New Tax Laws Enacted in Late 2007

(Tax Planning Alert dated January 18, 2008)


New tax laws carrying important tax changes for individuals were enacted in late December 2007, affecting tax years 2007 and beyond. These last-minute changes are causing some delay from the IRS in finalizing 2007 tax forms, but all affected forms should be available by mid-February. The most widespread changes for individuals from the new acts are detailed below:

• Increase of the alternative minimum tax (AMT) exemption limits and extension of the ability to use most nonrefundable personal credits to offset AMT liability. Without this increase, many middle-income taxpayers could have fallen into the AMT in 2007, which was not Congress’ intent when the tax was originally enacted several years ago.
• Tax relief for homeowners whose mortgage debt has been forgiven. Prior to this new law, homeowners could be taxed on forgiven mortgage debt, for example, from foreclosure. The new law states that in tax years 2007 – 2009, a taxpayer who has discharged debts does not have to pay federal income tax on up to $2 million of debt forgiven for a qualifying loan secured by a qualified principal residence.
• Continuation of the deduction for mortgage insurance premiums to be treated as home mortgage interest through 2010.
• Increase of surviving spouses’ maximum gain exclusion on the sale or exchange of a principal residence after 2007 to $500,000 (from $250,000).

Important tax changes for businesses from these late-2007 acts include:

• Revision of basis reduction rules for an S corporation shareholder related to the business’ charitable contributions of appreciated property.
• Extension through 2008 of the temporary surtax of 0.2% that is included in FUTA.

If you would like more details on this legislation, please contact Doug Yoakley or Heather Martin at (800) 270-9629.

WE ARE REQUIRED BY IRS CIRCULAR 230 TO INFORM YOU THAT THE FOLLOWING DISCUSSION WAS NOT INTENDED OR WRITTEN TO BE USED, AND IT CANNOT BE USED, NOR RELIED UPON, BY ANY TAXPAYER FOR THE PURPOSE OF AVOIDING ANY PENALTIES THAT MAY BE IMPOSED UNDER FEDERAL TAX LAW. THE ADVICE WAS WRITTEN TO SUPPORT THE PROMOTION OR MARKETING OF THE TRANSACTIONS OR MATTERS ADDRESSED IN THE DISCUSSION. EACH TAXPAYER SHOULD SEEK ADVICE BASED ON ITS PARTICULAR CIRCUMSTANCES FROM AN INDEPENDENT TAX ADVISOR.

The information provided via PYA Alert, Tax Planning Alert, or Audit and Accounting Alert should not be construed as accounting, auditing, consulting, or legal advice on any specific facts or circumstances. The contents are intended for general information purposes only.  Please contact us at (800) 270-9629 to discuss your specific situation or to discuss any specific questions you may have.

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