10 New Rules for 2008 Taxes

10 New Tax Rules for 2008 Taxes

01-20-2009

With each new year comes a new batch of tax rules and miscellaneous changes to the laws that taxpayers need to be aware of. There’s no denying that the tax code in the United States is incredibly complex, and there are tons of changes. But here are some of the rule changes that are likely to affect the average consumer:

Recovery Rebate Credit – If you weren’t eligible for an economic stimulus payment in 2008, you might still be able to get that money. The initial payments were based on your 2007 income, and if your income was too low or too high, you may have missed out. You can now use your 2008 income to collect, and the IRS is offering help in calculating whether you qualify.

AMT Exemption Increased – The Alternative Minimum Tax (AMT) is a law that was created to make sure high income earners didn’t get out of paying income taxes. Now this rule is affecting more middle-income taxpayers, but the “bailout bill” upped the exemption amount for 2008 to spare more taxpayers from the AMT for one more year. The 2008 exemption amounts are $33,750 for individuals and $45,00 for married filing jointly. Don’t worry if your income is around those figures, however. Those numbers are part of a much larger (and complex) calculation! . You pr obably only need to worry about AMT if you’re single and making more than $100,000, or married and making more than $175,000. (These are just rough guidelines, however. So if you’re anywhere close to that range you should speak to a tax preparer.)

First Time Homebuyer Credit – If you bought your first home between April 9, 2008 and June 30, 2009, you might qualify for a new credit. Taxpayers can get up to $7,500 from the federal government, which has to be paid back over 15 years at a rate of $500 per year. It amounts to an interest-free loan from Uncle Sam that can help you get your first house. More on this credit can be found in this article.

Tax Relief for Midwest Disaster Areas – If you lived in certain Midwest states that were affected by severe storms, tornadoes or flooding that happened between May 19 and August 1, 2008, you can receive special tax breaks. The rules include reduced restrictions on casualty loss deductions and charitable contribution deductions. There is also an exemption available if you provided housing to a victim of these disasters. A list of states and counties that qualify for this tax relief is found here.

Increased contribution limits for IRAs – The tax rules permit taxpayers to contribute to traditional IRAs and Roth IRAs if their income falls within certain parameters. If your income is too high, you are limited in these contributions. All of the limits increased for 2008, which means taxpayers with higher income might still be able to contribute. A taxpayer can contribute either $5,000 or an amoun! t equal to their taxable compensation (whichever is smaller).

Standard Mileage Rate Changed – The standard mileage rate for business use of your vehicle was 50.5 cents per mile for the first six months of 2008, and 58.5 cents per mile for the rest of the year. The rates also changed for miles driven for medical reasons or charitable purposes.

Capital Gains Taxes Lowered – Those with lower incomes will benefit from a reduction in the lowest capital gains rate. The formerly 5% rate for married taxpayers with income under $65,100 and single taxpayers with income under $32,500 has now been reduced to 0%.

Kiddie Tax Changes – The rules related to investment income of children have changed to include students between ages 18 and 24 who are not financially reporting themselves. A child with investment income greater than $1,800 must be taxed at the parent’s tax rate to avoid shifting of investments to children to escape income taxes.

Required Minimum Distributions from IRAs – Retirees with tax-deferred retirement funds such as 401(k)s and IRAs are required to take minimum amounts out of those funds once they reach age 70 ½ . The government requires this because those amounts taken out are taxable on withdrawal, and it ensures the IRS gets something from retirees. Because of the stock market troubles, RMDs are suspended for 2009. That doesn’t help when preparing 2008 taxes, but is important to note for planning for 2009.

Free Tax Help – Low income and elderly taxpayers have several options for free tax help. The most extensive option is the Volunteer Income Tax Assistance program. Qualified tax preparers volunteer their time to help answer tax questions and prepare basic tax returns. Taxpayers can also get assistance by calling the IRS or visiting one of their walk-in centers.

(Thanks to my friend Dorothy Milakovic for forwarding this article to me.)

My Tenant Carla

Carla’s Eviction Trial

by Mel Metts

 Carla was smart, articulate and convincing. That’s how she hoodwinked me into renting to her in the first place.

She appeared on the return day and requested a trial. She filed the required Appearance. I could tell I was in for a fight.

When she came for trial, Carla brought a witness. The judge swore everybody in and asked me to state my case.

“Your honor,” I began, “Carla’s lease is month-to-month. On May 30th, I served her with a 30 Day Notice to terminate her tenancy.”

