With signs increasingly pointing to the likelihood of an economic slowdown, possibly even a recession, Congress and the White House appear to be in broad agreement that some kind of stimulus is needed. The idea of a tax rebate of some kind has been mentioned by both, making it a pretty good bet. The President was reported to have been thinking about a rebate of as much as $600 for individuals and $1,200 for married couples. Numbers being floated from Congressional leaders are for somewhat smaller payments. Despite the agreement in principal, there is likely to be disagreement over such particulars as whether the rebate will be the same for all and to whom rebates will go. If these issues are resolved, how soon might you get a rebate check? Predictions are that even if there is swift approval of a rebate plan, checks would probably not start going out until the middle of the year.
Take advantage of retirement account opportunities
Maximum deferrals for 401(k) and 403(b) retirement plans are $15,500 ($20,500 for those over 50) for 2008, the same as in 2007. However, the contribution limit for both deductible IRAs and on deductible Roth IRAs increases in 2008, to $5,000 ($6,000 if over 50). The 2008 income phaseout range for Roth IRA contributions is $101,000-$116,000 (modified AGI) for single taxpayers and $159,000-$169,000 for couples.
Note the new rules on forgiveness of mortgage debt
We are hoping that solutions will be found to keep more homeowners out of foreclosure, but for those who succumb, the tax law will be more forgiving for a while. When a home is sold and the proceeds are not enough to cover the loan balance, if the lender discharges (forgives) the difference that amount has been treated as taxable income. Legislation passed late in 2007 would exclude from taxable income discharges after January 1, 2007 through 2009 on debt on a home. The special rule applies to discharges of up to $2 million in indebtedness, so long as the debt was incurred in the acquisition, construction or substantial improvement of a principal residence. Discharges of debt on vacation or other second homes, on home equity debt, or on cash-out refinancings (if the purpose was not for home improvement) would not qualify for the special treatment.
Surviving spouses get homeowner exemption relief
The same legislation now gives a surviving spouse two years to sell a home that was owned and occupied jointly and still be able to take the full $500,000 married persons capital gains exemption. Previously, the exemption could only be taken in the year in which the deceased spouse was on the joint tax return. A surviving spouse, in any case, gets a step up in the tax basis of the home to the then-current fair market value for the deceased spouse’s share (generally half) of the home.
Watch out for attack on “McMansions”
With home sales under pressure, you would think that the real estate market could look for some help from Congress, rather than an attack. In general, that has been the case, but worth watching is a proposal to eliminate the mortgage deduction for big homes, sometimes referred to as “McMansions.” The proposal’s target, U.S. energy consumption and global warming, may help the attack win an unusual amount of support.
© 2007, Real Estate Information Services, Capitol Assets, Choice Real Estate, Inc. & Choice Real Estate of VA, Inc., & Choice Finance®
Young Strasser, Choice Real Estate®