October 2008
normally cash is required.
847.858.5074
www.pktaxservices.com
patk@pktaxservices.com
South Elgin, IL 60177
627 Arlington Lane
Pat Kolodziej, cpa, mst
PKTax Services, L.L.C.
Tax Provisions in New Housing Act
On July 30, 2008, President Bush
approved the Housing and Economic
Recovery Tax Act of 2008. Here are
highlights of its tax provisions:
• A new refundable tax credit
for first-time homebuyers. Your
clients’ adult children may want to
take advantage of a new refundable
credit equal to the lesser of $7,500
or 10% of the price of a first home
purchased between April 8, 2008
and July 1, 2009. The credit phases
out at AGI levels over $150,000 for
MFJ and $75,000 for singles. The
credit must be repaid over 15 years
in equal installments (or entirely
UPto-the
repaid if sold earlier), but in the
meantime, it’s like an interest-free
loan.
MINUTE
• Additional standard deduction receive a copy of the report. This
for state and local real property employment, health conditions, or
taxes paid in 2008. Homeowners
who claim the standard deduction • Eliminating costs on housing
T IMELY T AX T IPS would get an additional deduction
for state and local real property
taxes for 2008. The maximum
amount that may be taken for this
additional standard deduction is the to offset these amounts against
October 2008 lesser of the real estate taxes paid
or $500 for single taxpayers and
$1,000 for joint filers. This may
pay our taxes with a smile, but
It would be nice if we could all
due between September 13, 2008 and November 12, 2008.
returns), tax payment and certain other time-sensitive acts otherwise
skipping transfer tax returns; and employment and certain excise tax
S corporation returns, and trust returns; estate, gift, and generation-
corporate, and estate and trust income tax returns; partnership returns,
area. The postponement applies to return filing (including individual,
deadlines for taxpayers who reside or have a business in the disaster
As a result, the IRS is postponing until November 12, 2008 certain
qualifying for individual assistance
Grundy, Kane, LaSalle and Will counties presidential disaster areas
13, 2008, the federal government declared Cook, DeKalb, DuPage,
and file returns. Following severe storms and flooding on September
presidential disaster areas have more time to make tax payments
storms and flooding in counties of Illinois that are designated as
The IRS has announced on its website that victims of the recent
For Tax Relief
Disaster Victims In Illinois Qualify
help older clients who have paid for housing bonds issued after July
off their mortgages, or clients in 30th.
states with little or no income tax to • Protecting identities in real
itemize. estate transactions. Rather than
• Limitations on the exclusion of requiring the seller of real estate
gain from the sale of a principal to provide their social security
residence. Beginning in 2009, the number to the purchaser, sellers
taxpayer exclusion from gain on the may now give their personal
sale of a principal residence would information to an independent third
not apply to any gain allocated to party for verification to prevent
periods of “nonqualified use”. Such identity theft.
use is defined as when the taxpayer• Information reporting on credit
is not the principal resident of the card transactions. Beginning in
dwelling (i.e. when the taxpayer 2011, financial institutions will
used the home as a vacation home have to annually report the gross
or rental) However, “nonqualified amount of credit cards processed
use” does not include periods for businesses. This report will
when the homeowner vacated include the name, address, and
their property for military or taxpayer ID of the payee, who will
other official service, change of
is an attempt to capture possibly
other unforeseen circumstances. unreported cash income and is
programs by the AMT.
expected to raise $7.6 billion over
10 years as part of funding of the
Taxpayers who claim the low- Housing Act. Financial institutions
income housing tax credit and the will have to reprogram computers
rehabilitation tax credit will be able by 2011 to capture the information
for the report, and those who have
the AMT. In addition, interest on
tax-exempt housing bonds would
credit card revenue will also have
to shape up their income reporting
no longer be applicable to AMT compliance.
Designed/Published by T.R.I.M. Designs, Inc.
www.trimdesignsinc.com October 2008

The Emergency Economic Stabilization Act of 2008

The Emergency Economic refunded over two years rather than extended to cover property placed compensation for companies that
Stabilization Act of 2008, was five. in service through 2009. sell more than $300 million in assets
signed on October 3rd and contains individual extendeRs • Deduction under 179 for energy under the Federal Government’s
over $150 billion in tax breaks. efficient commercial buildings is new troubled asset recovery
The law extends the following program. Deductible compensation
RetuRn PRePaReR Penalties individual tax provisions through extended through 2013;
Effective for returns prepared after 2009: for the CEO, CFO and three other
• The credit to encourage highest paid officers is limited to
May 25, 2007, the Small Business
and Work Opportunity Tax Act of • the itemized deduction for state production of renewable energy $500,000, and “golden parachutes”
and local sales taxes; is extended through 2009 and are sharply curtailed, with possible
2007 toughened the standard for expanded to include additional
avoiding the preparer penalty under • the above-the-line qualified tuition non-deductibility for the payor and a
sources of renewable energy; and 20% excise tax on the payee.
