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| The Tax Prophet Newsletter | Issue # 58 February, 2008 |
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REDUCE TAXES!
CHECK OUT THE TAX PROPHET'S |
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Act of 2008 Introduction This election year Congress is showering voters with money, despite record deficits. The fiscal stimulus package, signed by President Bush on February 13th (amounting to $152 billion), is comprised of individual tax rebates and generous business write-offs. The purpose: Create a spending frenzy to bolster the economy - a quick fix that should last just until our politicians get themselves re-elected. | ||
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Rebates |
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Individuals will receive up to $600 ($1,200 for married couples) in tax rebates, based on their 2007 tax filings. There are additional rebates of $300 per qualifying child (generally a dependent under age 17). The rebates start phasing out for single filers with adjusted gross incomes of $75,000 ($150,000 for married couples). To calculate your rebate, click here. Those who earned at least $3,000 will qualify, even if they paid no income taxes. Naturally, the rules are complicated and the government will offset rebates with tax liabilities or back child support.
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Limitations |
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To the chagrin of luxury stores such as Tiffany & Co., Prada and Gucci, single filers earning more than $150,000 ($300,000 for married couples), roughly the top 5% of income earners, are excluded from the giveaway, even though they paid 60% of the total income tax bite. However, this group should benefit from the jumbo mortgage limit increase (discussed below).
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When? |
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Congress wants the money delivered ASAP; however, IRS is in the middle of dealing with tax season and the payments will be based on 2007 tax filings. Those who file by April 15 should receive their rebates by mid-May or early June; those who file extensions must wait.
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Business Breaks |
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Businesses will receive $44 billion in tax relief, including immediately write offs (Sec. 179) for equipment purchases up to $250,000. For equipment purchases exceeding Sec. 179 limitations, an additional 50% bonus depreciation is available. Also, up to $8,000 of depreciation may be claimed in the first year for purchases of luxury automobiles.
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Jumbo Loans |
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Congress raised the loan amounts for mortgages issued by Fannie Mae and Freddie Mac to 175% of the pre-legislation amount of $417,000, through December 31, 2008. The new amount is $729,750. This should lower interest rates for mortgages in high-priced real estate markets (where the median home value is $600,000 or more), including most of the Bay Area. The monthly savings on a $650,000, 30-year fixed-rate mortgage should be approximately $400 a month.
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Conclusion |
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Whether the stimulus package will work depends on how taxpayers spend their rebates. If the money is used prudently to pay down debt or increase savings, there will be little impact. Congress is betting that taxpayer will splurge on purchases and drive the economy out of recession. In any event, we should know the outcome just about election time.
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contents copyright © 2008 Robert L. Sommers, attorney-at-law. All
rights reserved. This newsletter provides information of a general
nature for educational purposes only and is not intended to be legal
or tax advice. This information has not been updated to reflect
subsequent changes in the law, if any. Your particular facts and
circumstances, and changes in the law, must be considered when applying
U.S. tax law. You should always consult with a competent tax
professional licensed in your state with respect to your particular
situation. The Tax Prophet ® is a registered trademark of Robert L.
Sommers.
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