The IRS has announced that the official beginning of the 2007 filing season will begin on January 14, 2008 for most taxpayers.
Many of this year’s tax changes were made during the last two weeks of December. One of those was The Tax Increase Protection Act of 2007, which provides AMT relief for about 25 million middle-income taxpayers for the 2007 tax year. What this means is that taxpayers at or below the following AGI thresholds are exempt from additional AMT tax calculations:
... Single $44,350
... MFJ $66,250
... MFS $33,12
These thresholds are increased from the 2006 exemption thresholds.
Because of the lateness of the passage of the above bill, filers who still fall into the AMT calculation category but are able to use some nonrefundable personal credits to offset AMT liability may face delayed filing dates. These credits include Education Credits, Residential Energy Credits, Child and Dependent Care Expenses (1040A filers), Mortgage Interest Credit, and District of Columbia First-Time Homebuyer Credit. This is a FORMS problem for the IRS, and these filings are expected to be February 11, 2008.
Congress also provided major assistance to many homeowners facing foreclosure or “short sales” by passing the Mortgage Forgiveness Debt Relief Act of 2007. This law only applies to a taxpayers’ principal residence and the debt forgiven only applies to acquisition, construction, or substantial improvement of that principal residence. It is not intended to keep from taxable income any debt forgiveness for debt that was taken out to pay for other purposes such as buying other property, automobiles, paying off credit cards, etc.
For 2007 the standard mileage rates for the use of a car (also vans, pickups or panel trucks) are:
... 48.5 cents per mile driven for business miles driven;
... 20 cents per mile driven for medical or moving purposes; and
... 14 cents per mile driven in service of charitable organizations.
Tax preparer penalties have been increased. If any part of a tax liability understatement is due to an unreasonable position, the preparer must pay the greater of $1,000 or 50% of any fee received by the preparer for preparing the return. Preparers will be forced to shift more of the burden of proof to their clients for documentation of numbers such as automobile miles driven for business, etc.
Mortgage Insurance premiums paid for qualified mortgage insurance are deductible as qualified mortgage interest, but only if the contract for the residence was entered into after December 31, 2006. There is an AGI phaseout for this starting at $100,000.
Many of the previous deductions allowed in 2006 have been extended. Some of those are the State and local Sales Tax Deduction; the Tuition and Fees Deduction; Teachers’ Classroom expenses (max $250); Availability of Medical Savings Accounts; Research Credits; Work opportunity Credit; Welfare to work Credit; 15-year recovery for leaseholds and restaurant improvements; Donations of computer technology/equipment.
Beginning in 2007, IRA contribution limits will be indexed for inflation, and rounded to the nearest multiple of $1,000.
For tax years starting in 2007, the income limit for Roth contributions will be indexed, so higher income taxpayers will be able to make contributions to Roth IRAs or rollover a traditional IRA into a Roth.
Cash Contributions to Charity will be disallowed unless there is a written record such as cancelled checks, or a letter from the charitable organization stating the date and the amount of the contribution.
Standard Deductions are increased for 2007 to:
... MFJ/QW $10,700 (+1,050 over 65/blind)
... Single 5,350 (+$1,300 over 65/blind)
... HOH 7,850 (+1,300 over 65/blind)
... MFS (neither itemizes) 5,350 (+1,050 over 65/blind)
Personal Exemption will be increased to $3,400. Phaseout begins at the following AGIs: Single $156,400
... HH 195,500
... MFJ/QW 234,600
... MFS 117,300
The reduction is 2% for each $2,500 by which AGI exceeds the threshold amounts.
Section 179 deduction will increase to $125,000. It will remain at $25,000 for California.
Education Credits phaseout range increases to $47,000-$57,000 for single and $94,000- $114,000 for married filing jointly.
Student Loan Interest Deduction phaseout range increases to $55,000-$70,000 for single and $110,000-$140,000 for married filing jointly.
IRA Deductions Phaseout range increases to $156,000-$166,000 when spouse is in a covered plan.
CALIFORNIA TAX LAW CHANGES
Registered Domestic Partners in the state of California are required to file personal income tax returns as either married filing jointly or married filing separately.
