You don’t work on Wall Street, so the new financial bailout legislation doesn’t benefit you. Right?
Wrong, at least for most people.
To secure passage of H.R. 1424, the Emergency Economic Stabilization Act of 2008, Congress supplemented the financial bailout provisions with alternative minimum tax (AMT) relief and temporarily (through 2009) increased the basic deposit amount insured by the FDIC from $100,000 to $250,000 per depositor, per insured bank.
Congress also extended expired or expiring tax breaks, enacted new tax relief provisions, and included a variety of energy incentives and disaster relief provisions in the legislation.
The Act increases AMT exemption amounts, liberalizes the AMT refundable credit, and provides a nonrefundable credit fix for AMT―all of which are applicable only for 2008, unless they are extended by Congress.
Based on an alternative set of tax calculation rules that are less generous than the regular rules, the AMT was designed to ensure that very wealthy individuals do not avoid paying federal income taxes by taking advantage of special provisions in the tax code. However, because the calculations are not indexed for inflation, the AMT affects a growing number of middle income taxpayers each year.
Before passage of the Act, the 2008 AMT exemption amounts had returned to 2000 levels, reversing the significant increases in the exemption that had been enacted for 2006 and 2007―and thus subjecting many more taxpayers to the AMT. The new 2008 exemption amounts are as follows:
Married individuals filing joint returns, and surviving spouses: $69,950. This is up from $66,250 for 2007, and $45,000 for 2008 before the change.
Unmarried individuals: $46,200. This is up from $44,350 for 2007, and $33,750 for 2008 before the change.
Married individuals filing separate returns: $34,975. This is up from $33,125 for 2007, and $22,500 for 2008 before the change.
The Act also liberalizes the AMT refundable credit amount rules. Beginning in 2008, if you are carrying over an unused minimum tax credit you can claim the full amount over a two-year period rather than the previous five-year period. This is good news if you’ve previously exercised ISOs and paid AMT, and now have unused AMT credits.
Finally, the Act also provides a tax credit fix. If you have personal nonrefundable credits―such as the mortgage credit, dependent care credit, and energy credits―you can use them to offset both regular tax amounts and the AMT.
Extended Tax Provisions
There are more than 30 expired or expiring tax breaks for individuals and businesses that have been retroactively extended by the new legislation. Many of these provisions have income limitations to qualify, as well as caps on the deduction amounts.
Extended provisions for individual taxpayers include those listed below. Unless specifically indicated, you are not required to itemize in order to claim the deductions.
exclusion from gross income for IRA distributions of up to $100,000 made directly to charity by those 70½ or older, effective for all of 2008 and 2009
itemized deduction for state and local general sales taxes as an alternative to deducting state and local income taxes, effective for all of 2008 and 2009
additional standard deduction for state and local property taxes, subject to limitation
deduction for qualified higher education expenses, including tuition and related expenses, subject to income limitations
deduction for up to $250 in expenses for books, supplies, computer equipment, and other classroom materials incurred by eligible educators
Among the extended provisions for businesses are the following:
15-year write-off for qualified leasehold improvements and restaurant property. In addition, qualified retail improvement property is subject to a 15-year depreciable life
research credit, including certain modifications
New Tax Provisions
Intended to promote passage of the legislation by certain members of Congress, many of the Act’s new provisions were designed to benefit targeted, narrowly defined groups of taxpayers.
Among the more generally applicable provisions is mental health parity. This provision requires insurance plans that cover 51 or more employees and offer mental health benefits to establish the terms of the mental health benefits on par with the plan’s medical and surgical benefits.
Energy Incentives
Reflecting the nation’s current energy problems the Act includes a number of energy-related tax provisions to enhance energy efficiency and encourage the development of alternative energy sources. The new and extended tax incentives―totaling approximately $17 billion―include an investment tax credit for solar energy, production tax credits for certain alternative energy sources, a credit for energy-efficient improvements to new homes, an energy-efficient buildings deduction, and a credit for plug-in electric vehicles.
The cost of these provisions is at least partially offset by delaying a tax deduction for oil and gas companies.