“You did not, Mel,” Carla interrupted. “Don’t lie.”

“After receiving the Notice,” I continued, “Carla did not pay rent for June. So I served a Five Day Notice on June 3rd.”

Carla was silent.

“So I am asking for an Order for possession and unpaid rent.”

The judge turned to Carla.

“Your honor,” she began, “I do not owe rent because I moved out before the first of June. I have a witness who will verify this.”

The judge looked at the witness. “Can you confirm this?” he asked.

“Yes, I can. I helped her move. I was there,” he said.

Judge to me: “Do you have any questions for the defendant?”

“No questions, your honor, but I do have a rebuttal.

“I was concerned about the pile of trash that was accumulating next to the alley. The trash came from her apartment.

“I was so concerned that I took some pictures with my digital camera. As you can see, the pictures are date stamped June 9 of this year.

“I returned on June 17 and there was a lot more trash, as you can see from the additional pictures I took on that day.

“Let me add that the Summons was served to her – at the apartment – on June 13.

“And for your information, she just returned the key to me today in this courtroom.”

It was Carla’s turn. “No, I was completely out by May 31. The reason I was there on June 13 is that I came back to clean. I wanted to leave everything in good shape after I moved out.”

Carla was toast, and I knew it.

“It is clear from the evidence that you were not out by May 31 as you claim,” began the judge, “but in addition to that, you did not return the key until today. Under the law, you had possession until you returned the key.”

Carla sputtered, “I called Mel to come get the key, but he wouldn’t.”

On and on she went, while the judge patiently poked holes in every argument. And when Carla finally ran out of steam, it was all over.

“Judgment for the plaintiff in the amount of $946.00. Enforcement of possession is instanter.”

Yes! There is no substitute for preparation.

(Of course I never saw any of that $946.00. Carla filed for bankruptcy some time later, so my claim was wiped out.)

 Mel Metts is LCPIA Newsletter Editor. Mel is also author and publisher of the book, Do it Yourself Evictions; A layman’s guide to Forcible Entry and Detainer procedures in Illinois. For more information (and pictures of Carla’s trash) visit www.melmetts.com

LCPIA Legislator Forum a Success!

 

 LCPIA’s Julie Eckard, Sen. Michael Bond, Rep. Ed Sullivan Jr., Sen-Elect Dan Duffy, LCPIA meeting organizer Hilde Waldschmidt, Sen. Susan Garrett, LCPIA’s Mel Metts, Rep. Kathleen Ryg, Sen. Terry Link.

By my count, approximately 70 LCPIA (Lake County Property Investors Association) members and guests braved the winter storm to attend.

After a rocky start due to weather, our first-ever Legislator Forum was a blast! Of fourteen Illinois legislators who represent Lake County, six were able to attend and participate.

LCPIA committee members presented eight issues that we favor or oppose, and would like help from our legislators.

Those issues are:

1. Homestead exemptions/Property taxes
2. Tenant Source of Income
3. Transfer taxes & Occupancy inspections
4. Rental property inspections; Landlord licensing/inspection ordinances; Fees
5. Nuisance Ordinance Issues
6. Emergency Housing Costs
7. Carbon Monoxide Detectors
8. Scrap Metal

Our planning committee worked tirelessly over the past months to make this meeting a success. Program coordinator Hilde Waldschmidt organized the planning sessions, kept in contact with all the legislators, and arranged a feast for attendees; Terry Boone researched the CO topic as well as renting the stage and sound system and coordinating setup and teardown. Julie Eckard researched the Homestead Exemption, Rental Property Inspection, Nuisance Ordinance and Emergency Housing Cost topics; Ed Shumaker prepared his presentation on the founding of our Association; and Yours Truly researched Source of Income, Transfer Taxes and Scrap Metal.

Our elected guests expressed interest in working with us on a number of issues; thanked us for bringing items to their attention for the first time; and agreed to join us for a second Legislator Forum on December 8, 2009.

The work of our committee continues as we must follow through in the coming months, working to draft proposed legislation and recruit allies to help generate support.

Keep your eye on closing fees

By Renae Merle | The Washington Post | July 20, 2008

You looked hard to find the right house. You negotiated the right price and shopped around for the best mortgage rate.

But you’re not done shopping yet.

Home buyers can squeeze out extra savings at the closing table if they negotiate on fees charged by lenders, closing companies and title insurers. Some buyers can push sellers to cover a portion of their closing costs, and the slow housing market also is giving them leverage to negotiate discounts from some of the professionals involved in settlement, experts say.

