The IRS has announced that the official beginning of the 2008 filing season will begin on January 16, 2009 for most taxpayers. That is the first day individuals can transmit e-filed tax returns.

It seems as if there are more tax law changes this year than ever before, and many of them are extensive. To further complicate matters, the majority of our federal changes are not conformed to by California laws. This will create a very interesting tax season.

There are a total of five new tax acts signed into law in 2008. Here are their names, dates, and highlights of changes involved. Conformity by California will be noted by each change.

1. EMERGENCY ECONOMIC STABILIZATION ACT OF 2008, also known as ”Bailout Bill”. This was a $700 billion bill, and includes $150 billion of tax incentives. It was signed into law October 3, 2008. Here are the highlights of this act:

• More taxpayers will qualify for the refundable child tax credit, as the formula has changed. California does not conform.
• Brought back, with more qualifying items, the home energy-efficient improvement credit …small wind energy property and geothermal heat pump property have been added; $500 credit reinstated for 2009 only; 10% of qualifying energy improvements limited to one lifetime $500 credit. California does not conform.
• Introduced a new credit for electric cars, starting in 2009. This will be a $2500 credit plus an amount for excel battery capacity, and this credit can offset AMT. California does not conform.
• Extended the AMT exemption and allowed long term unused AMT credits to be claimed over the next two years instead of five. The exemption amount has been increased for 2008 to $46,200 for single taxpayers, and $69,950 for married filing jointly taxpayers; also for 2008 non-refundable personal credits can be used against AMT. California does not conform.
• Changed the definition of a “qualifying child” AGAIN and established a brand new tie-breaking rule to take effect 1/1/09. Tie breaking rules are modified if two taxpayers can claim the child as a qualifying child, the child may only be claimed by the taxpayer with the highest AGI. Also starting in 2009, a qualifying child must be younger than the taxpayer. California does not conform.
• Introduced three major changes to the casualty loss deduction. In a federally declared disaster losses are no longer subject to the 10% of AGI limit. California does not conform.
• Extended most expiring provisions through 2009. These include the teacher deduction, the sales tax deduction in lieu of state income tax, the tuition deduction, the IRA transfer to charity and others. California does not conform.

2. THE HOUSING AND ECONOMIC RECOVERY ACT OF 2008 was signed into law July 30, 2008. This was an attempt to aid the slumping housing industry and save an estimated 400,000 homeowners from foreclosure by allowing them to refinance to a lower cost FHA loan. The main changes:

• Allow a $7500 first-time homebuyer credit. There is an AGI phase out and limits, which are between $75,000 and $95,-000 for single filers and $150,000 and $170,000 for joint filers. The credit is the lesser of $7500 (joint filers) or 10% of the purchase price of a principal resident. This will be for purchases between 4/9/08 and 6/30/09 and the credit must be taken in the year of the purchase. First-time homebuyers cannot have had any ownership interest in a principal residence in the U.S. during the three year period prior to the purchase of the home. There are several exceptions to these qualifications. There is a $500 per year future recapture, starting in the second taxable year after the home was purchased. Because of this recapture requirement, the credit is more like a “loan” than a “credit”. This recapture amount will be treated as additional income to the taxpayer during the recapture period, possibly up to fifteen years. California does not conform.
• Allow an additional $500 (single) or $1000 (joint) standard deduction for real property taxes for 2008 and 2009. This especially benefits taxpayers who have paid off their mortgages such as retired people and taxpayers who buy their first house late in the year, resulting in only a few months of mortgage interest expense. California does not conform.

3. THE HEROES EARNINGS ASSISTANCE AND TAX RELIEF TAX ACT OF 2008, also known as HEART/Military Bill was signed into law June 17, 2008. This act provided more than $1.2 billion dollars in tax relief to benefit American’s veterans and soldiers. These changes include tax cuts for combat pay, the ability to contribute military death benefits into a Coverdell ESA and extensive changes on the tax on expatriated U.S. citizens.

