NEW TAX LAWS for Investors and AMT changes

This is an email I received this morning from my CPA Mike Grinnan and I asked his permission to post in on my blog for your benefit.. It contains both good and bad new tax laws for investors, first responders, and big changes involving the AMT

-----Original Message-----
From: Mike Grinnan CPA
Sent: Monday, December 31, 2007 10:49 AM
To: Mike Butler
Subject: Tax Changes

2007 Year-End Tax Relief

Dear Mike:

In holding true to their promises, Congress passed and President Bush signed year-end tax relief legislation. Some of this legislation is important to the 2007 tax filing season, beginning in January, while others will have ramifications in the years to come. Below is an outline of the major provisions of two Acts that you should be aware of.

Mortgage Relief

On December 20, President Bush signed into law the Mortgage Forgiveness Debt Relief Act of 2007. The primary focus of the bill is to relieve taxpayers of the requirement that amounts discharged from indebtedness are included in gross income.

The Act excludes from gross income any discharge of indebtedness income by reason of discharge of qualified principal residence indebtedness. Qualified principal residence indebtedness is similar to the definition used to determine whether you can deduct mortgage interest.

However, this provision caps the debt that can be relieved income-free at $2,000,000 (or $1,000,000 in the case of married individuals filing separate returns).

The provision only applies to a taxpayer's principal residence and not a second or vacation home.

Under the provisions of the Act, a taxpayer must reduce their basis in their principal residence (but not below zero) to the extent that amounts are excluded from income as a result of the discharge.

This keeps open the possibility of taxation on any future appreciation of the property. However, the general exclusion rule (up to $500,000 for married couples filing jointly) may alleviate any and all taxes due on the sale.


These rules have retroactive effect as they apply to discharges occurring on or after January 1, 2007. However, the provision is not applicable for discharges on or after January 1, 2010.

The Mortgage Relief Act provides two additional relief provisions for homeowners.
First, the Act extends the deduction for private mortgage insurance, which was set to expire December 31, 2007, to amounts paid or accrued on or before December 31, 2010.

Second, effective for sales beginning in 2008, the Act extends the time a widow/widower has to sell the principal residence and be eligible for the $500,000 exclusion available to joint filers, rather than the $250,000 exclusion generally applicable for unmarried individuals.
To qualify, the sale must occur not later than two years after the date of death of the spouse and the both the widow/widower and the deceased spouse must have met the requirements of exclusion provision immediately before the date of death. Prior to this provision, the sale had to occur in the year of death, so that the widow/widower was eligible to file a joint return to be able to claim up to a $500,000 exclusion.

The Act excludes from gross income for members of a qualified volunteer emergency response organization any qualified state and local tax benefit and qualified payments. A qualified state and local tax benefit is any reduction or rebate of a tax provided by a state or political division thereof on account of services performed as a member of a qualified volunteer emergency response organization.

A qualified payment means any payment provided by a state or political division thereof on account of the performance of services as a member of a qualified volunteer emergency response organization. The dollar amount of a qualified payment cannot exceed $30 multiplied by the number of months during such year the taxpayer performed such services (i.e., maximum of $360 per year).

A qualified volunteer emergency response organization basically covers firefighting and emergency medical services. The exclusion is effective for taxable years beginning after December 31, 2007, and taxable years beginning before January 1, 2011.

To make this bill revenue neutral, Congress included provisions to increase the penalty on partnerships who fail to timely file their return, a comparable provision for S corporations, and an increase in the corporate estimated tax payment due for corporations with assets greater than $1 billion due in July, August, and September 2012.


AMT Relief

On December 26, President Bush signed into law the Tax Increase Prevention Act of 2007, legislation that alleviates an immediate AMT hit on millions of middle-class taxpayers.

To do this, the Act increases the alternative minimum tax exemption amount for 2007 to:

(1) $66,250 for a married individual filing a joint return, or a surviving spouse;

(2) $44,350 for an unmarried individual who is not a surviving spouse; and

(3) $33,125 to married individuals filing separate returns. Without a patch, the 2007 exemption amounts would have been $45,000 for joint filers, $33,750 for single filers, and $22,500 to separate return filers.

Given the lateness of the enactment, the IRS has stated that early return filers will see a delay in getting their refunds.

In conjunction with the AMT relief, above, the Act amends the tax code by extending to taxable years beginning in 2007 the limitation on the nonrefundable personal credits that may be used to offset a taxpayer's alternative minimum tax liability.

These credits include the dependent care credit, the Hope and Lifetime Learning credits, and the D.C. first-time homebuyers credit.

The AMT patch passed Congress without any offsets to pay for the revenue loss. This is what primarily delayed the legislation until late December. Congress has vowed to pay for this break during the next congressional session.

Sincerely,

Mike Grinnan CPA

J. Michael Grinnan, CPA,
CITPMemberMcCauley, Nicolas & Company, LLC
702 North Shore Drive, Suite 500
Jeffersonville, IN 47130-3104
Phone (812) 288-6621
Fax (812) 288-2885
E-mail Mike_Grinnan@mnccpa.com

The following warning is required by the IRS whenever tax advice is given. If this communication contains no direct or indirect tax advice, the warning is not applicableAs a result of perceived abuses, the Treasury has recently instituted Regulations for practice before the IRS. These Circular 230 regulations require all attorneys and accountants to provide extensive disclosure when providing certain written tax communications to clients. In order to comply with our obligations under these Regulations, we would like to inform you that since this document does not contain all such disclosures, you may not rely on any tax advice contained in this document to avoid tax penalties. CONFIDENTIALITY NOTICE: This message and any attached documents are intended for the use of the individual or entity to which it is addressed and may contain information that is privileged, confidential, and exempt from disclosure under applicable law. If the reader of this message is not the intended recipient, you are hereby notified that any dissemination, distribution or copying of this communication is strictly prohibited. If you have received this communication in error, please notify us immediately by telephone at 1-812-288-6621, and delete this document and any attachments from your system.

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