The 5,000-page (or so it seems) bailout legislation contains some helpful tax changes, if you know where to look.
Tucked into the bill is a brief statement extending the termination date for the provision of Code Section 408(d)(8) to the end of 2009. This provision permits individuals who are at least age 70 1/2 to transfer from IRAs to charities up to $100,000 per year without tax consequences. That means that the amount taken out of the IRA won't be taxed to the account owner and won't qualify for a charitable deduction for income tax purposes. It also won't affect the taxation of Social Security benefits or increase adjusted gross income, thereby reducing allowable itemized deductions. It's that rare accomplishment, a simplification of the federal tax system, but only until the end of 2009 and only for those of the specified age.
Also extended through 2009 is the deduction for state and local sales taxes, as an alternative to deducting state and local income taxes. This is supposed to make life fairer for residents of those states that don't have state income taxes, but it has more to do with the fact that most states that don't have an income tax are so-called red states.
Those people paying tuition and related expenses will be pleased to know that the deduction for tuition and related expenses, within certain income limits, has been extended through 2009. Despite the income limits, this provision can be useful, particularly if the student has income and is no longer a dependent. Another specialized provision, the deduction for limited amounts of expenses of elementary and secondary schoolteachers, has also been extended through 2009.
The much-debated extension of the higher exemption amounts for the alternative minimum tax is also contained in this bill. For joint filers and surviving spouses, the exemption for 2008 will be $69,950, and for all other filers $46,200. Without these higher exemption amounts, which are for this year only, millions more taxpayers would be subject to the AMT. This tax, which was supposed to "catch" high-income people whose deductions often wiped out their entire income tax liability, has instead grown to such an extent that it taxes people who simply have large deductions for taxes paid or substantial amounts of capital gains, but apparently fixing it to return to its original purpose would require some drastic action, like the sale of one or two states.
Like most federal spending and tax legislation, there are provisions in this bill that offer significant benefits to a variety of taxpayers, and it repays careful review of those opportunities.
Robert H. Louis