2008/2009 first time homebuyers

2007/2008 changes

more 2007/2008 changes

more 2008/2009 changes

First-time homebuyers should begin planning now to take advantage of a new tax credit included in the recently enacted Housing and Economic Recovery Act of 2008.

• Applies to home purchases after April 8, 2008, and before July 1, 2009.
• Reduces a taxpayer’s tax bill or increases his or her refund, dollar for dollar.
• Is fully refundable, meaning that the credit will be paid out to eligible taxpayers, even if they owe no tax or the credit is more than the tax that they owe.

However, the credit operates much like an interest-free loan, because it must be repaid over a 15-year period. So, for example, an eligible taxpayer who buys a home today and properly claims the maximum available credit of $7,500 on his or her 2008 federal income tax return must begin repaying the credit by including one-fifteenth of this amount, or $500, as an additional tax on his or her 2010 return.

Eligible taxpayers will claim the credit on new IRS Form 5405. This form, along with further instructions on claiming the first-time homebuyer credit, will be included in 2008 tax forms and instructions and be available later this year on IRS.gov, the IRS Web site.

If you bought a home recently, or are considering buying one, the following questions and answers may help you determine whether you qualify for the credit.

Q. Which home purchases qualify for the first-time homebuyer credit?

A. Only the purchase of a main home located in the United States qualifies and only for a limited time. Vacation homes and rental property are not eligible. You must buy the home after April 8, 2008, and before July 1, 2009. For a home that you construct, the purchase date is the first date you occupy the home.

Taxpayers who owned a main home at any time during the three years prior to the date of purchase are not eligible for the credit. This means that first-time homebuyers and those who have not owned a home in the three years prior to a purchase can qualify for the credit.

If you make an eligible purchase in 2008, you claim the first-time homebuyer credit on your 2008 tax return. For an eligible purchase in 2009, you can choose to claim the credit on either your 2008 (or amended 2008 return) or 2009 return.

Q. How much is the credit?

A. The credit is 10 percent of the purchase price of the home, with a maximum available credit of $7,500 for either a single taxpayer or a married couple filing jointly. The limit is $3,750 for a married person filing a separate return. In most cases, the full credit will be available for homes costing $75,000 or more. Whatever the size of the credit a taxpayer receives, the credit must be repaid over a 15-year period.

Q. Are there income limits?

A. Yes. The credit is reduced or eliminated for higher-income taxpayers.

The credit is phased out based on your modified adjusted gross income (MAGI). MAGI is your adjusted gross income plus various amounts excluded from income—for example, certain foreign income. For a married couple filing a joint return, the phase-out range is $150,000 to $170,000. For other taxpayers, the phase-out range is $75,000 to $95,000.

This means the full credit is available for married couples filing a joint return whose MAGI is $150,000 or less and for other taxpayers whose MAGI is $75,000 or less.

Q. Who cannot take the credit?

A. If any of the following describe you, you cannot take the credit, even if you buy a main home:

• Your income exceeds the phase-out range. This means joint filers with MAGI of $170,000 and above and other taxpayers with MAGI of $95,000 and above.
• You buy your home from a close relative. This includes your spouse, parent, grandparent, child or grandchild.
• You stop using your home as your main home.
• You sell your home before the end of the year.
• You are a nonresident alien.
• You are, or were, eligible to claim the District of Columbia first-time homebuyer credit for any taxable year.
• Your home financing comes from tax-exempt mortgage revenue bonds.
• You owned another main home at any time during the three years prior to the date of purchase. For example, if you bought a home on July 1, 2008, you cannot take the credit for that home if you owned, or had an ownership interest in, another main home at any time from July 2, 2005, through July 1, 2008.

Q. How and when is the credit repaid?

A. The first-time homebuyer credit is similar to a 15-year interest-free loan.  Normally, it is repaid in 15 equal annual installments beginning with the second tax year after the year the credit is claimed. The repayment amount is included as an additional tax on the taxpayer’s income tax return for that year.  For example, if you properly claim a $7,500 first-time homebuyer credit on your 2008 return, you will begin paying it back on your 2010 tax return. Normally, $500 will be due each year from 2010 to 2024.

