Monday, December 29, 2008

Tax news for 2008

Homeowners whose mortgage debt was partly or entirely forgiven during 2007 may be able to claim special tax relief by filling out newly-revised Form 982 and attaching it to their 2007 federal income tax return, according to the Internal Revenue Service.

Normally, debt forgiveness results in taxable income. But under the Mortgage Forgiveness Debt Relief Act of 2007, enacted Dec. 20, taxpayers may exclude debt forgiven on their principal residence if the balance of their loan was less than $2 million. The limit is $1 million for a married person filing a separate return.

To help pay for mortgage forgiveness provisions of the legislation, Congres has created a new penalty applicable to S corporations that fail to file a timely return or that file a return that fails to provide information required by law. The penalty applies for each month the failure continues, up to a maximum of 12 months. It is equal to $85 times the number of persons who are shaholders during any part of the taxable year. This applies to returns filed after December 20, 2007

First Time Homebuyers Credit: Taxpayers who purchased a new home for the first time after April 8, 2008, may qualify for a refundable credit up to $7,500. Part of the American Housing Rescue and Foreclosure Prevention Act, this refundable tax credit works like an interest-free loan for all qualified taxpayers. The credit must be paid back in equal parts over a period of 15 years beginning in 2010.

For 2008 individual taxpayers who do not itemize deductions can add a third component, the real property tax deduction. This deduction is the lesser of either the amount of state and local real property tax paid or $500 ($1000 for married couples filing jointly).

Reminder: Nothing that is written here is intended to be legal or tax advice. As always if you have legal or tax questions consult an attorney or qualified professional

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