Congress Reaches Agreement on
2008 Tax Stimulus Package
February 7, 2008 the Senate voted in favor of an amended version of H.R. 5140 that included low-income senior citizens and disabled veterans among recipients of tax rebate checks. The House quickly followed suit approving the bill. President Bush has indicated he will sign the legislation into law. Treasury Secretary Henry Paulson has said the IRS would be able to begin sending checks by early May.
There are two components.
- The minimum rebate amount is $300 ($600 for married filing jointly).
The taxpayer will receive this amount if he has at least $1 of tax liability or $3,000 in qualifying income, defined as the sum of net self employment income, veterans’ disability payments (including payments to survivors of disabled veterans), and social security benefits. This payment is refundable, meaning the recipient gets the full amount.
The maximum rebate amount is $600 ($1,200 married filing jointly). The taxpayer’s rebate under this credit will be equal to the minimum of his tax liability or 10% of the first $6,000 of taxable income ($12,000 if married filing jointly). This credit is not refundable.
- Qualifying Child Credit.
If a taxpayer receives $1 of the income tax rebate and the taxpayer has children, the taxpayer will also receive $300 per child. The payment is refundable, meaning the recipient is entitled to the full child credit without regard to income tax liability.
The amount of the credit (including both the basic credit and the qualifying child credit) is phased out at a rate of 5% of adjusted gross income beginning at $75,000 ($150,000 in the case of joint returns). Residents of the U.S. possessions will also receive the benefit, but the provision denies the basic credit and the qualifying child credit to individuals if the tax return does not include valid identification numbers for all persons listed on the return. Safeguards to ensure that illegal immigrants do not obtain rebates or bonus payments remain in the final agreement.
Business Tax Provisions:
- The Bill increases the expensing limit under §179 to $250,000 and the phase-out to $800,000 for 2008. This is an increase from the scheduled expensing limit of $128,000 and the phase-out threshold of $510,000.
- The Bill also allows a trade or business to depreciate an additional 50 percent of the cost of an asset acquired and placed into service in 2008. The types of property eligible for bonus depreciation will be the same as included in previous depreciation packages:
- Tangible property that has a recovery period not exceeding 20 years,
- Purchased computer software,
- Water utility property, and
- Qualified leasehold improvement property.
The bonus depreciation will be allowed under the AMT. The proposal is effective for calendar year 2008 beginning after the date of first Committee action.
The remaining provisions of the Bill include provisions temporarily increasing conforming loan limits for the Federal Housing Authority.
The proposal raises FHA’s loan limit, the dollar amount of a mortgage that FHA can insure, for its single-family program from 87 percent of the conforming loan amount to as high as 175 percent (effectively $362,790 to $729,750) of the conforming loan limit in certain geographic regions where the cost of housing is very high and from 48 percent to 65 percent (effectively $200,160 to $271,050) of the conforming loan limit in less expensive markets.
FHA would also have the authority to raise those loan limits by up to an additional $100,000 if market conditions warrant such increases.
This proposal expires on December 31, 2008.
None of the provisions of this bill have any affect on tax return preparation for 2007; however the returns submitted for 2007 will generate the refunds distributed to taxpayers. It is anticipated that many more taxpayers will seek to have their returns prepared earlier rather than later in order to participate quickly in the refund program.