Tax Relief in the Financial Crisis
Tax-preparers see their clients bringing in their tax returns early this year because they desperately need a tax refund to pay bills. With the economy in shambles, unemployment rising and new layoffs announced about every day, lots of people apparently see tax refunds as a way out of immediate dire financial straits, but that may be a mistake. On the short term it might offer some relief, but since the deadline for filing income tax returns is April 15 (unless an extension is requested) it may be wise to take that time and investigate how you could benefit from this year’s tax return even more. Given the number of generous deductions and credits being allowed for individuals and businesses by the IRS in 2008 tax returns, it looks as if the government is trying to shore up the economy; there are some major tax law changes that could reduce tax liability or increase the size of a refund.
One of the changes that has gotten a lot of attention allows first-time homebuyers to get a credit of up to $7,500 for buying a principal residence between April 9, 2008 and June 30, 2009. Before you get to thinking that the people at the IRS are really nice guys, this is really a loan. Although the loan must be paid back to the government at $500 each year for 15 years, it’s still a great deal. It’s zero interest, and that’s hard to beat. Another key change highlighted by tax professionals is the cancellation of debt for those who lost their homes through foreclosure. In the past, people who lost their homes had to report the debt forgiveness as taxable income on form 1099-C, called cancellation of debt. The new law allows up to $2 million worth of debt to be excluded on foreclosed property.
The government is also making a zero percent capital gains rate for taxpayers in the 10 percent or 15 percent tax bracket. This means those in the low-income bracket, individuals as well as businesses, pay nothing on stock dividends or anything sold for a profit.
Other changes are geared to reach out to businesses in tough economic times. For instance, anyone buying something for their business can get a special, first-year allowance of 50 percent of the basis on any asset.
Also, Section 179 depreciation limits are increasing from $109,000 to $250,000. It looks like the government is trying hard to kickstart the economy. More information on the changes in tax law can be found on the IRS website.
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