IRS Increases Mileage Rates through Dec. 31, 2008
What's New for 2007
2007 Basic Federal Changes
What's New for 2007
New Forms
There are two new forms for 2007:
- Form 8917 (Tuition and Fees Deduction)
Beginning with the 2007 tax year this form must be completed to claim the Tuition and Fees Deduction on Form 1040, line 34. This form will be used to show the student name, SSN and qualified expenses for each student for which the taxpayer is claiming this deduction.
- Form 8919 (Uncollected Social Security and Medicare Tax on Wages)
This form is to be used by a taxpayer who has been designated as an employee by the IRS even though they did not receive a Form W-2 from their employer or did not have Social Security or Medicare taxes withheld from their pay
Mandating of PIN for Electronic Returns and Change in Purpose of Form 8453
Beginning this upcoming filing season, returns that are electronically filed by a tax practitioner must use the practitioner PIN to sign their returns. This means a PIN must be created for the taxpayer and spouse (if applicable) as well as the ERO.
For 2007 and beyond, the Form 8453 should not be completed or mailed in to the IRS for any return electronically filed by a tax practitioner.
Although the Form 8453 still exists it has been changed to a transmittal form for documents associated with an electronic return that are required to be mailed to the IRS.
Mortgage Insurance Premium Itemized Deduction
This deduction will be claimed on Schedule A, line 13. It is for premiums paid for qualified mortgage insurance during 2007 in connection with home acquisition debt on a qualified home.
This provision only applies to mortgage insurance contracts issued during 2007. The premiums must be paid in 2007 and you may not deduct premiums paid in 2007 for future years.
Simplified Reporting for Husband/Wife Businesses
Beginning in 2007, a married couple that jointly operate a sole proprietorship and file a joint return may now elect to be treated as a joint venture for federal income tax purposes.
Both spouses must materially participate in the business and the husband and wife can be the only members of the joint venture.
To elect to not be treated as a partnership, a married couple operating a sole proprietorship will file two Schedule C's with each person reporting their share of income and expenses on their own Schedule C.
Refundable Portion of Credit for Prior Year Minimum Tax
Beginning in 2007, the credit for prior year minimum tax cannot be less than the AMT refundable credit amount. The additional credit allowable under this provision is refundable.
The AMT refundable credit amount is figured by first determining the long-term unused minimum tax credit and then based on what that amount is.
This change is reflected on Form 8801, which has an additional page to calculate the tentative refundable credit. If a refundable credit is calculated it is reported on Form 1040, line 71.
Foreign Tax Credit Changes
There will now be only two categories of income applicable on Form 1116 (Foreign Tax Credit). They are passive and general. The other five have been eliminated.
Retirement Savings Contribution Credit Phase-Out
The modified adjusted gross income phase-out ranges will now be adjusted for inflation each year. For 2007 the phase-out ranges are:
- Married Filing Joint
- 50% credit: Up to $31,000
- 20% credit: $31,001 - $34,000
- 10% credit: $34,001 - $52,000
- Single, Married Filing Separately and Qualifying Widow(er) above AGI dollar amounts are multiplied by 50%
- Head of Household
Above AGI dollar amounts are multiplied by 75%
Expired Provisions
The following tax benefits expired as of December 31, 2006 and are no longer applicable for tax years 2007 and beyond:
- Allowance of most personal credits against Alternative Minimum Tax. (This provision most likely will be extended by Congress for 2007, but it had not been as of September 21, 2007)
- The following special provisions for Hurricane Katrina distributions:
- Penalty free withdrawals
- Income averaging for distributions
- Extended rollover period for early distributions
- Increased loan limits from retirement plans
- Additional exemption amount for housing Hurricane Katrina displaced individuals
- Increased Education credit for students attending schools in a Gulf Opportunity Zone
- Increased charitable mileage rate for relief related to Hurricane Katrina
- Income exclusion for discharge of nonbusiness debt to Hurricane Katrina
- Increased depreciation limits for electric passenger vehicles
- Qualified electric vehicle credit
Obsolete Forms
The following Forms have been eliminated starting in 2007:
- Form 1120-A – U.S. Corporation Short-Form Income Tax Return
- Form 8913 – Credit for Federal Telephone Excise Tax Credit
- Form 8914 – Exemption Amount for Taxpayers Housing Individuals Displaced by Hurricane Katrina
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2007 Tax Law Changes
Exemption Amount
The exemption deduction has increased to $3,400.
The amount at which the exemption deduction phase out begins is:
- $117,300 – married filing separately
- $156,400 – single
- $195,500 – head of household
- $234,600 – married filing jointly and qualifying widow(er)s with dependent children
Personal Exemption Phase-out
- For high income taxpayers, the exemption phase-out is reduced by 1/3 for 2007
- Minimum exemption allowed will be $1,100 per exemption for taxpayers subject to the exemption phase-out rules
- The Deduction for Exemptions Worksheet includes an additional line for this purpose
- The exemption phase-out will be reduced by two-thirds for tax years 2008 and 2009. For tax years 2010 and beyond the phase-out is repealed.
