2008 Tax Changes

Some of the tax changes you’ll see from the IRS are relief for first-time homebuyers, green tax credits and tax relief for areas of the Midwest affected by natural disasters. Here is a quick summary of some of the more significant changes:

Stimulus Payments are Tax-Free

If you received an economic stimulus payment in 2008, good news - you don’t need to report them on your taxes (i.e. they are not taxable). You still need to list the amount you received on your tax forms – it’s listed as the recovery rebate credit on line 70 on form 1040, and on line 42 on 1040A.

Note: Receipt of a stimulus payment can affect whether you are able to claim a Recovery Rebate Credit. You might be eligible for one if, for example, you had a child last year, or you didn’t receive an economic stimulus payment.

Alternative Minimum Tax Exemption is Increased

The Alternative Minimum Tax (AMT) applies only when certain types of income are earned. For 2008, the AMT levels increased slightly:

• $69,950 for married couples filing a joint return or qualifying widows and widowers (up from $66,250 in 2007)
• $34,975 for a married person filing separately (up from $33,125)
• $46,200 for singles or heads of household (up from $44,350)

If you make more than this amount, and if you take various deductions, you should spend a few minutes and use the IRS AMT Calculator to see if you owe the AMT. No, it’s not fun to do your taxes again, but until the tax law changes it’s your responsibility.

Green Tax Breaks

If you use solar power, solar water heating, fuel cells or wind energy on your property, you might qualify for the residential energy-efficient property credit. Some additions may allow up to $2,000 in credits. Use IRS form 5695 to claim it.

Got a hybrid? Are you the first owner? Check the Alternative Motor Vehicle Credit on the IRS site to see if you qualify.

Standard Deduction Increased for Most Taxpayers

In some cases, taxpayers choose to take the basic standard deduction rather than itemizing all of their deductions. The basic deduction has increased to:

• $10,900 for married couples filing a joint return and qualifying widows or widowers
• $5,450 for singles or married couples filing separate returns
• $8,000 for heads of household

First-Time Homebuyer Credit

If you bought a house recently or are considering buying one, you may be eligible for a first-time homebuyer credit worth up to $7,500.

Note: The credit is actually more like a no-interest loan because it must be repaid to the government over 15 years.

Tax Relief for Midwest Disaster Areas

The Heartland Disaster Tax Relief Act of 2008 was created to help Americans affected by the storms, tornados and flooding that struck the Midwest between May 20, 2008, and July 31, 2008. If you live in portions of Arkansas, Illinois, Indiana, Iowa, Kansas, Michigan, Minnesota, Missouri, Nebraska and Wisconsin and were affected by these events, be sure to examine some of the major provisions available to you.

Standard Mileage Rates Adjusted for 2008

Auto mileage can be expensed at:

• Business
  50.5 cents per mile driven from Jan. 1, 2008, to June 30, 2008
  58.5 cents per mile driven from July 1, 2008 to Dec. 31, 2008
• Medical / moving
  19 cents per mile driven from Jan. 1, 2008, to June 30, 2008
  27 cents per mile driven from July 1, 2008 to Dec. 31, 2008
• Charitable mileage rate is 14 cents per mile.

Farmer’s / Self-Employment Tax Changes

If you are self-employed, receive Social Security or disability benefits, and are eligible for the Conservation Reserve Program (typically for farmers and ranchers), you are exempt from the 15.3-percent social security self-employment tax. See the Farmer’s Tax Guide for use in preparing your 2008 returns.