C Forrest Davis Tax Services

Davis Tax Services, LLP
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Davis Tax Services, LLP
4402 E. Brott St. [ Map ]
Tucson, AZ 85712
(520) 393-8813
office & fax
davis-tax@davis-tax.com

Highlights of 2007 Tax Law Changes

Late-December legislation will make for a slow start to tax season this year.

AMT relief

After many months of wrangling in Congress, The Tax Increase Protection Act of 2007 was passed in December. It provides one year of relief from outdated Alternative Minimum Tax provisions, setting the AMT exemption amount at $44,350 ($66,250 for joint filers).

For taxpayers who don't think the AMT affects them, it may hit them in a different way: IRS delays. IRS is feverishly reprogramming its computer software to accomodate the new law's provisions, and may not be able to accept some kinds of tax returns until later in the season. Meanwhile, IRS has mailed packets of tax forms without several familiar credits that are affected by AMT.

The IRS is projecting that it will not be able to handle tax returns from almost 14 million taxpayers until Feb. 11. Those stalled are returns which have any of these forms:

Education Credits (Form 8863)
Residential Energy Credits (Form 5695)
Child and Dependent Care Expenses (Form 1040A Schedule 2)
Mortgage Interest Credit (Form 8396)

Other forms affected by the AMT which supposedly will not encounter delays include:

Foreign Tax Credit for Individuals (Form 1116)
Qualified Adoption Expenses (Form 8839)
Credit for Retirement Savings Contributions (Form 8880)
Credit for the Elderly or the Disabled (Schedule R)

Mortgage Debt Forgiveness Bill

Also in late December, Congress passed the Mortgage Forgiveness Debt Relief Act. The bill will allow taxpayers to exclude from gross income up to $2 million of mortgage debt forgiven through 2009. Importantly, the bill also extends through 2010 the deductibility of mortgage insurance premiums and expands the § 121(b) exclusion (of gain from the sale of principal residence by a surviving spouse) to $500,000 within two years.

IRA Wash Sales

In Rev. Ruling 2008-5, IRS provides that if an individual sells stock or securities for a loss and causes his or her IRA (or Roth IRA) to purchase substantially identical stock or securities within a specified period, the loss on the sale of the stock or securities is disallowed under §1091, and by virtue of §1091(d), the individual's basis in the IRA or Roth IRA is not increased.

Standard Mileage Rates Adjusted for 2007

The standard mileage rate for business use of a car, van, pick-up or panel truck is 48.5 cents a mile for 2007 (50.5 for 2008).
The standard mileage rate for the cost of operating a vehicle for medical reasons or as part of a deductible move is 20 cents a mile for 2007.
The standard mileage rate for using a car to provide services to charitable organizations remains at 14 cents a mile.

Reminder: New Rules for Giving to Charity

To be deductible, clothing and household items donated to charity after Aug. 17, 2006, must be in good used condition or better. However, a taxpayer may claim a deduction of more than $500 for any single item, regardless of its condition, if the taxpayer includes a qualified appraisal of the item with the return. Household items include furniture, furnishings, electronics, appliances, and linens.
To deduct any charitable donation of money, taxpayers must have a bank record or a written communication from the recipient showing the name of the organization and the date and amount of the contribution. Though taxpayers are already required to keep records to support their contribution deductions, this new provision is designed to provide greater certainty, both to taxpayers and the government, in determining what may be deducted as a charitable contribution. This provision applies to contributions made in taxable years beginning after Aug. 17, 2006. For taxpayers that file returns on a calendar-year basis, including most individuals, the new provision applies to contributions made beginning in 2007.
An IRA holder, age 70½ or over, can directly transfer tax-free, up to $100,000 per year to an eligible charity. This option is available in tax years 2006 and 2007. Eligible IRA holders can take advantage of this provision, regardless of whether they itemize their deductions. Funds must be contributed directly by the IRA trustee to the eligible charity. Transferred amounts are counted in determining whether the holder has met the IRA's required minimum distribution rules.