The United States tax code is constantly being changed and updated by Congress. Therefore it is essential to stay informed on recent tax changes and how they might affect your next income tax return.
To help our visitors stay prepared this tax season we have put together this list of 12 tax code changes that might affect your tax return.
1. Foreclosure Relief
Over the past year the federal government finally did something to help the thousands of families getting hit with huge tax bills after loosing their house due to foreclosure. According to recent law changes, debt forgiven by a foreclosure, short sale, or loan restructure will no longer be treated as income. The IRS will now allow for up to $2 million of forgiven debt to be excluded from a person’s income. However, it is important to note that this law change only applies to homes used as a principal residence. Vacation homes and property investments are not protected.
2. AMT Exemptions
In 2007 congress increased the AMT exemptions to prevent millions of middle income taxpayers from being hit with the tax. The new exemptions are $44,350 for single taxpayers and heads of households, $33,125 for married filing separately, and $66,250 for married filing jointly. However, this exemption is only for the 2007 tax year and these numbers will drop in 2008 unless congress passes another AMT patch.
3. Higher Income IRA Limits
You can now take a full IRA deduction if your modified AGI (adjusted gross income) is less than $52,00 if you are single or the head of household or $83,00 if you are married filing jointly.
4. Higher 401(k) Limits
In 2007 there was a $500 increase on the limit for employee 401(k) contributions. The limit is now $15,500 for workers under 50, and $20,500 for workers over fifty. The increase also applies to other similar workplace retirement plans including 403(b)s and the federal Thrift Savings Plan.
5. Tax Free Employee Parking
Employer paid parking will no longer be considered as additional income for employees. However, this rule only applies to parking fees up to $215 per month, any additional money paid by the employer will still be considered income.
6. Inflation Indexed Brackets
Due to a high inflation rate in 2007, the 15, 25, 28, 33, and 35 percent tax brackets have all been raised by about 4%.
7. Higher Personal Exemptions
For the 2007 tax year the personal exemption amount was raised by $100 to $3,400.
8. Higher Standard Deductions
In 2007 the standard deductions for taxpayers also increased. You can now deduct $5,350 if you are a single taxpayer, $7,850 if the head of a household, and $10,700 if you are married filing jointly.
9. Reduction of Itemized Deduction Income Limits
The gradual reduction of itemized deductions and exemptions will now begin when a taxpayer’s AGI exceeds $156,400, no matter their filing status. The deductions are reduced by 2% of the amount a taxpayer’s income exceeds the limit. However, the reduction amount cannot exceed 80% of a taxpayer’s itemized deductions.
10. Higher Section 179 Deductions
For 2007 the limit on Section 179 deductions was raised by $17,000 to $125,000. Additionally, the annual investment limit was raised to $500,000.
11. Increased Income Limits for Hope and Lifetime Learning Credits
The amount of a taxpayer’s hope or lifetime learning credit is now gradually reduced if their modified AGI is $47,000 to $57,000 for single taxpayers and $94,000 to $114,000 for married filing jointly. However, taxpayers cannot claim an education credit if their modified AGI is above $57,000 for single taxpayers and $114,000 for married filing jointly.
12. Income from Abroad
The maximum foreign income exclusion was raised from $82,400 in 2006 to $85,700 for the 2007 tax year.
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