Federal lawmakers simply cannot resist tinkering with the tax code. By one estimate, more than 500 tax law changes were made last year alone.
Many of the 2008 changes were made, not surprisingly, in connection with the slowing economy in general and the housing crisis in particular. But many tax-law tweaks last year also were in areas that seem to get constant attention on Capitol Hill.
Such revisions of existing laws often leave taxpayers feeling like characters in an IRS version of the movie "Groundhog Day," each year facing essentially the same tax challenges. The good news is that such "tax script" revisions are at least somewhat familiar. The better news is that these rewrites, as well as some totally new tax laws, offer ways to trim tax bills and provide a happier ending to your 2008 tax-filing circumstances.
Taxing matters
Several tax code changes will affect 2008 returns. Some are new. Some are revisions of long-standing laws. A few are holdovers of earlier changes. And a couple might affect your tax planning for 2009.
2008 tax law changes
- Rebate Recovery Credit
- First-time homebuyer's credit
- Standard property tax deduction
- Surviving spouse home sale exclusion
- Housing tax-break holdovers
- AMT inflation adjustments
- Zero capital gains
- Kiddie tax toughened
- Required retirement distributions
- Expired tax breaks extended
1. Rebate Recovery Credit
In 2001, George W. Bush began his first term as U.S. president with tax legislation that offered millions of taxpayers a rebate. The 43rd president closed out his second term last year with another tax measure that distributed millions of tax rebate checks.Bush's tax legacy continues this filing season. Last year's economic stimulus payments, or rebates as they were popularly called, actually were credits against 2008 income. And some people may be able to cash in on the rebates this filing season by claiming the Recovery Rebate Credit.
This new credit, available only on 2008 returns, could help filers who last year did not receive the maximum credit of up to $600 for single taxpayers, $1,200 for married couples filing jointly. Changed tax circumstances, such as a new child in the family, also could get you a bit more rebate money on your 2008 return.
The Recovery Rebate Credit can be claimed on all three versions of the 1040. You'll need to know how much you received last year in order to calculate what you're eligible for now.
2. First-time homebuyer credit
The dismal housing market prompted lawmakers to create several new tax breaks.Thanks to the Housing and Economic Recovery Act of 2008, some first-time homebuyers can claim a credit of 10 percent of the home's purchase price, up to a maximum of $7,500. You could qualify as a first-time buyer if you have not owned a home in the three years prior to the qualifying purchase.
There are, however, some limitations. The credit phases out for higher-income taxpayers. It is available only for primary homes purchased between April 9, 2008, and June 30, 2009. And it's not a true credit. The tax break must be paid back, without interest, in equal payments over 15 years. Congress is considering expanding this first-time homebuyer credit.