Bailout Package Extends Key Tax Breaks

One good result of all the recent economic turmoil has been that taxpayers, unlike last year, will not have to wait until the last minute for Congress to extend important tax breaks. The extension of these tax breaks was included in the historic bailout package signed into law by President Bush on October 3, 2008.

One of the most important tax breaks is that Congress patched the Alternative Minimum Tax or AMT for another year. The new law sets the AMT exemption at $69,950 for joint filers and at $46,200 for individual filers. Without a change in the law, the exemption amounts would only have been $45,000 for joint filers and $33,750 for individuals. However, this is again only a temporary solution for the AMT. Congress will again have to address the problem of the AMT next year.

Other tax benefits in the bailout package include:

·State and Local Sales Taxes. For those taxpayers who itemize their tax returns, they will again have the option of deducting state and local sales taxes rather than state income taxes. This benefits taxpayers who live in states that have no income taxes. This provision has now been extended through 2009.

·Mortgage Debt Forgiveness. Taxpayers can exclude mortgage debt forgiveness from taxable income. This is beneficial because debt forgiveness is usually considered income. This provision was set to expire at the end of 2009, but has now been extended through 2012.

·Tuition and Fees Deduction. The bailout package extended through 2009 a provision allowing a deduction for higher-education tuition and fees. This deduction is an above the line deduction that means this deduction is available even to those who do not itemize. However, this deduction starts getting phased out with Adjusted Gross Income above $65,000 for Single and Head of Household filers and above $130,000 for Married Filing Joint filers. Married Filing Separate filers are not eligible for this deduction.

·Supplies Deduction for Educators. Congress extended the provision allowing elementary and secondary school educators to deduct up to $250 for out-of-pocket expenses spent on classroom supplies. This deduction is also an above the line deduction and it has been extended through 2009.

·Charitable Giving Direct From an IRA. Congress has extended the provision through 2009 that allows taxpayers 70 and ½ or older to transfer as much as $100,000 a year directly from an IRA to a charity without owing taxes on the money. This transfer also counts towards the taxpayer’s required minimum distribution for the year.

At least now taxpayers can breath a sigh of relief knowing that some favorite deductions will be available for another couple of years.