The tax legislation passed as part of the economic rescue legislation was quite significant. In addition, there was another tax law change earlier in the year called the Housing Assistance Tax Act. Here are some highlights of these laws:

Alternative Minimum Tax (AMT)

If your income is over $75,000, you live in a state with high income and or property taxes, you have children, and or you exercised incentive stock options you are vulnerable to the AMT. The rescue package included another “patch” to the AMT law. What this patch does is reduce the taxable income that is subject to AMT. Because there was a patch in 2007 as well, there is only a small difference in the exemption amount in 2008 compared to the exemption amount in 2007. If you were subject to AMT last year, you likely will be again. If your net income remained level with 2007, you will have just slightly less of your income subject to AMT in 2008. For married taxpayers filing jointly, it is an increase of just over $3,000. Under the new provisions, you may use additional personal tax credits against your AMT liability. The credits you may use to offset the AMT now include the dependent care credit and the education tax credits. The adoption, child and saver’s credit were already allowed in full against the regular and AMT tax. If you would like to estimate your tax liability, you would have to do the tax calculations both ways (using form 6251 to run the AMT calculations). There were some additional provisions that were included to help folks who had exercised Incentive Stock Options in prior years and incurred AMT liability that exceeded the sale value of the stocks. If you are in this situation, you may be eligible for the abatement of the taxes, interest and penalties you may still owe. Additionally if you were in this situation, and you paid the taxes, the new law allows certain taxpayers who have unused AMT credits to claim a refundable credit, even though it exceeds the traditional limit. The refundable credit is the greater of

• the lesser of (a) $5,000 or (b) the long-term unused minimum tax credit, or
• 20% of the long-term (more than three years old) unused minimum tax credit.
  
  
• The refundable credit phases out for higher income taxpayers.

Education

If you paid tuition for yourself, or a dependent you may qualify for an above the line deduction as this was extended until the end of 2009. You will qualify for up to $4K if your income is below $130K for married filing joint (MFJ) and $2K if you income is below $2k if your income is below $160K MFJ.

Charitable

The Charitable IRA Rollover has been extended two more years!

As you are already aware, Congress has recently passed the Emergency Economic Stabilization Act of 2008. This legislation contains many tax provisions; extending certain portions of the Pension Protection Act of 2006 including the Charitable IRA Rollover.

This law provides that, in each of the years 2008 and 2009, an owner of a traditional or Roth IRA may instruct the trustee to distribute directly to a public charity up to $100,000 without the distribution being included in taxable income, and that distribution will count toward the IRA owner's required minimum distribution amount.

To qualify for IRA rollover treatment:

• The donor must direct the IRA manager to transfer funds directly to a charity. A withdrawal followed by a contribution will still have to be reported as income.
• The donor must be at least age 70½ and the donee must be a tax-exempt organization to which deductible contributions can be made. Donor-advised funds and supporting organizations are not eligible.

The gift must be outright; rollovers to a planned gift, such as a gift annuity or a charitable remainder trust, do not qualify. Similarly, outright distributions to a charity from employer-sponsored retirement plans, such as Simple IRAs, 401(k)s, and 403(b)s, do not qualify. Also note that IRA rollovers may be includable in a donor's income for state and local tax purposes and may not earn an offsetting charitable deduction, depending on state and local law.

Tax payers must have substantiation for all charitable gifts. For non cash donations of under $250 there must be a receipt. For non cash gifts of under $500 there must be a written acknowledgement. For non gifts of over $5000 there must be a written appraisal. For a cash gift of over $250 the tax payer must have a written acknowledgement obtained before the filing date or the deadline for the return.

Housing

The First-Time Homebuyer Tax Credit - This allows a temporary refundable tax credit of 10% of the value of the purchase price of the home up to $7,500. Phase-out range starts at AGI of $75,000 ($150,000 joint). Applies to purchases from April 10, 2008 - June 30th 2009. The credit must be then repaid over 15 years. It is essentially an interest free loan from the federal government.

Property Tax Deduction for Non-Itemizers – This is only in effect for 2008. Taxpayers who do not itemize may increase their standard deduction by the lesser of their property tax or $500 ($1,000 for joint return).

The exclusion of gain from the sale of a principal residence under code section 121 - The gain attributed to the time period in which the home was not used as a principal residence will not be excluded from taxation under the new law. This will apply to home sales after 2008. The transition provisions will allow non qualifying use periods before 2009. The new law will close the loophole that allowed for gain exclusion for time periods when the property was owned and used as a rental or vacation property before its use as a principal residence. The new law determines excluded gain on a pro-rata basis.

This information is not intended to be a substitute for specified individualized tax, legal, or investment planning advice. We suggest that you discuss your specific tax issues with a qualified advisor.