Closing costs vary by locality and loan size, with taxes the main difference, but they usually amount to 2 to 5 percent of the home’s price. Nationally, that translates to an average $3,681 on a $200,000 home loan, according to Bankrate.com.

But there are other variations in how much home buyers pay in closing costs, according to a report released this spring by the Department of Housing and Urban Development.

The report found that minorities and those without college degrees pay more in closing costs.

The study also found that borrowers who used mortgage brokers paid more in closing costs than those who didn’t, a finding the industry disputes.

To ensure that they are not being overcharged at closing, home buyers should eliminate junk fees and ask for discounts, housing experts said. Ask the lender for a written good-faith estimate, which is required after you apply for the loan, and then compare the closing costs with competitors’ charges. Some things are non-negotiable—county transfer taxes, for example.

But that shouldn’t stop buyers from challenging other costs, said Brian Sullivan, a HUD spokesman. “Shop until you drop. I know it’s easier said than done, but do it anyway,” he said.

The complexity of closing may inhibit some buyers. Nearly a quarter of homeowners interviewed in a Federal Trade Commission survey last year could not identify the total amount of their settlement costs.

“One of the main ways to save money is to be that person who is really, obviously on the ball. Otherwise, ask a lot of questions about the closing costs, and maybe every week or so, ask about the status of the loan,” said Holden Lewis, a reporter for Bankrate. “Ask: ‘Why am I paying a documentation fee and a processing fee? Why am I paying an application fee and a commitment fee?’ I have heard some places are charging e-mailing and PDF fees; what’s that?”

Making comparisons more difficult, some lenders bundle the cost of the settlement process, offering a flat-rate for the title insurance as well as other services. Buyers who do not opt for a bundled offering must wade through lenders’ disparate definitions of services to find savings.

“One lender may include a document preparation fee that the other doesn’t, but the second lender has a processing fee,” said Keith Gumbinger, vice president of HSH Associates, a New Jersey-based mortgage information company. “It all makes direct comparisons difficult.”

Making another attempt to simplify the closing process for consumers, HUD is developing a new standard form for lenders to use when giving consumers good-faith estimates.

The forms would specify which charges could change at settlement and by how much, giving customers a better opportunity to compare rates, Sullivan said. The agency is also pushing for lenders to lift requirements that buyers pay application fees before receiving good-faith estimates.

The agency anticipates completing the form by the end of the year. In the meantime, home buyers can look for excessive or unexplained fees under the current process.

A week or more before closing, a buyer should notify the lender that he or she wants the settlement statement that outlines final closing costs, also known as a HUD-1 form, at least a day before heading to the settlement table. Comparing that document to the good-faith estimate can help the borrower find discrepancies. “There are some common things you can look for, like a $50 courier fee when it only costs $16 to send something through UPS,” Gumbinger said.

“We want to limit the so-called fee creep,” Sullivan said, and protect consumers from “being offered one thing and paying another—those last-minute settlement surprises.”

Copyright © 2008, Chicago Tribune

Why Are Short Sales So Troublesome?

Short sales seem like a win-win for everyone involved, but as real estate professionals know, short sales can be hard to pull off. It can take months for the mortgage company to respond to an offer, and the lender or lenders often balk at the price.

Why doesn’t the process go more smoothly when it seems like a much better deal for everyone than foreclosure?

• Paperwork. Gathering all the information needed to evaluate a short-sale offer can take time, says Patrick Carey, an executive vice president with Wells Fargo. The loan servicer must first determine whether the homeowner really can’t continue meeting the loan payments, then get an appraisal or broker’s opinion of the home’s value.

• Many steps, approvals. Mortgage servicers also try to ensure that the proposed sale is an “arm’s length” transaction between two parties rather than something like a sale to a relative on sweet terms. They must also determine whether the buyer has sufficient funds or the ability to get a loan. If all those hurdles are cleared, the servicer may still need to get approval from the investor that owns the loan and provide an analysis showing that the investor will be better off with a short sale than with another solution.

• Complications often arise. There are additional complications if the borrower has a mortgage and a home-equity loan. In that case, both parties must approve the deal – which is a challenge when the sales price may not even be enough to cover the mortgage balance.

• Minimize delays. Carey suggests that home owners contemplating a short sale immediately call the loan servicer to get the approval process started, rather than wait for an offer.

Source: The Wall Street Journal, Ruth Simon and James R. Hagerty 04/17/2008