Tax Matters

2008 Tax breaks and rebates

By David Katzman

The 2008 Economic Stimulus Act and other tax law changes created benefits for taxpayers that go beyond a simple tax rebate. For many taxpayers, the changes include business tax breaks, as well.

Here is an overview of the recent significant business tax breaks: 

The economic stimulus package includes tax breaks in the form of enhanced expensing and depreciation for business owners. The goal is to encourage business owners to make investments that will increase their organization’s growth potential.

The act increased Section 179 expensing limits from $128,000 to $250,000, with the phase-out threshold increased from $510,000 to $800,000. The new amounts are not subject to the previous alternative minimum tax (AMT) adjustments. For some businesses, these changes could result in a full deduction of the cost of acquired equipment during 2008.

The new law also allows an additional 50 percent accelerated depreciation deduction during the first year based on the cost of a qualifying asset purchased and placed into service during 2008. This additional depreciation and the related adjusted basis for the property will be reflected in future years. You are not required to use this accelerated depreciation option.

In addition to the tax changes from the 2008 Economic Stimulus Act, the legislature also approved several significant changes in late 2007. One of the most significant is the extension of the AMT relief for middle-income taxpayers. The government extended previous AMT temporary fixes, with minimal increases to the exemption amounts. The fixes were set to expire with the 2006 tax year.

Congress also provided a tax break to homeowners who were caught up in the sub-prime lending crisis and had mortgage debt forgiven. Under the 2007 Mortgage Relief Act, taxpayers may not be liable for taxes on forgiven debt on their principal residence before Jan. 1, 2010. This exemption applies for up to $2 million in forgiven debt for joint filers on qualifying residences. The relief does not apply to second mortgages or home equity loans, unless the funds were used to acquire, construct or substantially improve your primary residence. 

The deductibility of mortgage insurance was also extended through 2010. This deduction was set to expire at the end of 2007. There are some qualifying factors surrounding this deduction. The new law also allows for the exclusion of incentives, such as property tax abatements, from income for volunteer firefighters and emergency medical personnel. This exclusion is valid beginning in 2008 through 2010.

Additionally, congress enacted some business and corporate changes in late 2007, which affect some business owners and partnerships. For example, penalties for partnerships or S corporations that failed to file a return or provided inadequate information were substantially increased. Prior to the changes, the federal government could assess a penalty of $50 per partner until the delinquent partnership tax return was filed or for a maximum of five months. The new law increases the penalty to $85 per partner, $86 per partner beginning in 2008, for a maximum of 12 months. S corporations also face similar filing penalties.