When President Bush signed into law the Emergency Economic Stabilization Act of 2008, the centerpiece was passage of the $700 billion financial bailout and its effect on the financial markets.
But a deeper examination of the law, which was approved October 3, 2008, reveals a number of energy-related tax provisions and other significant tax benefits.
A sampling of the energy-related provisions that might interest taxpayers includes:
A new credit is created for the purchase of a qualified plug-in, electric-drive motor vehicle after December 31, 2008, and before January 1, 2015. The credit ranges between $2,500 and $15,000, depending on the weight and kilowatt hour of the traction battery capacity.
The credit for purchasing energy-efficient appliances is extended through 2010. The amount of the credit, ranging from $45 to $250, depends on the type of appliance, when it was manufactured and the level of efficiency.
Alternative Minimum Tax
As to the alternative minimum tax, two of the changes will affect a significant number of taxpayers. The first change is an increase in the exemption amounts that are subtracted from an individual's "alternative minimum taxable income" to determine the taxable amount (if any). The exemption amounts for 2008 are $69,950 for joint filers, $46,200 for single filers, and $34,975 for married taxpayers filing separate returns. Although the 2008 exemption amounts represent only modest increases from the 2007 tax year, they are substantially higher than the exemption amounts originally scheduled to apply in 2008.
The second broadly applicable AMT change permits taxpayers to use all their "nonrefundable personal credits" (e.g., the dependent care credit) in full to offset both the regular tax and the AMT in 2008. Before this change, which represents a one-year extension of a rule that had expired in 2007, most of the nonrefundable personal credits could not be used to offset the AMT.
Finally, the Act extends the income exclusion rule for IRA owners making qualified charitable distributions to those made on or before December 31, 2009. In 2006 and 2007, individuals age 70 1/2 or older could transfer up to $100,000 from pre-tax money in their IRA directly to a charity. The transfer "counted" as a distribution for minimum required distribution purposes, but was not included in the individual's gross income. Unfortunately, this provision was available only for 2006 and 2007.
The bailout extends the availability of this provision for 2008 and 2009. Thus, if you are age 70 1/2 or older, you can make charitable gifts this year and next year directly from your IRA to a 501(c)(3) charitable organization. A beneficiary can also make direct charitable gifts from an inherited IRA, if the beneficiary is over age 70 1/2.
Estate and Gift Tax Exemptions, Rates
- For 2009, the annual gift tax exclusion is $13,000 per recipient.
- The estate tax credit exempts $3.5 million of assets from estate tax.
- The generation-skipping transfer tax exemption is $3.5 million.
- The maximum estate and gift tax rate remains at 45 percent.
- The lifetime exemption for taxable gifts remains at $1 million.
Inflation-Adjusted Exemptions And Deductions
By law, the dollar amounts for a variety of tax provisions must be revised annually to keep pace with inflation. As a result, more than three dozen tax benefits, affecting virtually every taxpayer, are being adjusted for 2009. Key changes affecting 2009 returns, filed by most taxpayers in early 2010, include the following:
- The value of each personal and dependency exemption, available to most taxpayers, is $3,650, up $150 from 2008.
- The new standard deduction is $11,400 for married couples filing a joint return (up $500), $5,700 for singles and married individuals filing separately (up $250) and $8,350 for heads of household (up $350).
- Tax-bracket thresholds increase for each filing status. For a married couple filing a joint return, for example, the taxable-income threshold separating the 15-percent bracket from the 25-percent bracket is $67,900, up from $65,100 in 2008.
- The maximum earned income tax credit for low and moderate income workers and working families with two or more children is $5,028, up from $4,824. The income limit for the credit for joint return filers with two or more children is $43,415, up from $41,646.