According to their newest press release, the IRS is claiming that “individual taxpayers e-filed almost 90 million tax returns during 2008, an increase of more than 12 percent over the prior year. Of the 155 million tax returns filed, about 58 percent were filed electronically.”
“More people with home computers and businesses embraced electronic filing this year," said IRS Commissioner Doug Shulman. “Every year, more people realize that electronic filing is the safe, accurate way for taxpayers to complete their taxes and get faster refunds.”
“While the total number of returns has increased by 23 percent during the past decade, the number filed electronically has increased by 206 percent.
This year, almost 27 million returns were filed by individuals from their home computers, up from 22.6 million last year — a 19 percent increase. Filings from home computers accounted for 30 percent of all returns e-filed by individuals. Even though individual tax filings were spurred to unprecedented levels by the economic stimulus payments, the percentage of those e-filed increased to 58 percent.”
ABA Law Journal has put together a very well thought, and informative article on how the IRS is giving more relief to taxpayers this year than they have in the past. The author examines recent tax law changes over the past year and put together a list of ways the federal government is helping taxpayers. Below is a short list of the recent changes, but to read the full list click here.
1. A break for first-time homebuyers
Perhaps the most innovative provision in the housing Assistance Tax Act is a new repayable credit for principal-residence purchases by first-time homebuyers.
Unlike most tax credits, however, this one must be repaid to the federal government in equal installments over 15 years, without interest. So in effect, this credit amounts to an interest-free loan from the government to qualifying first-time homebuyers. (A first-time homebuyer is defined by the act as someone who had no ownership interest in a principal residence in the United States during the three-year period ending on the date of the purchase.)
The credit is equal to 10 percent of the purchase price of the residence, up to a maximum of $7,500 for a single person or a married couple filing jointly (but $3,750 for a married person filing separately). The credit phases out for individuals with a modified adjusted gross income between $75,000 and $95,000, and for joint filers with income between $150,000 and $170,000.
The credit applies to residences bought between April 9, 2008, and July 31, 2009. Generally, the credit is allowable for the year in which the purchase is made, but taxpayers buying residences between January and July 2009 may treat their purchases as having taken place on Dec. 31, 2008, and claim the credit on their 2008 tax returns.
2. Standard deduction increases
For the 2008 tax year only, taxpayers who do not itemize deductions may increase their standard deduction to account for real estate property taxes assessed by state or local governments. For those taxpayers, the addition to the standard deduction may be the amount of their state and local property taxes or $500 ($1,000 for joint filers), whichever is less.
For owners of cooperative apartments, the additional deduction would be based on their pro rata share of the cooperative corporation’s real property taxes.
This addition to the standard deduction is intended to help low-income homeowners and taxpayers who don’t itemize interest payments because they have paid off mortgages. In both cases, itemized deductions generally don’t exceed the standard deduction.
3. More help for hurricane victims
Shortly after Hurricane Katrina struck the gulf Coast in 2005, Congress enacted the Katrina Emergency Tax Relief Act. Later that year, after the region was hit by hurricanes Rita and Wilma, Congress passed the Gulf Opportunity Zone Act. This year’s Housing Assistance Tax Act—enacted before hurricanes Gustav and Ike battered the coast in September—added $1.8 billion to funding for incentive programs created by GOZA.
Of particular significance is a provision in the 2008 act that expands casualty loss relief for owners of homes that were damaged by the hurricanes in 2005.
Under the Internal Revenue Code, non-business casualty losses generally may be taken as itemized deductions to the extent they exceed 10 percent of adjusted gross income, subject to a $100 floor. GOZA eliminated both restrictions for homeowners in the region affected by the hurricanes, thereby allowing more taxpayers to claim a casualty loss deduction for 2005.
The value of casualty losses to homeowners depends, however, on their tax bracket, so low-income taxpayers generally received little benefit when GOZA changed the rules for deducting casualty losses.
In addition, many taxpayers who claimed casualty loss deductions later received rebuilding grants under programs such as Louisiana’s Road Home, which they had to claim as income on their subsequent federal tax returns. And because the rebuilding grants often moved homeowners into a higher tax bracket, they ended up paying taxes that were more than any reductions they got on their 2005 returns when they deducted casualty losses.
4. A break for military personnel
The Servicemembers Civil Relief Act of 2003 implemented major revisions in protections for members of the U.S. military facing proceedings in civil courts while on active duty. Among those enhanced protections were measures to prevent cases of mortgage foreclosure involving military personnel.
The 2008 tax act reinforces those protections on a temporary basis while imposing caps on mortgage interest rates for service members. Under the act, for instance, a service member may request that a mortgage lender keep the interest rate at no more than 6 percent while he or she is on active duty, and the lender must recalculate monthly payments accordingly.
5. Some relief from the AMT
Before the housing assistance tax act was passed, interest on tax-exempt bonds issued to help finance private housing projects was a preference item for the alternative minimum tax. (A tax preference is a special adjustment made to certain items in determining alternative minimum taxable income. As a result of tax preference items, a taxpayer may have to pay an alternative minimum tax in addition to the regular tax on his taxable income.) As a result, taxpayers subject to the AMT were in effect taxed on these “tax-exempt” bonds, which made them less attractive and forced developers to issue bonds at a higher interest rate.
The act provides that interest on certain tax-exempt bonds issued after July 30, 2008, will no longer be considered preference items.
Taken off the list of preference items are exempt facility bonds that are part of a larger issue from which at least 95 percent of the net proceeds are used to provide qualified residential rental projects, qualified mortgage bonds and qualified veterans’ mortgage bonds.
The act also includes reforms for real estate investment trusts. A REIT is a trust or corporation that holds passive investments in real property and mortgages, and that elects to be taxed under special—and complex—rules. Many of the new REIT provisions were proposed before the current crisis in the real estate market, but as the crisis worsened, many experts argued that the new rules were even more necessary to support REITs as a viable real estate investment mechanism.
6. Simplifying low-income housing credits
As enacted in 1986, the low-income housing tax credit is available over a 10-year period to owners of real estate development projects providing low-income housing for at least 15 years. The credit is based on the cost of the project and on the percentage of low-income units.
The 2008 tax act temporarily liberalizes the credit to encourage development of low-income housing.
Only a certain number of credits may be issued for projects around the country. To be eligible for the credit, a developer or property owner must obtain a credit allocation from a state or local government agency. The act has increased the number of credits available in each state for 2008 and 2009, and the amount of each credit has been raised. Under the new formula, each state’s total credits will be an amount equal to the state’s total number of residents multiplied by $2.20 per resident (up from $2 per resident), with fixed minimums for certain smaller states.
The act also seeks to simplify the process of calculating the credit, which is determined under a complex formula that applies an “applicable percentage” to the taxpayer’s “qualified basis” in the property. In addition, low-income housing credits for buildings placed in service after Dec. 31, 2007, as well as a separate rehabilitation tax credit, may offset the alternative minimum tax.