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Tax Announcements Tax law enacted to spur U.S. economy The Economic Stimulus Package Act of 2008 is designed to boost the U.S. economy by providing tax rebates to individuals and tax incentives for businesses. Recovery rebates The amount of the rebate will generally be either $600 ($1,200 if filing jointly) or the taxpayer’s 2007 income tax liability after credits, whichever is less. But even if that liability is less than $300 ($600 if filing jointly), the rebate will be $300 ($600 if filing jointly) — as long as the taxpayer has either: A tax liability of at least $1 and gross income greater than the standard deduction plus one personal exemption (two if filing jointly), or At least $3,000 of qualifying gross income (earned income, Social Security and certain veterans’ benefits). In addition, the rebate for taxpayers with dependent children will be increased by $300 per qualifying child. A qualifying child must not have reached the age of 17 before the end of 2007 and must have a Social Security number. However, the rebate begins to phase out for taxpayers with a 2007 adjusted gross income (AGI) of at least $75,000 ($150,000 for a joint return). Under the phase-out, the rebate is reduced by 5% of the amount by which a taxpayer’s AGI exceeds the applicable limit. So filers without qualifying children will receive no rebate if their AGI is $87,000 or more ($174,000 for joint filers). Remember, AGI is your income after certain adjustments, such as retirement plan contributions, but before personal exemptions and itemized deductions, such as mortgage interest, state and local taxes, and charitable contributions. Other factors may also impact taxpayer eligibility. Here are some examples of how the rebates will work: Example 1 Example 2 Example 3 Note that the recovery rebates, while based on your 2007 tax return, are technically an advance on your income tax liability for 2008. Thus, when filing their 2008 tax return in 2009, those who didn’t receive the maximum possible rebate because their income was too low or too high get a second chance based on the figures on their 2008 return. For example, if a single person had no tax liability in 2007 and therefore received only a $300 rebate, but he or she has a $1,000 tax liability on the 2008 tax return, that person would receive an additional $300 credit on the 2008 return. No one will be required to give back any rebate received. Incentives for business investment Another depreciation-related provision offers a special allowance for certain property, generally if acquired this year. This is in addition to any such property that qualifies for Sec. 179 expensing. For eligible property, the special depreciation amount is equal to 50% of its adjusted basis. The following types of property are qualified for this special
Because both the Sec. 179 limit increases and the 50% depreciation allowance can provide large 2008 deductions, you may want to consider making major asset purchases this year. Temporary loan limit increases for Fannie Mae, Freddie Mac and FHA In response to the mortgage crisis, the act increases from $417,000 to $729,750 the dollar limit on loans that may be issued by the FHA and that Fannie Mae and Freddie Mac can purchase. This is designed to reduce predatory lending practices on borrowers seeking loans in excess of the current limits, often referred to as “jumbo mortgages.” The increases are in effect for loans made or approved for origination through the end of 2008, after which the previous loan limits will apply once again. Please consult us to find out exactly how the Economic Stimulus Package Act of 2008 will affect your personal and business taxes in 2008.
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