The Economic Stabilization Act of 2008, a.k.a. “the bailout bill”, was not just a bonanza for Wall Street firms. It also contained several provisions to benefit individual taxpayers. The following nine items are either new tax benefits for 2008 or extensions of previous benefits that were set to expire:
1. Alternative Minimum Tax - Each year, Congress and President Bush continue to "patch" the Alternative Minimum Tax (AMT), which typically affects wealthier taxpayers but increasingly affects the middle-class, and with good reason. The Internal Revenue Service estimates that without the current legislation, over 26 million Americans would be subject to the AMT. The new legislation increases the exemption for married couples to $69,950. For single taxpayers, the exemption is increased to $46,200.
2. Home energy improvements – Spending money to improve the energy efficiency of your home is not only good for the environment — it is also good for your wallet. In addition to reducing your utility bill, you are also eligible to receive a federal tax credit for up to 10 percent of the qualifying expense. Qualifying expenses include energy efficient doors, windows, heating systems or adding insulation to your house. The tax credit is capped at $500 per taxpayer.
3. College tuition – Although college costs continue to increase unabatedly, there is some good news. Students can deduct up to $4,000 from their income for expenses paid to a college or university. This benefit had previously expired on Dec. 31, 2007 and is now extended through Dec. 31, 2009.
4. Teachers – Teachers can deduct up to $250 of amount they pay from personal funds to buy books and supplies for their classrooms. This benefit had expired on Dec. 31, 2007 and is now extended through Dec. 31, 2009.
5. Debt forgiveness – In the current housing market, there are a significant number of homeowners who are "upside down" on their mortgage, or owe more than their home is worth. In certain cases, the lender may provide relief to the homeowner and forgive a portion of the debt owed to them. Prior to 2007, forgiven debt was considered taxable income to the home owner. Under current rules, this will not be treated as taxable income for tax years 2008 to 2012.
6. Sales tax deduction – Taxpayers have historically been able to deduct state income taxes and local property taxes. However, sales tax was not deductible from federal income tax. Under current legislation, taxpayers can deduct either the sales tax they pay or their state and local taxes — whichever is more. This is generally beneficial to those residing in states with no income taxes (i.e. all you snowbirds with Florida residency).
7. Hybrid cars – Large automakers will begin to produce plug-in electric hybrid vehicles in 2009. If you buy one, you may be eligible to receive $2,500 to $7,500 in federal tax credit.
8. IRA distributions – Retirement account distributions are typically considered taxable income. Under the current legislation, individuals over the age of 70.5 can take a distribution of up to $100,000 from their IRA and donate it to a charity tax-free.
9. Alternative energy – Install solar panels, a small wind turbine, or a geothermal pump to power your home and you will likely qualify for a federal tax credit. The new legislation provides these credits through Dec. 31, 2016. The amount of credit you receive will depend on the unit installed and its cost. The maximum credit under this program is $4,000.
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