Standard Deduction
Basic amounts for 2007 are:
- Head of Household - $7,850
- MFJ and Qualifying Widow(er)s - $10,700
- MFS - $5,350
- Single - $5,350
Additional standard deduction for Aged and Blind are:
- $1,050 for each
- $1,300 if the individual is unmarried and not a surviving spouse
Standard Mileage Rates
The rates for 2007 are:
- Business purposes: 48.5 cents per mile (Applies to up to four vehicles)
- Medical purposes: 20 cents per mile
- Moving purposes: 20 cents per mile
- Charitable Contributions: 14 cents per mile
Section 179 Expense Limits
- Maximum Section 179 deduction: $125,000
- Maximum cost before the limit is reduced: $500,000
Gulf Opportunity Zone Sec 179 Limits
- Additional $100,000 allowed for property placed in service between August 28, 2005 and December 31, 2007
- Maximum Deduction for 2006: $225,000
- Maximum Cost before limit is reduced: $1,100,000
IRA Changes
AGI Limit for Traditional IRAs
For 2007, if you are covered by a retirement plan at work, the deduction for contributions to a traditional IRA will by reduced if your modified adjusted gross income is:
- Married filing a joint return or qualifying widower: More than $83,000 but less than $103,000
- Single or head of household: More than $52,000 but less than $62,000
- Married Filing Separately: Less than $10,000
Maximum Traditional or Roth IRA Contribution
- $4,000
- $5,000 if age 50 or older
Nontaxable Combat Pay
- Treated as earned income for purposes of determining whether taxpayer qualifies to contribute to an IRA
- Retroactive to 2004
- Contributions for 2004 and 2005 can be made by May 28, 2009
Health Savings Account (HSA) Maximum Annual Contribution
- Individual, Self-only coverage: $2,850
- Family Coverage: $5,650
- Individual catch up contributions for persons 55 or older: $800
- Both the HSA contribution and catch up contribution apply pro rata based on the number of months of the year a taxpayer is an eligible individual
- Recent legislation has made the following changes:
- The maximum contributions are no longer limited to the amount of the annual health plan deductible
- If you have coverage as of December 1, 2007, you are allowed the full non-pro rated contribution for the year. However, if you cease to remain an eligible individual throughout 2008, the extra amount contributed is included in income and subject to an additional 10 percent tax.
- For more information on HSAs see the US Treasury Department website at: http://www.ustreas.gov/offices/public-affairs/hsa/
Alternative Motor Vehicle Credit (Form 8910)
This law replaced the old clean-fuel deduction with a credit for the following vehicles:
- Hybrid vehicles
- Advanced lean-burn technology vehicles
- Vehicles powered by fuel cells
- Alternative fuel vehicles
Hybrids and Advanced Lean-burn Vehicles
Applicable for vehicles purchased 2006 through 2010 for cars and light trucks. For heavy trucks, applicable 2006 – 2009.
Where to find a list of vehicles that qualify and the credit amount it is eligible for:
The IRS has or will be certifying which vehicles qualify for this credit and the credit amount that each vehicle is eligible for. This information is available on the IRS website in the newsroom area in the article named Hybrid Cars and Alternative Motor Vehicles dated February 2008. This article is updated as the IRS certifies more vehicles and indicates when the article was last updated. It also has links to more detailed explanations on the IRS site.
The link for this is: http://www.irs.gov/newsroom/article/0,,id=157632,00.html
As of September 6, there were eight 2008 models, nineteen 2007 models, sixteen 2006 models and seven 2005 models listed.
It also states which models have to take a lesser credit for the 2007 first, second and third quarters. IRS news article IR-2006-145 (dated September 20, 2006) details the eight Toyota Motor Company models for which a lesser credit may be taken if they are purchased after October 1, 2006.
The link for this is: http://www.irs.gov/newsroom/article/0,,id=162562,00.html
Energy Efficient Home Improvements Credit (Claimed on new Form 5695)
- Credit limit is $500 lifetime for all tax years
- Credit is equal to the sum of:
- 10% of significant energy efficiency improvements on existing home and
- 100% of cost of eligible (a) heat pumps, central air conditioners and water heaters (up to $300), (b) natural gas, propane or oil furnaces (up to $150) and (c) advanced main air circulating fans (up to $50).
Residential Energy Efficient Property Credit (Claimed on new Form 5695)
- Credit is up to 30% of qualified photovoltaic, solar water heating and qualified fuel cell property costs
- Maximum lifetime credit is:
- 2,000 for solar water heater and photovoltaic equipment
- $500 for each .5 kilowatt of capacity for fuel cell property