You may need to adjust your withholding or make quarterly estimated tax payments to ensure you are not under-withheld.

However, some exceptions apply to the repayment rule. They include:

• If you die, any remaining annual installments are not due. If you filed a joint return and then you die, your surviving spouse would be required to repay his or her half of the remaining repayment amount.
• If you stop using the home as your main home, all remaining annual installments become due on the return for the year that happens. This includes situations where the main home becomes a vacation home or is converted to business or rental property. There are special rules for involuntary conversions.  Taxpayers are urged to consult a professional to determine the tax consequences of an involuntary conversion.
• If you sell your home, all remaining annual installments become due on the return for the year of sale. The repayment is limited to the amount of gain on the sale, if the home is sold to an unrelated taxpayer. If there is no gain or if there is a loss on the sale, the remaining annual installments may be reduced or even eliminated. Taxpayers are urged to consult a professional to determine the tax consequences of a sale.
• If you transfer your home to your spouse, or, as part of a divorce settlement, to your former spouse, that person is responsible for making all subsequent installment payments.

1. Homeowner Debt Forgiveness    Mortgage debt forgiven
2. Mortgage Insurance Premiums may be Treated as Home Mortgage Interest    Deductible mortgage insurance
3. Alternative Minimum Tax (AMT) & Credit for Prior year AMT     AMT relief, delay
4. Charitable Contributions paid in Cash/Check/Other    Donation documentation
5. Older philanthropist options
6. 'Enron' retirement catch-up
7. Time is running out for these tax saving opportunities    Home energy savings    Fuel-efficient autos
8. Deductions Restored. Educator expense / tuition / sales tax    Popular deductions reappear
9. 2008 tax changes
10. Kiddie tax now applies to your children under age 18, and starting in 2008 that will be under age 19.
11. Health Savings Accounts (HSAs).
12. Adoption credit. Adoption assistance program.
13. Misclassified workers (you did not receive a W-2 for your wages).
14. Retired Public Safety Officer Exclusion.
15. Tax-free veterans benefits.
16. New York volunteer firefighters' and ambulance workers' credit.
17. Massachusetts 1099-HC health care affordability.
18. Statutory Employees
19. Qualified Performing Artist deductions for Actors, Musicians and so on.
20. Handicapped Employee claiming impairment-related expenses.
21. Fee-basis state or local government official deductions.
22. National Guard and Reserve members - overnight travel.
23. Outside Salesperson filing the Michigan Cities Big Rapids tax return.

Mortgage Insurance Premiums may be Treated as Home Mortgage Interest.
Some borrowers may be able to deduct mortgage insurance premiums (commonly called private mortgage interest or PMI) paid on mortgages taken out or refinanced during 2007. A borrower who prepays premiums for later years may deduct only the premiums that relate to 2007, except for prepayments for guarantees made by the Department of Veterans Affairs or the Rural Housing Service. Only mortgage insurance contracts issued during 2007, 2008, 2009 or 2010 qualify for this new itemized deduction. Proceeds of the mortgage, secured by a first or second home, must be used exclusively to buy, build or improve these homes, or alternatively, to refinance a mortgage, secured by the home and used for these purposes. Home-equity loans used for other purposes are not eligible. The deduction for mortgage insurance premiums is phased out for taxpayers with adjusted gross incomes exceeding $100,000.  This tax break may be eliminated after 2007.
 

Charitable Contributions paid in Cash.
There are new recordkeeping requirements for cash contributions. You cannot deduct a cash contribution, regardless of the amount, unless you keep as a record of the contribution a bank record (such as a canceled check, a bank copy of a canceled check, or a bank statement containing the name of the charity, the date, and the amount) or a written communication from the charity. The written communication must include the name of the charity, date of the contribution, and amount of the contribution.  You will need a receipt or other acknowledgment from the charity for all individual donations over $250.

Charitable Contributions paid with a Check.
You will need a receipt or other acknowledgment from the charity for all individual donations over $250.

Charitable Contributions Other Than by Cash or with a Check.
If you gave used items, such as clothing or furniture, deduct their fair market value at the time you gave them. Fair market value is what a willing buyer would pay a willing seller when neither has to buy or sell and both are aware of the conditions of the sale.

