The Emergency Economic Stabilization Act of 2008

 

Brokers’ Statements to Arrive Later Beginning this Filing Season

The Act extends the date by which brokers must furnish information forms to customers. This includes stock broker 1099-B forms and also other forms from brokers, including realtors. Beginning with statements furnished in 2009, brokers will avoid penalties if they furnish these forms on or before February 15 – as opposed to the old due date of January 31.

AMT Relief

The law extends AMT relief for nonrefundable personal credits and increases the AMT exemption amounts to $46,200 for singles and heads-of-household, $69,950 for joint filers and surviving spouses and $34,975 for married filing separately through 2008. The law also abates all unpaid AMT liabilities, including penalties and interest, associated with the exercise of incentive stock options before 2008. For those who have already paid AMT-ISO liability, the law accelerates the minimum tax credit associated with AMT items to allow the unused credit to be refunded over two years rather than five.

Individual Extenders

The law extends the following individual tax provisions through 2009:

• the itemized deduction for state and local sales taxes;
• the above-the-line qualified tuition and expenses deduction;
• the limited addition to the standard deduction for real property taxes paid by non-itemizers;
• the provision that allows taxpayers to make tax-free distributions of up to $100,000 per year to qualified charities from their traditional and Roth IRAs;
• a provision allowing regulated investment companies (RICs) to designate some dividends as interest-related dividends;
• the estate tax look-through for RIC stock held by nonresidents,
• the designation of RICs as qualified investment entities under section 897; and
• the above-the-line $250 deduction for teachers' classroom expenses.

Business Extenders

The law extends the following business tax provisions through 2009:

• Research tax credit increased to 14%; alternative incremental credit repealed; and alternative simplified credit increased;
• 15-year cost recovery for leasehold and restaurant improvement;
• Contributions of food and contributions of books and computer hardware to schools is extended, and S corp shareholders can receive pass-through charitable deductions of appreciated property equal to fair market value rather than the S corp basis in the property;
• New markets tax credit for loans to small businesses in distressed areas; and
• FUTA surcharge of .2% (on wage base up to $7,000 per employee).

Energy Tax Provisions

The Act contains a variety of extended and new tax incentives in the energy area, including:

• Credit of up to $500 for residential insulation, storm doors, etc. is extended to cover property placed in service through 2009.
• Deduction under 179 for energy efficient commercial buildings is extended through 2013;
• The credit to encourage production of renewable energy is extended through 2009 and expanded to include additional sources of renewable energy; and
• Solar and fuel cell credits are extended through 2016.

Child Tax Credit

For the 2008 tax year, the refundable threshold for the child tax credits would decrease from $12,050 to $8,500.

Brokers to Report Customer Basis

The Act requires brokers to report the customer’s basis in sold securities beginning in 2011 for stocks, 2012 for mutual funds, and 2013 for other securities. The IRS and some taxpayers have had difficulty determining basis, and in some cases reported cost reflected the FMV on the date the stock was transferred into a brokerage account rather than actual cost.

In the humble opinion of The Tax Dude®, this provision is years too late.  Brokers who don't have their clients cost basis information and make sell recommendations without knowing the tax implications of the transaction are doing a complete disservice to their clients!

California - Personal Income Tax:
Mortgage Forgiveness Debt Relief Law Clarified

 

 

The California Franchise Tax Board (FTB) has clarified recently enacted legislation (S.B. 1055) that partially conforms California personal income tax law to federal amendments made by the Mortgage Forgiveness Debt Relief Act of 2007 (P.L. 110-142) allowing an exclusion from gross income for discharge of an individual's qualified principal residence indebtedness. Details of the legislation were previously reported.

California-Federal Differences 

The FTB notes that while the California legislation is similar to federal law, there are important differences. The California law covers qualified debt forgiven in 2007 and 2008. The federal law, which originally covered debt forgiven from 2007 through 2009, was extended by the Emergency Economic Stabilization Act of 2008 (H.R. 1424) to cover debt forgiven from 2007 through 2012. 

The California law limits the amount of qualified principal residence indebtedness to $800,000 for taxpayers who file as married/registered domestic partners (RDP) filing jointly, single, head of household, or widow/widower, and to $400,000 for taxpayers who file as married/RDP filing separately. Also, the California law limits debt relief to $250,000 for taxpayers who file as married/RDP filing jointly, single, head of household, or widow/widower, and to $125,000 for taxpayers who file as married/RDP filing separately. The federal law, on the other hand, limits the amount of qualified principal residence indebtedness to $2 million for taxpayers who file as married filing jointly, single, head of household, or widow/widower, and to $1 million for taxpayers who file as married filing separately. Furthermore, the federal law does not limit the debt relief amount.  

Claim for Relief on Original 2007 or 2008 Tax Return 

A taxpayer can file for debt relief on an original 2007 or 2008 Form 540, California Resident Income Tax Return, or Form 540NR, California Nonresident or Part-Year Resident Income Tax Return. If the amount of debt relief for federal purposes is more than the California limit, the taxpayer must include the amount in excess of the California limit on Schedule CA (540/540NR), line 21f, column (C). If the amount of debt relief for federal purposes is the same as the California limit, then no adjustment is necessary on Schedule CA (540/540NR). A copy of the taxpayer's federal return, including Form 982, Reduction of Tax Attributes Due to Discharge of Indebtedness (and Section 1082 Basis Adjustment) must be included with the original California return.  

Claim for Relief on Previously Filed 2007 Tax Return 

A taxpayer who has already filed a 2007 California tax return must file a Form 540X, Amended Individual Income Tax Return, in order to claim debt relief. If the amount of debt relief for federal purposes is more than the California limit, the taxpayer must include the amount in excess of the California limit on Schedule CA (540/540NR), line 21f, column (C). If the amount of debt relief for federal purposes is the same as the California limit, then no adjustment is necessary on Schedule CA (540/540NR). On Form 540X, the taxpayer should simply enter on line 2e, column (B), the amount originally entered on Schedule CA (540/540NR), line 21f, column (C). 

Announcement, California Franchise Tax Board, October 8, 2008.

I hope this information is helpful. If you would like more details about this or any other aspect of the new law, please do not hesitate to contact The Tax Dude®.