Code Sec. 6694. The Economic and expenses deduction;
Stabilization Act of 2008 lowered • the limited addition to the standard • Solar and fuel cell credits are Community Bank RelieF on Fannie
the reporting standard under section deduction for real property taxes extended through 2016. and FReddie stoCk losses
6694 to “substantial authority” paid by non-itemizers; Child tax CRedit Community banks can report losses
from “more likely than not” for • the provision that allows taxpayers For the 2008 tax year, the refundable on Fannie Mae and Freddie Mac
undisclosed, non-tax shelter to make tax-free distributions threshold for the child tax credits preferred stock as ordinary, rather
positions – retroactively eliminating of up to $100,000 per year to would decrease from $12,050 to than capital losses.
the Small Business Act toughened qualified charities from their $8,500.
standard. This lower standard is disasteR RelieF
the same standard that applies to
traditional and Roth IRAs; BRokeRs to RePoRt CustomeR The Act provides a variety of tax
taxpayers. The change is retroactive • a provision allowing regulated Basis relief measures for disaster victims,
to the date when the higher standard investment companies (RICs) The Act requires brokers to report and this newsletter contains only
was enacted, May 25, 2007. This to designate some dividends as the customer’s basis in sold highlights. Victims and their advisers
is a great victory for CPAs that the interest-related dividends; securities beginning in 2011 for should consult the Act for details
AICPA had been fighting for since • the estate tax look-through for stocks, 2012 for mutual funds, and additional relief provisions that
Congress raised the standard for RIC stock held by nonresidents, and 2013 for other securities. The might apply.
preparers to a level higher than • the designation of RICs as IRS and some taxpayers have had
for taxpayers, creating potential qualified investment entities under difficulty determining basis, and in Businesses can deduct up to 50%
some cases reported cost reflected of the demolition and cleanup costs
conflicts of interest between CPAs section 897; and
the FMV on the date the stock was incurred before 2011, can expense
and their clients. • the above-the-line $250 deduction transferred into a brokerage account hazardous waste cleanup costs,
BRokeRs’ statements to aRRive for teachers’ classroom expenses. rather than actual cost. and can carry back NOLs for five
lateR Beginning this Filing Business extendeRs years instead of two. Also, small
season The law extends the following
The AICPA has suggested that businesses in certain flood areas can
The Act extends the date by which business tax provisions through brokers provide basis information get a 40 percent credit on wages
brokers must furnish information to taxpayers in a format that would up to $5,000 from the disaster
2009: enable taxpayers and tax preparers date until the end of the year. For
forms to customers. This includes
stock broker 1099-B forms and also • Research tax credit increased to download the information directly individuals in flood areas, the 10%
other forms from brokers, including to 14%; alternative incremental into their tax return preparation and $100 floor on casualty losses
realtors. Beginning with statements credit repealed; and alternative software. is eliminated. Those who shelter
furnished in 2009, brokers will simplified credit increased; Foreign Deferred Comp disaster victims for at least 60 days
avoid penalties if they furnish • 15-year cost recovery for Beginning in 2009, compensation can qualify for an extra personal
these forms on or before February leasehold and restaurant paid by certain foreign corporations exemption of $500 per victim (up to
15 – as opposed to the old due date improvement; or partnerships that is deferred by four). Discharge of personal debts
of January 31. This could further • Contributions of food and more than a year will be taxable of flood victims would not result in
compress the return preparation contributions of books and when vested. This provision reflects income. Charitable deductions limits
season for practitioners. computer hardware to schools a concern that employers in lower- for individuals and corporations
amt RelieF is extended, and S corp taxing countries have little or no tax were suspended for contributions to
The law extends AMT relief for shareholders can receive pass- cost from delaying the compensation Midwestern relief efforts. Through
nonrefundable personal credits through charitable deductions of deduction until the income is picked 2010, the 10 percent IRA penalty for
appreciated property equal to fair up by the employee. early withdrawal of up to $100,000
and increases the AMT exemption
amounts to $46,200 for singles and market value rather than the S would be waived if it is a disaster
exClusion oF moRtgage deBt assistance recovery distribution
corp basis in the property;
heads-of-household, $69,950 for RelieF FRom inCome in a Midwest flood zone. For
joint filers and surviving spouses and • New markets tax credit for loans Home mortgage debt relief of up victims in presidentially declared
$34,975 for married filing separately to small businesses in distressed to $2 million will continue to be disasters in 2008 and 2009, Section
through 2008. The law also abates areas; and excluded from cancellation of 179 expensing is increased from
all unpaid AMT liabilities, including • FUTA surcharge of .2% (on wage indebtedness income through 2012. $250,000 to $350,000 for disaster
penalties and interest, associated base up to $7,000 per employee).
exeCutive ComP FoR FinanCial area expenditures for business
with the exercise of incentive stock eneRgy tax PRovisions institutions through 2011. First-year depreciation
options before 2008. For those who The Act contains a variety of Responding to taxpayer outrage over is increased on new and personal
have already paid AMT-ISO liability, extended and new tax incentives in executive compensation in troubled property investment in the disaster
the law accelerates the minimum tax the energy area, including: area and any depreciation benefits
financial institutions that have to
credit associated with AMT items may be claimed against the AMT.
• Credit of up to $500 for residential be bailed out, Congress enacted
to allow the unused credit to be
insulation, storm doors, etc. is restrictions on senior executive