If the amount of your deduction is more than $500, you must provide details to be used to complete and IRS Form 8283.  If you deduct more than $500 for a contribution of a motor vehicle, boat, or airplane, you must also attach a statement from the charitable organization to your return. The organization may use Form 1098-C to provide the required information. If your total deduction is over $5,000, you may also have to get appraisals of the values of the donated property.

Clothing items are is no longer deductible unless they are in "good" condition or better. Household items (furniture, home electronic, kitchen appliances, linens, etc) must also be in "good" condition or better.

Special rules encouraging contributions of inventories of food and books are extended through 2007 for all businesses, not just regular C corporations.

Kiddie tax now applies to your children under age 18, and starting in 2008 that will be under age 19.
The amount of investment income a child under age 18 can earn before excess earnings are taxed at his or her parents' rate will remain at $1,700 for 2007, the same as for 2006.

Alternative Minimum Tax (AMT).
Congress approved a last-minute patch that will prevent about 23 million new taxpayers from being hit by the AMT this year, compared to four million who paid it last year.

The AMT exemption amount has increased to $44,350 ($66,250 if married filing jointly or qualifying widow(er); $33,125 if married filing separately


Credit for Prior Year Alternative Minimum Tax.
If you have any unused minimum tax credit carryforward from 2003 or earlier years, your minimum tax credit allowable for 2007 is not less than the "AMT refundable credit amount." In addition, a portion of the credit may be refundable in 2007. That means, if the refundable part of the credit is more than your tax, you can get a refund of the difference.

AMT credit relief. This new refundable credit can be worth as much as 20% or $5,000. It applies to taxpayers who have long-term, unused AMT credits, who also have AMT income from incentive stock option (ISO’s).

Health Savings Accounts (HSAs).
Funding the accounts has become easier with new rules allowing roll-overs from flexible spending accounts (FSAs) and health reimbursement accounts (HRAs). Also there is an option for a "once-in-a-lifetime" rollover of funds from an IRA to an HSA.

Adoption credit.
Beginning in 2007, the credit allowed for an adoption of a child with special needs is $11,390 and the maximum credit allowed for other adoptions is the amount of qualified adoption expenses up to $11,390. The credit begins to phase out if you have modified adjusted gross income of $170,820 or more and is completely phased out if you have modified adjusted gross income of $210,820 or more.

Adoption assistance program.
 Beginning in 2007, you may be able to exclude up to $11,390 from your gross income for qualified adoption expenses paid or incurred by your employer under a qualified adoption assistance program in connection with your adoption of an eligible child. This income exclusion starts to phase out if your modified adjusted gross income is $170,820 or more and is completely phased out if your modified adjusted gross income is $210,820 or more.

Homeowner Debt Forgiveness.
Taxpayers can exclude from their income up to $2 million of debt forgiven on their principal residence. The limit is $1 million for a married person filing a separate return. This provision applies to debt forgiven in 2007, 2008 or 2009. Debt reduced through mortgage restructuring, as well as mortgage debt forgiven in connection with a foreclosure qualify for this relief.

Misclassified workers (you did not receive a W-2 for your wages).
Employees working for employers who failed to withhold Social Security and Medicare taxes should use new Form 8919 to report and pay their share of these taxes. This includes employees who are treated as independent contractors who feel they are employees and who have already received a determination letter from the IRS which states they are employees.

Workers who believe they are misclassified as independent contractors can file Form SS-8 with the IRS and request a determination of their worker classification. For employees, the Social Security tax rate is 6.2 percent and the Medicare tax rate is 1.45 percent. Normally, employers withhold these taxes from workers’ pay, match these amounts and turn over the combined amounts to the IRS. Workers, properly classified as independent contractors, should not use Form 8919.

Retired Public Safety Officer Exclusion.
A retired public safety officer can exclude from income up to $3,000 in distributions from an eligible government retirement plan used to pay the premiums on accident and health insurance or long-term care insurance. Distributions must be made directly from the plan to the insurance provider. Retired law enforcement officers, firefighters, chaplains and members of rescue squads or ambulance crews qualify for this provision.

