* CCH reports that –
“The Senate on December 14 approved legislation offering tax relief to homeowners caught in the sub-prime mortgage crisis. The bill was approved as an amendment to the Mortgage Forgiveness Debt Relief Bill of 2007 (HR 3648) and creates a three-year exception for debt forgiveness on home loans. When debt is forgiven on a home loan, the homeowner usually must count the amount forgiven as income and pay taxes on it. The measure also extends a provision allowing homeowners to deduct mortgage insurance payments from their taxable income.”
Like the military tax relief bill passed last week, this bill now returns to the House for compromise. The Senate has also sent a farm bill to the House.
Let’s hope the House realizes that the priority is the AMT fix and deal with that before anything else. The clock is ticking! I like TAX GURU Kerry Kerstetter’s recent comments on the topic -
“The longer this mess drags on in DC, in terms of our rulers officially addressing this fiasco, the more obvious is their utter incompetence at dealing with common sense. While they may not agree with me that the entire AMT system should be jettisoned, how hard is it to understand the need to at least adjust the threshold figures for inflation, as most other items in the tax code already are?"
Back to the mortgage bill - forgiving tax on debt forgiveness for people who made foolish financial decisions is not a good thing. The really strapped can already avoid tax on debt forgiveness if they are considered to be bankrupt - their debts exceed their assets. Congress is not providing relief to those whose credit card debt has been forgiven as a result of foolish financial activity, so why homeowners? A fool is a fool - and should not be rewarded for foolish behavior!
And as I have always said, I have no clue why PMI premiums should be deductible – other than the fact that the PMI industry probably has a good lobby and lots of money to spread around.
* Jim of BLUEPRINT FOR FINANCIAL PROSPERITY discusses some “Dumb Year End Money Moves: Marriage, AMT, Bonuses & More”. He makes a good point – Don’t Get Married. While I think it may be good overall advice, in this context Jim means Don’t Get Married at the end of the year.
I have always told my clients that, for tax purposes, you should get married early in the year and have children late in the year. Your filing status is determined by your situation on the last day of the year – December 31st. If you get married on December 25th you are considered by the IRS and your state to be married for the entire tax year, and must pay tax accordingly.
I have never thought to include the above advice in my Year-End Tax Planning postings. Perhaps I should include it, and the below advice about when to have a child, in my Start The Year Off Right series.
Regardless of when a child is born during the year the parent(s) will be able to claim a dependency deduction and the Child Tax Credit for the entire year (if qualified). If your son is born on February 1, 2008, you will get up to a $3,500 deduction and $1,000 credit, and if a single parent possibly claim Head of Household status. If he is born on December 26th, you still get up to a $3,500 deduction and $1,000 credit, etc. So a child born late in the year gets you all the available tax benefits for the year with a lot less “out-of-pocket” than one born early in the year. If your wife is due any day now, do whatever you can to make sure the child makes his/her appearance by December 31st!
As a point of information, if a child is born and dies in the same year you are allowed to claim a dependency deduction for the entire year. This is true even if the child only lives for a day of so.
* Kay Bell has posted the “Tax Carnival #26: Stocking Stuffers” over at DON’T MESS WITH TAXES. Oi vey – I can’t believe that I forget to submit a posting! It seems that it was only last week when her last Tax Carnival appeared. I will make sure to send her something for the next Carnival, to posted on New Year’s Eve.
I especially liked the post on “More Than 40% Pay Zero Federal Income Tax” from Super Saver at MY WEALTH BUILDER. I totally agree with her comment, “I don't believe a tax system that allows 40% to opt out is sustainable, especially if that segment requires significant services from the government.”
* TAX PROF Paul Caron brings to our attention an editorial from the Wall Street Journal in his post “WSJ- Taxes and Income”. The editorial points out -
“Every Democrat running for President wants to raise taxes on ‘the rich’, but they will have to do something miraculous to out tax President Bush. Based on the latest available tax data, no Administration in modern history has done more to pry tax revenue from the wealthy.”