12 items to consider when filing your 2008 return

NEW YORK – Jan. 29, 2009 – Income taxes this year will be pretty much the same as last year, but with a few exceptions. “If you just ease into the same routine when doing your 2008 taxes, you may miss out on big tax savings that could result from a number of key changes that first apply for the 2008 tax year,” says William E. Massey with Thomson Reuters, who compiled the following 12 tax-saving opportunities:

1. Economic stimulus payment. You may have received an economic stimulus payment in 2008, based on your 2007 taxes. If so, don’t include it as income on your tax return. It’s not taxable. If you didn’t receive a payment, you may be eligible for the recovery rebate credit, as explained below. You may even qualify for that credit if you did receive an economic stimulus payment.

2. Recovery rebate credit. This credit is figured like last year’s economic stimulus payment, except that the amounts are based on tax year 2008 instead of tax year 2007. The maximum credit is $600 ($1,200 if married filing jointly) plus $300 for each qualifying child. You may be able to take this credit only if you did not get an economic stimulus payment, or your economic stimulus payment was less than $600 ($1,200 if married filing jointly for 2007) plus $300 for each qualifying child you had for 2008.

The tax rebate hinged on a taxpayer’s income, and the credit dropped in 5 percent increments for yearly incomes of $75,000 and over. “Many individuals who lost all or a portion of their economic stimulus payment because of the phase out rules may now be in a position to claim a recovery rebate credit on the 2008 return they file in 2009,” says Massey. “This would be relevant to a taxpayer who, for example, experienced a job layoff, cutback in hours or reduction of salary. A recovery rebate credit may also be allowed on account of a child being born in 2008 or to someone first entering the workforce in 2008.”

3. Withdrawal of economic stimulus payment from certain accounts. You may have opted to have your economic stimulus payment directly deposited to a tax-favored account, such as an IRA, and you now realize you need the money. Don’t worry about being penalized for taking the payment back. If you withdraw it by the due date of your return (including extensions), the amount withdrawn will not be taxed and no additional tax or penalty will apply.

4. Alternative minimum tax (AMT) exemption amount increased. For 2007, you may have owed AMT or come close to owing it. (AMT is an added tax that arises when income is refigured in a special way to tax you on certain items that aren’t taxed under regular rules, and to deny certain deductions that are allowed under the regular rules.) Some individuals may not be hit with the tax for 2008 because the AMT exemption has increased to $46,200 ($69,950 if married filing jointly or a surviving spouse; $34,975 if married filing separately).

5. Standard deduction increased by real estate taxes. Suppose you own a home and pay real estate taxes but don’t have enough total deductions to be able to itemize. Good news: You can increase your standard deduction by the state and local real estates taxes you paid, up to $500 ($1,000 if married filing jointly).

6. Standard deduction increased by net disaster loss. You can increase your standard deduction by your net disaster loss. This amount is your personal casualty losses from a federally declared disaster in a disaster area less any personal casualty gains from it.

7. First-time homebuyer credit. Qualified homebuyers can subtract the credit amount from their federal income tax when they buy the home and even get a refund if the credit exceeds the tax. However, they must pay the credit back over 15 years. The result is that the credit resembles an interest-free loan that must be repaid to the government. Here are the details:

• The home must be located in the U.S. and must be your principal residence (main home). You (and if married, your spouse) must not have owned another principal residence in the U.S. in the three-year period before purchasing the new home. Thus, the home doesn’t literally have to be your first home.
• The home must have been purchased from April 9, 2008 through June 30, 2009, inclusive.
• A special rule allows taxpayers who purchase a principal residence in the first six months of 2009 to treat the purchase as if made on Dec. 31, 2008. This allows the taxpayer to claim the credit for 2008 rather than 2009.
• The credit is equal to 10 percent of the price paid for the home, up to a maximum of $7,500. The $7,500 maximum credit applies both to individuals and married couples filing a joint return. A married individual filing separately can claim a maximum credit of $3,750.
• The credit is phased out for individual taxpayers with modified adjusted gross income (AGI) between $75,000 and $95,000 ($150,000 and $170,000 for joint filers) for the year of purchase. Taxpayers with modified AGI over $95,000 ($170,000 for joint filers) can’t claim the credit.
• In the second year after purchase, taxpayers who took the credit must start paying back the credit in equal installments over 15 years, with no interest charge.
• No credit is allowed if: the taxpayer or the taxpayer’s spouse was ever entitled to a D.C. homebuyer credit; the home purchase was financed through tax-exempt mortgage revenue bonds; the taxpayer is a nonresident alien; or the taxpayer disposes of the residence (or it ceases to be a principal residence) in the year of purchase.

8. Rollovers to Roth IRAs. Subject to conditions, you can roll over distributions from an eligible retirement plan to a Roth IRA. The rollover is not tax-free; but with lowered account values, the tax may not be onerous. Also, you may be able to use other available tax breaks to eliminate or reduce the tax arising from the rollover.

9. Standard mileage rates. The 2008 rate for business use of one’s vehicle is 50 1/2 cents a mile (58 1/2 cents a mile after June 30, 2008). The 2008 rate for use of one’s vehicle to get medical care or to move is 19 cents a mile (27 cents a mile after June 30, 2008).

10. Personal exemption and itemized deduction phaseouts reduced. Taxpayers with adjusted gross income above a certain amount may lose part of their deduction for personal exemptions and certain itemized deductions. The amount by which these deductions are reduced in 2008 is only 1/2 of the amount of the reduction that otherwise would have applied in 2007.

11. Tax rate on qualified dividends and net capital gain reduced. The 5 percent tax rate on qualified dividends and net capital gain that applied for 2007 is reduced to zero for 2008.

12. Tax on child’s investment income. Form 8615 is required to figure the tax for a child with investment income of more than $1,800 if the child: (1) was under age 18 at the end of 2008; (2) was age 18 at the end of 2008 and did not have earned income that was more than half of the child’s support; or (3) was a full-time student over age 18 and under age 24 at the end of 2008 and did not have earned income that was more than half of the child’s support.

SOURCE Tax & Accounting business of Thomson Reuters

© 2009 FLORIDA ASSOCIATION OF REALTORS®

Questions, comments or suggestions on this article? Have a news tip? Send a letter to the editor to: Newseditor@floridarealtors.org.