Tax-free veterans benefits.
Compensated work therapy payments received by some veterans, unable to work, are now tax-free. Because these are tax-free veterans’ benefits, recipients will no longer receive Forms 1099, reporting these payments, from the Department of Veterans Affairs. Disabled veterans who paid tax on these benefits in 2004, 2005 and 2006 can claim a refund by filing an amended return using Form 1040X.

Time is running out for these tax saving opportunities.

Hybrid car credit. This credit worth up to $3,400, replaced a tax deduction for hybrid cars. This only applies to the first 60,000 hybrid cars sold per manufacturer and will be reduced and phased-out after the quota has been meet.

Residential energy improvement credit. This is the last year to get a tax credit of up to $500 for making your home more energy efficient. Installing new windows, doors or insulation can save on energy now and save taxes on your tax form 1040.

Energy Efficient Home Improvements Credit (Claimed on new Form 5695)

• Credit limit is $500 lifetime for all tax years
• Credit is equal to the sum of:
  • 10% of significant energy efficiency improvements on existing home and
  • 100% of cost of eligible (a) heat pumps, central air conditioners and water heaters (up to $300), (b) natural gas, propane or oil furnaces (up to $150) and (c) advanced main air circulating fans (up to $50).

Residential Energy efficient property credit (Claimed on new Form 5695)

• Credit is up to 30% of qualified photovoltaic, solar water heating and qualified fuel cell property costs.
• Maximum lifetime credit is:
  • 2,000 for solar water heater and photovoltaic equipment
  • $500 for each .5 kilowatt of capacity for fuel cell property

Deductions Restored.
Congress waited until the last minute to renew these popular tax breaks:

Educator expense deduction.  A deduction for up to $250 for out-of-pocket expenses.

College tuition deduction. Available for 2006 and 2007, taxpayers can once again deduct up to $4,000 of tuition and fees if you meet the income restrictions. A new tax Form 8917 may be needed this year.

State and local sales tax deduction (in lieu of State income tax deduction). This is particularly important if you don’t live in a state with an income tax. And there is no recordkeeping required. The IRS has a "safe harbor" amount keyed to state, filing status and number of dependents.

The following tax benefits have expired and will not apply for 2007.

• Relief granted for Hurricanes Katrina, Rita, and Wilma.
  • Tax-favored treatment of qualified hurricane distributions from eligible retirement plans.
  • Increased limits and delayed repayment on loans from qualified employer plans.
  • Special rules so a temporary relocation did not affect whether you provided more than half of an individual's support, whether you furnished more than half the cost of keeping up a household, and whether you could treat an individual as a student.
  • Increased limits and an expanded definition of qualified education expenses for the Hope and lifetime learning credits.
  • Additional exemption for housing individuals displaced by Hurricane Katrina.
  • Exclusion from income for discharge of nonbusiness debt by reason of Hurricane Katrina.
• Qualified electric vehicle credit. You cannot claim this credit for any vehicle you placed in service after 2006.

Joint Committee on Taxation has issues a List of Expiring Federal Tax Provisions through 2020.

New York volunteer firefighters' and ambulance workers' credit.
Starting in 2007 a $200 refundable tax credit is available to each full-year New York State resident who serves as an active volunteer firefighter or a volunteer ambulance worker for the entire tax year for which the credit is claimed.

Form IT-245 is needed:
http://www.dos.state.ny.us/fire/pdfs/forms/NYSFormIT-245.pdf (2007)
http://www.tax.state.ny.us/pdf/2008/inc/it245_2008.pdf (2008)
http://www.tax.state.ny.us/pdf/2008/fillin/inc/it245_2008_fill_in.pdf (2008)

then bring the $200 or $400 tax credit forward to Form IT-201-ATT line 12 and list with a code #354.

Massachusetts 1099-HC health care affordability.
Starting in 2007 MA residents need to have a form 1099-HC and report the general county of residence as follows:

• Region 1. Berkshire, Franklin and Hampshire Counties
• Region 2. Bristol, Essex, Hampden, Middlesex, Norfolk, Suffolk and Worcester Counties
• Region 3. Barnstable, Dukes, Nantucket and Plymouth Counties

Statutory Employees
If you received a Form W-2 and the "Statutory employee" box in box 13 was checked, report your income and expenses related to that income on Schedule C or C-EZ (Form 1040).  Do not complete Form 2106 or 2106-EZ.

