Monday, December 22, 2008


Let’s review what is new for the 2008 Form 1040.

For a change this year Congress extended both the dreaded AMT “patch” and the deductions for educator expenses, tuition and fees, and state and local sales tax before the IRS had to “go to press” with the final 2008 forms and instructions, so all the appropriate lines for these deductions appear on the 1040, 1040A and Schedule A.

While Congress did reinstate the expired residential energy credit, it did so for tax year 2009 only. The cost of energy-efficient improvements to and purchases for a primary residence will not qualify for a tax credit on the 2008 Form 1040 or 1040A.

There is no change to Page 1 of the Form 1040. The changes to the form appear on Page 2.

Line 39c has been added to indicate if the taxpayer is claiming an additional standard deduction for either real estate taxes paid (up to $500, or $1,000 on a joint return) or a net disaster loss. A net disaster loss is the personal casualty losses from a federally declared disaster which is carried over from Form 4684 Line 18a.

There is no separate line item for Residential Energy Credits on the 2008 Form 1040, as there was on the 2007 version. Any credit from 2008 Form 5695 is included, along with credits from Form 8396 and 8839, on Line 53.
The "order of appearance" of the various credits are a bit different on the 2008 Form 1040.
The 2007 Form 1040 had separate line items under “Other Taxes” for Advance Earned Income Credit payments from W-2 Box 9 and Household Employment Taxes from Schedule H. These two items are combined on one line, Line 60, on the 2008 Form 1040.

New lines are added under “Payments” for the new First-Time Homebuyer Credit (see my posts “The Housing Bill and the 1040” and “Updates”) – Line 69 – and the Recovery Rebate Credit – Line 70.

To calculate your refundable Recovery Rebate Credit you would first determine the total amount of the rebate to which you are entitled using the information - income, Child Tax Credit, tax liability, dependents, etc - reported on the 2008 return. From this you would subtract the actual rebate you received that was based on your 2007 information.
If the 2008 amount is more than what you actually received you report the difference as an additional payment on Line 70. If the 2008 amount is less than what you received you do nothing. You do not have to repay any overpayment you received. A special worksheet for calculating the amount of the credit is included in the instruction booklet.

The separate line for the Prior Year AMT Credit, Line 71 on the 2007 Form 1040, does not appear on the new 1040. This credit, from Form 8801, is included on Line 68 along with credits from Forms 2439, 4136 and 8885.

All in all there is one less line item on the 2008 Form 1040 – 76 instead of 77.

Similar revisions have been made to Page 2 of the 2008 Form 1040A.

Tax law changes of note for 2008 include -

* An increased IRA maximum contribution.

* A reduction in the “read my lips” phase-out of personal exemptions and itemized deductions to ½ of that which applied for 2007. The reduction of itemized deductions is now only 1% of AGI in excess of $159,950 (or $79,975 if Married Filing Separate Return) – it had begun as 3% of the excess.
* The special 5% tax rate for qualified dividends, capital gain distributions, and long-term capital gains for taxpayers who fall within the 10% and 15% tax brackets is now 0%.
* Special tax relief for victims of Midwestern and Kansas disaster areas.

* The “Kiddie Tax” rules now apply to dependent children under age 19, or under age 24 if a full-time student.

For more detailed information on the various numbers (deductions, credits, phase-outs, etc) that will apply to 2008 federal income tax returns you can go to the “What’s New for 2008” Page of

If you need additional information the IRS has published an updated version of its comprehensive tax guide for individuals for use in preparing 2008 tax returns.

The updated on-line version of IRS
Publication 17, Your Federal Income Tax, contains more than 900 interactive links.

As in prior years, Pub 17 includes information on how to file an individual tax return, what to include as income, how to calculate capital gains and losses, how IRAs and other expenses can affect how much income to report, whether to take the standard deduction or itemize, what you can deduct, and how to figure taxes and credits.

As soon as the 2008 NJ-1040 is made available I will let you know what, if anything, is new for that form.


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