From MarketWatch
By Andrea Coombes | MarketWatch
In all the hoopla surrounding the current stimulus package, it's easy to forget that other stimulus bill -- the one in 2008 that resulted in a good-sized check for many U.S. taxpayers.
Forgetting about that earlier stimulus, and any of the other major tax changes in 2008, could mean missing out on some much-needed cash when you file your tax return this year
There were six "pretty significant pieces of tax legislation" in 2008, said Mark Luscombe, a principal analyst with CCH Inc., a Riverwoods, Ill., tax publisher, including bills related to housing, farming, the military, pensions, and two on the economy.
Still, while all that tax tinkering affects most of us eventually, many of the changes last year were related to arcane rules -- and won't show up on our Form 1040s.
More noticeable for some taxpayers is that their bleaker financial situation may bring good news when they file. Small comfort it might be, but more people may be eligible for perks for which their formerly higher income made them ineligible, such as education-related credits or that stimulus payment from 2008.
"People's circumstances could change sufficiently that these deductions and credits are new for them," said Bob Scharin, New York-based senior tax analyst with Thomson Reuters' tax and accounting business.
Also, homeowners saw plenty of tax changes in recent years. For instance, those who don't itemize now have access to an extra standard deduction for property taxes paid, up to $500 for single filers and $1,000 for married-filing-joint filers. And homeowners who went through a foreclosure on their primary residence won't owe income tax on the forgiven mortgage-loan debt.
Here are seven more recent changes to consider:
1. Recovery rebate credit
You call it the "stimulus payment," but the IRS says "recovery rebate credit." If you weren't eligible for the full payment -- or any at all -- last year, you may get more money now if a layoff or investment losses slashed your income, because the stimulus checks sent in 2008 were based on 2007 returns. The credit starts phasing out with adjusted gross income over $75,000 for single filers and $150,000 for married-filing-jointly filers.
Also, if you had a baby in 2008 you may be eligible for the additional $300 stimulus payment per child. Or if your college-age child now supports herself, she might qualify for up to $600. Parents can't claim a payment for children older than 17 and a dependent can't claim it for him or herself, Scharin said. But "if the child graduated in 2008 and is no longer dependent, then that child could apply for it." See this IRS page for more on claiming recovery rebate credit.
2. Zero capital-gains rate
You might assume your income makes you ineligible for the zero rate on capital gains and qualified dividends in effect in 2008 for taxpayers in the 10% and 15% tax brackets. But don't forget those brackets refer to taxable income, not adjusted gross income.
While your AGI may be higher than the $65,100 which marks the start of the 25% tax bracket for married-filing jointly filers ($32,550 for single filers), deductions and other tax perks may bring your taxable income low enough to qualify for at least a portion of the zero rate.
"A family of four claiming the standard deduction could have adjusted gross income of $90,000 and that would translate to taxable income of $65,100 when you take the four personal exemptions plus the standard deduction," Scharin said. People who itemize may have even higher AGI yet still qualify for the zero rate, he said.
While plenty of people only wish they had gains in 2008, some might have sold long-held investments at a gain, Scharin said.
And, Luscombe said, "even if the gain itself moves you into the 25% bracket, there is still a portion of the gain that may be taxed at the zero percent rate."
3. AMT relief on incentive stock options
Taxpayers who've struggled to pay the alternative minimum tax owed on incentive stock options -- exercising an ISO can result in an unexpected AMT bill -- got some good news in 2008: You don't owe the tax.
"If you had an unpaid AMT liability resulting from an incentive stock option prior to 2008, it was basically abated by the law, so you don't have to pay it now," Luscombe said.
Also, Congress sped up the process by which taxpayers can take a credit against regular tax for previous AMT bills, among other provisions. See this IRS page for more information.
4. Perks for higher-income taxpayers
Even as some wonder whether Congress will allow the 2001 tax cuts to expire in 2010, some of those tax cuts are still going into effect.
Higher earners' ability to take itemized deductions and personal exemptions is limited -- those perks phase out at higher incomes. But thanks to the 2001 tax cuts, those phase outs themselves were slowly eliminated starting in 2006. (In 2010, higher-income taxpayers enjoy these perks with no reduction at all, but as with the other tax cuts, this one expires after 2010.)
In 2008, higher-income earners will find their itemized deductions and personal exemptions are cut by just one-third the amount in effect before the tax cuts.
The phase-out on deductions starts at adjusted gross income of about $159,950 for most filers and on exemptions at $159,950 for single filers and $239,950 for married-filing-jointly.
5. First-time home buyer credit
If you're a first-time home buyer (defined as not owning a home in the three previous years) who bought a home after April 8, 2008, and before July 1, 2009, you may qualify for a credit of 10% of the purchase price up to $7,500 on your 2008 tax return. Even if you bought the home in 2009, you can take the credit on your 2008 return, Luscombe said.
But here's the rub: The credit is more like a loan and must be repaid over 15 years. The stimulus bill under consideration now may eliminate the repayment rule for homes bought in 2009, but what's not clear yet is -- if the new stimulus plan does eliminate the repayment rule -- will people who bought a home in 2009 but claimed the credit on their 2008 return be exempt from repaying the credit? (Those who take the credit on homes bought in 2008 will have to repay the credit, under current law.)
If you bought a home in 2009 (before the July 1 deadline), your best bet is to wait until the final bill gets signed into law to see whether to claim the credit on your 2008 return or to wait and claim it next year.
6. Donate land
For those who donate land for conservation by a land trust or other qualified recipient in 2008 and 2009, there's a generous new perk available.
"If you make a qualified conservation contribution like an easement over property or a remainder interest in property, instead of getting a charitable deduction for only up to 30% of adjusted gross income, it goes to 50% of AGI and instead of having a 5-year carryover period you have a 15-year carryover period," said Grace Allison, a tax strategist with Northern Trust in Chicago. "Lots of our clients and people we hear about are doing these qualified conservation contributions."
7. Harvest business loss for a gain
It's not a new perk but plenty of business owners may find themselves ready and eager to take advantage now of the loss carryback that allows them to use a net loss in 2008 to offset a profit from up to two years ago -- and collect a refund for the difference.
"You deduct the loss from your prior year's income and the differential in tax --with the loss and without the loss -- is what you would get refunded," said Maureen McGetrick, tax partner with BDO Seidman in New York. "You file Form 1045 and the IRS generally has to take action on that within 90 days."
Keep an eye on the new stimulus bill being discussed now: The loss carryback perk may get extended to five years, up from two years now.
Note that perks on your federal return may not apply to your state tax bill. For instance, California has frozen the benefit for businesses this year, said Stephen Kunkel, a Los Angeles-based certified public accountant and tax practice leader at CBIZ MHM.
"It continues to carry forward, they just kind of freeze it," he said.
Similarly, Kunkel said California doesn't allow businesses to take the full federal amount of the Section 179 expense deduction. The federal stimulus bill in 2008 increased the Section 179 expense deduction to $250,000 from $128,000. That law includes another perk: 50% bonus depreciation, allowing certain businesses to immediately write off one-half of the cost of a capital expense. Of course, few companies likely were making major purchases, especially toward year-end.
Also for business owners: The IRS raised the standard rate for deducting mileage to 58.5 cents per mile for July through December, up from 50.5 cents from January through June. That compares with 48.5 cents in 2007.
"The IRS on Jan. 1, 2009, dropped it back to 55 cents since gasoline has come down somewhat," Kunkel said. If gas prices decline further, "it may be that in mid-2009 they may adjust it downward again."