Statutory employees have earnings that are subject to social security and Medicare taxes but not subject to federal income tax withholding.  (do not confuse with common-law employees) There are workers who are independent contractors under the common-law rules but are treated by statute as employees. They are called "statutory employees."

1. A driver who distributes beverages (other than milk), or meat, vegetable, fruit, or bakery products; or who picks up and delivers laundry or dry cleaning if the driver is your agent or is paid on commission.
2. A full-time life insurance sales agent whose principal business activity is selling life insurance or annuity contracts, or both, primarily for one life insurance company.
3. An individual who works at home on materials or goods that you supply and that must be returned to you or to a person you name if you also furnish specifications for the work to be done.
4. A full-time traveling or city salesperson who works on your behalf and turns in orders to you from wholesalers, retailers, contractors, or operators of hotels, restaurants, or other similar establishments. The goods sold must be merchandise for resale or supplies for use in the buyer’s business operation. The work performed for you must be the salesperson’s principal business activity.

For more details on statutory employees and common-law employees, see section 1 in Pub. 15-A.

Qualified Performing Artist.
Total employee business expenses are deductible "above the line" on Form 1040, line 24, instead of being limited "below the line" on Schedule A, if the federal adjusted gross income limit is met.

Handicapped Employee claiming impairment-related expenses.
Total employee business expenses included on Schedule A, Other Miscellaneous Deductions, rather than being subject to the 2% federal adjusted gross income limitation.

Fee-basis state or local government official.
Total expenses incurred for services performed in that job are deductible "above the line" on Form 1040, line 24, instead of being limited "below the line" on Schedule A.

National Guard and Reserve members.
The unreimbursed overnight travel expenses (transportation, meals and lodging) are deductible "above the line" on Form 1040, line 24, instead of being limited "below the line" on Schedule A. These expenses should be limited to the rates for such expenses authorized for federal employees, including per diem in lieu of subsistence.

Outside Salesperson filing the Michigan Cities Big Rapids tax return.
Deductions include "Other Employee Business Expenses" other than vehicle, parking and transit, lodging, meals and entertainment.
An "outside salesperson" is one who solicits business away from the employer's place of business as a full-time salesperson. If the individual is required to spend a stated period of time selling at the employer's place of business as part of their job, the individual is not an outside salesperson. If the individual only performs incidental activities there, such as writing up and handing in orders, the individual qualifies for the expense deduction. A salesperson whose principal activity is service and delivery is not an "outside salesperson". An inside salesperson who makes incidental outside calls and sales is not an "outside salesperson".

.

1. Mortgage debt forgiven
2. Deductible mortgage insurance
3. AMT relief, delay
4. Donation documentation
5. Older philanthropist options
6. 'Enron' retirement catch-up
7. Home energy savings
8. Fuel-efficient autos
9. Popular deductions reappear
10. 2008 tax changes

1. Forgiven home debt nontaxable

The year 2007 was dominated by housing woes. Many individuals who took out adjustable-rate mortgages to buy homes discovered that those loan terms, a changing economy and slumping housing market combined into a perfect homeownership storm.

Many individuals lost their houses to foreclosure; others were able to renegotiate more manageable payment terms. But in both cases, many of those homeowners soon discovered that they also owed unexpected taxes related to their real estate transactions.

Tax laws consider debt that a lender forgives as taxable income. In a homeowner's case, for example, if the bank reworks a loan so that the principal is less and writes off that excess, the amount is taxable cancellation of debt income. The same is true in certain situations where a mortgage lender forecloses on a home and sells it for less than the owner's loan principal. For example, if a bank forecloses when the borrower owes $400,000 on a home and then sells the property for $310,000 in full satisfaction of the debt, the borrower will usually owe tax on $90,000.

Although the taxability of debt forgiveness amounts has long been on the tax books, it came as a huge surprise to many homeowners.

Apparently, politicians thought so, too. Under the Mortgage Debt Forgiveness Act of 2007, some homeowners granted forgiveness of mortgage debt won't have to pay taxes on that amount. But there are some restrictions:

1. There is a limit on the forgiven debt: up to $2 million or $1 million for a married person filing a separate return.
2. The tax break also has a time limit. It only applies to mortgage debt discharged by a lender in 2007, 2008 or 2009.
3. The loan also must have been taken out to buy or build a primary residence, not a second or vacation home. If debt is forgiven on those additional properties, the owner will owe cancellation of debt income as usual.