4. HEARTLAND, HARVEST, HABITAT AND HORTICULTURE ACT OF 2008, also known as the Farm Bill, was signed into law May 22, 2008. This act includes $1.67 billion of specialized tax breaks for the farming industry. The changes include making permanent the liberalization of contributing capital gain property for conservation purposes and allowing new and modified credits related to the production of certain fuels, among others.

5. THE ECONOMIC STIMULUS ACT OF 2008 was signed into law February 13, 2008. This law included rebates for individuals and tax breaks for businesses. Some of the highlights are:

• Rebate checks (also called “stimulus payments”) for individuals up to $600 each, based upon eligible gross income and some tax liability. Nonresident aliens, estates, trusts, and dependents were not eligible. The AGI phaseout was $75,000 single and $150,000 joint. These rebates were sent in 2008 based upon 2007 tax returns. Anyone who is eligible but who did not receive the rebate can apply on their 2008 tax return…perhaps because they did not have qualifying income in 2007 but do in 2008; a qualifying child was born in 2008; the 2007 AGI was too high but the 2008 income is below the AGI limit; they were a dependent of someone else in 2007 but not in 2008; they didn’t file a 2007 return but is filing a 2008 return. California will not tax the federal rebate, nor does California offer any form of rebate checks.

• For businesses, the Section 179 depreciation has been expanded and the 50% first year depreciation allowance has been reinstated.

OTHER 2008 TAX CHANGES PASSED IN PRIOR YEAR LAWS

Beginning January 1, 2008, surviving spouses who sell their primary residence that had been jointly owned and occupied by the deceased spouse is entitled to the $500,000 gain exclusion provided the sale occurs no later than two years after the date of death. Previously, this was only allowed for the year in which the surviving spouse could still file a joint return, or only the tax year in which the spouse died.

For the 2008 tax year, the standard mileage rates for the use of a car (also vans, pickups or panel trucks) will be:
50.5 cents per mile for Jan-June, 58.5 cents per mile for July-Dec, driven for business miles driven;
19.5 cents per mile driven for medical or moving purposes for Jan-June, 27 cents per mile for July-December; and
14 cents per mile driven in service of charitable organizations.

The deduction for the Mortgage Insurance premiums has been extended for three more years through December 31, 2010.

TAX YEAR 2009 CHANGES

For the 2009 tax year, the standard mileage rates for the use of a vehicle will be:
55 cents per mile driven for business miles driven;
24 cents per mile driven for medical or moving purposes; and
14 cents per mile driven in service of charitable organizations

Beginning 1/1/09, any non-qualified use of personal residence reduces the exclusion for capital gains on house sales.

Casualty loss deduction is limited to the loss that exceeds $500 (use to be $100

Estate tax exemption (unified credit) increases to $3.5 million

Exercise of Incentive Stock Options and Employee Stock Purchase Plans require new Form 1099’s to be sent

The minimum Failure to file penalty will be increased

Pass through entities such as Partnerships, Estates and Trusts will be allowed an automatic five-month extension, with no additional extension allowed

Standard Deductions are increased for 2008 to: and for 2009 tax year

MFJ/QW $10,900 (+1,050 over 65/blind) $11,400
Head of Household 8,000 (+1,300 over 65/blind) 8,350
Single 5,450 (+1,300 over 65/blind) 5,700
MFS (neither itemizes) 5,450 (+1,050 over 65/blind) 5,700

Personal Exemption will be increased to $3,500 in 2008 and $3,650 in 2009

The personal exemption Phase-out will be phased out for the 2008 tax year when AGI exceeds $159,950 for single filers, $239,950 for joint filers

1099-C’s for Cancellation of Debt will show amounts to be included as “income” on the 2008 tax return, unless the COD meets any of the criteria for exclusion such as bankruptcy or insolvency, among others.