improvements is extended for tax year 2009 only. (The credit is not available for 2008.)
• The exclusion from taxable income of qualified principal residence indebtedness is extended for qualifying discharges of debt through 2012.
• A new credit for plug-in electric vehicles is available 2009–2014. The credit is a base amount of $2,500 plus an additional $417 per kilowatt hour in excess of 4 kilowatts per hour.
• Starting in 2009, employers may provide a limited fringe benefit for bicycle purchase, repairs, parts and storage costs to employees who commute by bicycle. The maximum annual benefit is $240.
• For 2009, certain farm machinery and equipment may be depreciated over 5 years.
• Starting with stock acquired in 2011, brokers will be required to report investors' adjusted basis and gain or loss on the sale of investments.