The new law applies to debt forgiven in 2007, 2008 or 2009.  Debt reduced through mortgage restructuring, as well as mortgage debt forgiven in connection with a foreclosure, may qualify for this relief. In most cases, eligible homeowners only need to fill out a few lines on Form 982 (specifically, lines 1e, 2 and 10b).

The debt must have been used to buy, build or substantially improve the taxpayer's principal residence and must have been secured by that residence. Debt used to refinance qualifying debt is also eligible for the exclusion, but only up to the amount of the old mortgage principal, just before the refinancing.

Debt forgiven on second homes, rental property, business property, credit cards or car loans does not qualify for the new tax-relief provision. In some cases, however, other kinds of tax relief, based on insolvency, for example, may be available. See Form 982 for details.

2. Writing off private mortgage insurance

When a homebuyer does not make at least a 20 percent down payment, lenders usually require private mortgage insurance, or PMI. For some loans taken out in 2007, PMI payments are now deductible.

It is phased out for taxpayers with adjusted gross incomes exceeding $100,000 ($50,000, if married filing separately).

The deduction also applies only to PMI policies issued in 2007, 2008, 2009 or 2010. Originally, the tax break was only for 2007 PMI payments, but it was expanded for the three additional years by the Mortgage Debt Forgiveness Act.

And the mortgage for which the insurance payments are made must be to buy or build a first or second home. If the PMI is in connection with a home equity loan, the funds must be use improve the property for the premiums to be deducted.

3. AMT relief, delay

As 2007 was winding down, lawmakers reached an agreement for a temporary fix, or patch, to the alternative minimum tax. This costly parallel tax system, commonly referred to as the AMT, snares more filers each year, primarily because it's not indexed for inflation.

Another major problem posed by the AMT: Many common tax breaks used every year by individual taxpayers to lower their IRS bills are not allowed under the alternative system. For example, under the AMT, you cannot deduct state and local taxes.

For the last several years, Congress has increased the amount of income that's excluded from the AMT, thereby saving millions of taxpayers from having to make the tax's additional calculations.

The 2007 patch raised the exemptions to:

• $66,250 for married, joint return filers.
• $44,350 for single or head of household taxpayers.
• $33,125 for married couples who file separate returns.

While the legislation solved one problem, it created a couple of others. First, it is only for tax year 2007. Congress is expected to pass additional measures to take care of 2008 taxes, but until it does, planning by taxpayers is hampered.

Secondly, because the AMT patch became law in late December, tax-filing is delayed for some taxpayers. Five AMT-related forms (Form 8863, Education Credits; Form 5695, Residential Energy Credits; Schedule 2, Child and Dependent Care Expenses for Form 1040A filers; Form 8396, Mortgage Interest Credit; and Form 8859, District of Columbia First-Time Homebuyer Credit) won't be ready for filers until Feb. 11. If you need to file any of those forms, the IRS will not accept your return -- or issue any refund -- until that February date.

4. More donation proof demanded

The IRS got tougher on donation documentation in 2007. Previously, you had to get a receipt or other acknowledgement from a charity if you gave $250 or more. Now, for a monetary gift of any amount, must be able to produce "a bank record or a written communication" from the charity detailing the group's name and the date and amount of the gift.

A canceled check is fine. If you charge a contribution, your credit card statement should be sufficient. Many charities also already provide a receipt for all monetary gifts, regardless of the amount.

You don't have to send the receipts for your smaller financial gifts with your 1040, but you will need them if the IRS questions your deductions. Without them, the agency will automatically disallow the write-off.

And don't forget about the good-or-better requirement that took effect in August 2006 for noncash gifts. Under this law, if the IRS determines you donated clothing or household items that didn't meet the standard, it can disallow your deduction. So don't even think about dumping worthless items in a charity's donation bin and then deducting the so-called gift.

