Bailout Bill Includes Tax Relief Too

Unless you’ve been living under a rock, you’ve probably heard about the $700 billion bailout plan that was passed recently in an attempt to rescue the housing market.  What you may not know is that there were several tax relief provisions included in this bill.

Included in the bill were some new tax credits, and some other tax bills that were set to expire were extended.

Here’s a quick summary of the tax breaks found in the bailout bill:

Mortgage debt forgiveness – under previous tax law, if you had any debt forgiven, the cancelled debt was taxable income to you.  The new law temporarily stops homeowners from owing tax on cancelled debt up to $2 million.  The debt has to be related to your primary residence.  This is actually an extension on a law that was set to expire; the new law will extend this provision until 2012.

Lower property taxes – homeowners who don’t itemize their deductions will be able to deduct up to $500 ($1,000 for joint taxpayers) of personal property taxes in addition to the standard deduction.  This is effective for 2008 and 2009.

Energy tax credits – taxpayers qualified for energy tax credits for qualified improvements made to their home, but these credits expired in 2007.  The new law brings the credits back for 2009, but skips 2008 for some reason.  So if you are planning on replacing windows, doors or your furnace, try holding off til 2009.  The new windows, furnace, etc. have to meet certain energy-efficient standards to qualify for the credit.

Tuition help – the tuition deduction of up to $4,000 expired last year.  The new housing law extends this deduction for 2008 and 2009.

Sales tax deduction – this was another deduction that expired in 2007.  The new law extends it through 2009.

AMT relief – another one year patch has been approved to keep more people from falling victim to the AMT tax.  The bill increases the AMT exemption amount to $69,950 for joint filers, and $46,200 for single filers.  Without this patch, it’s estimated that an additional 23 million people would pay AMT tax on their 2008 tax returns.

Finally, the new housing law included disaster aid for people affected by hurricanes and tornadoes recently, such as a larger casualty loss deduction, or penalty free IRA withdrawals.

While these tax breaks aren’t specifically related to small businesses, it’s still welcome relief to those people who will qualify.

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