View Recent & Future Tax Law Changes

Many tax breaks have been designed to phase in over a number of years, or are indexed to inflation. To help you determine how these tax laws affect your long-term plans, this article explains the changes for 2008, and also laws scheduled to go into effect through 2017.
However, with a new presidential administration taking office in 2009, some scheduled tax laws could be changed or eliminated altogether. In addition, new tax laws could be enacted.
TurboTax Deluxe will automatically apply any tax changes for you.

Larger Exemptions & Standard Deductions for 2008

For 2008, each personal exemption you can claim is worth $3,500—up by $100 from 2007.
Also, the standard deduction for married filing jointly rises to $10,900—up by $200 from 2007. For single filers, the amount increases to $5,450 in 2008—up by $100 over 2007. And heads of household can claim $8,000 in 2008—a jump of $150 from 2007.

Tax Credit of up to $7,500 for first-time homebuyers

If you purchased a primary residence after April 8, 2008 and are a “first-time” homebuyer, you can qualify for a new tax credit equal to 10 percent of up to $75,000 of the purchase price.
To be eligible, you must not have owned a residence in the United States in the previous three years. The credit phases out between $150,000 and $170,000 of adjusted gross income for joint filers and $75,000 to $95,000 for single filers. It is refundable to the extent it exceeds your regular tax liability—which means that if it more than offsets your tax liability, you’ll get a refund check—but does not offset the Alternative Minimum Tax.

Be aware: This credit is more like an interest-free loan from Uncle Sam, because it will be repaid over 15 years. The repayment starts two years after the year the credit is claimed. Thus, if you claim a $7,500 tax credit for a purchase in 2008, you will have to pay an extra $500 of income tax in 2010 and in later years.
If you sell the residence before the credit is fully repaid, the balance is due in the year of the sale. (If your profit on the sale is less than the unpaid credit, the amount due is limited to the amount of your profit.)

Tax Deduction on property taxes for non-itemizers

Taxpayers who don't itemize their deductions can, in 2008 and 2009, take a deduction for property taxes paid . This would give them an even larger standard deduction. Joint filers can deduct up to $1,000 of property taxes that were paid in 2008. Singles can deduct up to $500 of real estate tax payments made during the year.

Reduction in captial gains and dividend tax rates

Prior to 2008, long-term capital gains from the sale of assets held longer than one year were taxed at a maximum rate of 5 percent to the extent the seller was in the 10 or 15 percent tax brackets. In 2008, the 5 percent maximum rate drops to zero percent through 2010. The 15 percent maximum tax rate on long-term capital gains for taxpayers in higher brackets stays the same.
Similarly in 2008, the special 5 percent maximum rate on dividends of taxpayers in the 10 and 15 percent tax brackets drops to zero percent through 2010.

Reduction in itemized deductions and personal exemptions for high-income taxpayers

Currently, itemized deductions and personal exemptions are phased out as your income rises.
In 2008, the reduction of itemized deductions occurs once your adjusted gross income exceeds $159,950, regardless of your filing status. Your itemized deductions are reduced by 1 percent of the amount by which your AGI exceeds $159,950, but you can never lose more than 80 percent of your itemized deductions.
Also, your medical expenses, investment interest deduction, deductible gambling losses, and any casualty and theft losses are not subject to the cut. Personal exemptions are reduced by 2 percent for each $2,500 of Adjusted Gross Income over $239,950 for marrieds filing jointly, $199,950 for heads of households and $159,950 for singles, but the reduction cannot exceed $1,167 per exemption.

Exemptions for the Alternative Minimum Tax (AMT)

Congress increased the AMT exemptions for 2008 to prevent millions of additional taxpayers from having to pay the minimum tax. For 2008, the exemptions are $46,200 for single taxpayers and heads of households, $69,950 for married couples filing joint returns, and $34,975 for married couples filing separately.
Unless Congress acts in 2009, the exemption levels will drop to $45,000 for married filing jointly, $33,750 for singles and heads of household, and $22,500 for married couples filing separately.

Direct Donations of IRAs to Charity

For 2008 and 2009, IRA owners age 70½ and older can donate up to $100,000 of their IRAs to charity without having to report the withdrawal as income, and the donation is not included in taxable income. Amounts donated in this way count as all or part the IRA owner’s required minimum distribution.

Educators' Deduction

This deduction for up to $250 of classroom supplies purchased by educators was revived for 2008. It is now scheduled to lapse after 2009.

Tuition & Fees Deduction

The deduction for up to $4,000 of college tuition and fees was reinstated by Congress for 2008 and 2009.

Refundable Child Tax Credit

The $12,050 income threshold needed to qualify to claim the child tax credit if it exceeds your regular income tax bill is lowered to $8,500 for 2008.

Increased Section 179 Expense Reduction

Thanks to a new law, the maximum amount of equipment placed in service in 2008 that businesses can expense increases to $250,000—a $125,000 increase from 2007.
The annual investment limit increases to $800,000 for 2008, up from $500,000 the year before. Thus, you won't lose the benefit of expensing until you place more than $800,000 of assets in service in 2008.