5. Older philanthropist options

One tax-law change, however, made last year's charitable giving by older philanthropists easier. Individuals 70½ or older were able to transfer money directly from an IRA to a charitable organization. The option is available to either Roth or traditional IRA owners, but it is most beneficial when the money comes from a traditional account, because much of that cash is eventually taxed.

This was the case for taxpayers who had to take required minimum distributions from a traditional IRA. By sending the withdrawal directly to a charity, the donated amount wasn't included in the giver's taxable income, thereby lowering the filer's tax bill a bit.

If you took advantage of this option, remember that you can't double dip by claiming a deduction for the contribution. For this reason, the rollover method appeals to taxpayers who otherwise wouldn't get a tax deduction, such as those who take the standard deduction instead of itemizing.

The direct to charity rollover expired at the end of 2007. However, it should be renewed for the 2008 tax year. The House approved a one-year extension as part of its alternative minimum tax measure, but the charitable provisions were dropped by the Senate and never made it into the final AMT patch.

Look for lawmakers to act early in 2008 to reauthorize this donation option so that older IRA account holders can plan accordingly.

6. 'Enron' retirement catch-up

Before the subprime mortgage mess dominated the news, all eyes were focused on workers who lost their retirement plan money because of corporate improprieties. In an effort to help those individuals, a provision in the Pension Protection Act of 2006 allows certain workers to make larger IRA contributions to make up part of what they lost in their company retirement accounts.

Under this law, dubbed the Enron IRA catch-up provision, if you participated in a 401(k) plan and your employer went into bankruptcy in a prior year, you may be able to contribute up to $7,000 (instead of the general $4,000 or $5,000 limits) to your IRA.

The key, though, is that your employer must have been indicted or convicted in connection with business transactions related to the company's bankruptcy that wiped out employee accounts, hence the Enron nickname. The law also requires that:

• You were a participant in a 401(k) plan under which the employer matched at least 50 percent of your contributions to the plan with stock of the company.
• You were a participant in the 401(k) plan six months before the employer filed for bankruptcy.
• The employer (or a controlling corporation) must have been a debtor in a bankruptcy case in an earlier year.

If you are eligible for and use the Enron IRA option, which will be in effect through 2009, you can't also use the 50-or-older add-on; that is, you can't put an extra $1,000 into your account on top of the $7,000.

You can find more on all this provision and other IRA contribution rules in IRS Publication 590.

7. Home energy and tax savings

A carryover tax break from 2006 might be able to help cut your 2007 tax bill, too.

The Energy Tax Incentives Act of 2005 offers taxpayers a tax credit for making energy-efficient home improvements. Credits, which reduce your tax bill dollar for dollar, range from $50 for the installation of a whole-house circulating fan to $2,000 for conversion to a solar water-heating system.

Relatively simple upgrades, such as replacing drafty windows and doors, adding insulation and replacing an old heating or air conditioning unit will allow you to shave several hundred dollars off your tax bill.

The one drawback to this tax break, which expired at the end of 2007, is that any energy-efficient home improvements you made last year must be combined with any you made in 2006. And the two-year total allowed is only $500.

You can, however, claim more generous credits if you added solar water, heat or power systems to your house last year. And solar-related credits continue for 2008.

8. Fuel-efficient auto tax savings

Another continuing credit for energy conscious taxpayers is the one allowed for hybrid vehicles. Tax credits, depending on the make and model of the vehicle, range from a couple hundred dollars to several thousand.

However, the credit phases out for the fuel-efficient vehicles once a carmaker sells 60,000 hybrids; eventually the credits are completely eliminated.

That happened to Toyota in 2007, meaning you'll need to pay attention to when you bought your vehicle to determine your precise tax savings. If you purchased a Toyota or one of its Lexus model hybrids after Oct. 1, 2007, you get no tax credit.

The tax break for qualifying automakers continues through 2010, but the credit amounts will be reduced for some vehicles. Honda credits, for example, were cut in half Jan. 1.

9. Popular deductions reappear

The 2007 filing season brings some good news for taxpayers who claim several popular tax deductions, such as those for state sales taxes, college tuition and fees, and classroom expenses. Last year, these tax deductions were approved too late to make it onto the IRS forms. That meant filers had to do some extra work to make sure they claimed them.

Last updated: March 20, 2009
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