Alternative Minimum Tax (AMT)

The AMT exemption amounts are increased to $46,200 ($69,950 MFJ) up from 2007 amounts of $44,350 ($66,250 MFJ).

Nonrefundable personal credits will not be limited by AMT. When credits aren't limited by AMT, it means the credit can reduce the individual's tax liability below the tentative AMT.

These are the affected credits that are allowed against AMT through 2008:

Other AMT-related items in the bill include a reduction of federal tax liability related to certain incentive stock options and an increase in the AMT refundable credit percentage. Visit us at 1st American Business & Tax Services, LLC or visit the      IRS Web site for more detailed information.

Extenders

Sales Tax Deduction — The choice to deduct state and local sales tax instead of state and local income tax on Schedule A was extended through Dec. 31, 2009.

Tuition and Fees Deduction — The above-the-line deduction for up to $4,000 of qualified higher education expenses ($2,000 for higher-income taxpayers) was extended through Dec. 31, 2009.

Educator Expenses — Above-the-line $250 deduction for out-of-pocket classroom expenses for teachers K–12 was extended through Dec. 31, 2009.

Qualified Charitable Distributions — Taxpayers age 70 1/2 or older may contribute up to $100,000 tax-free from an IRA to a qualified charity. The transfer is taken into account for meeting the required minimum distribution for the year. Extended through Dec. 31, 2009.

Non-business Energy Property Credit — Reinstated for 2009. It's a credit of up to $500 for energy-efficient home improvements to a main residence. The credit is limited to 10% of the cost of building envelope improvements (insulation, exterior windows and doors, etc.) and various dollar amounts for qualifying heating and hot water equipment. In addition, qualifying home heating property (maximum $300 credit) is expanded to include energy-efficient biomass fuel stoves (such as corn stoves).

Credit for Energy Efficient Appliances — The credit is extended and the definition of qualified appliances is expanded. The credit amount for appliances manufactured after 2007 is modified. Extended for appliances manufactured through Dec. 31, 2010.

Child Tax Credit

The Child Tax Credit is refundable to the extent of the greater of either:

Under the new law, the threshold is reduced to $8,500 for tax year 2008 only. Reminder: Excludable combat pay is considered earned income for purposes of the refundable Child Tax Credit.

Federal Disaster Relief

The federal disaster portion of the bill includes 3 important changes related to a disaster incurred in a federally declared disaster area:

Midwestern Disaster Relief

The Act provides many forms of disaster relief for severe storms, flooding and tornadoes that occurred on or after May 20, 2008, and before Aug. 1, 2008, in Arkansas, Illinois, Indiana, Iowa, Kansas, Michigan, Minnesota, Missouri, Nebraska and Wisconsin. Additional relief is available for areas in these states (referred to as the Midwestern disaster area) that qualify for individual (or individual and public assistance) from the federal government. These are the 12 provisions:

Hurricane Ike Disaster Relief

Disaster relief for Hurricane Ike doesn't include individual tax benefits, but does expand availability of the low-income housing credit for Texas and Louisiana and authorizes issuance of a special class of private activity bonds in those states.

Other New or Modified Tax Provisions Affecting 2009 and Later Tax Years

The following provisions come into effect after 2008.

Only the purchase of a main home located in the U.S. qualifies and only for a limited time. Vacation homes and rental property aren't eligible. You must buy the home after April 8, 2008, and before July 1, 2009. For a home you build, the purchase date is the first date you occupy the home.

Taxpayers who owned a main home at any time during the 3 years prior to the date of purchase aren't eligible for the credit. This means that first-time homebuyers and those who have not owned a home in the 3 years prior to a purchase can qualify for the credit.

If you make an eligible purchase in 2008, you can 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.

Credit Amount

The credit is 10% 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. Important note: Whatever the size of the credit a taxpayer receives, the credit must be repaid over a 15-year period.

Income Limits

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 (i.e. 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.

Those That Don't Qualify

If any of the following describe you, you can't take the credit:

Repaying the Credit

The first-time homebuyer credit is similar to a 15-year interest-free loan. Normally, it's 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 don't owe come tax time.

However, some exceptions apply to the repayment rule: