Emergency Economic Stabilization Act of 2008

On October 3rd, the President signed into effect the Emergency Economic Stabilization Act (EESA) of 2008.  The Act is a 400+ page multi-faceted document.  But how does it affect YOU?

This Act extends a few tax breaks that expired in 2007 (or were to have expired in 2008):

• Deduction of State and Local Sales Taxes expired at the end of 2007.  The EESA extends the deduction through December 31, 2009.
• Tuition Deduction has been extended through December 31, 2009.
• Educator’s Expenses deduction (up to $250 of money spent buying supplies for the classroom) has been extended through 2009.
• Extends the additional standard deduction for real property taxes through 2009, for non-itemizers.  This was originally approved only for the 2008 tax year.

The Act also extends another break that was slated to expire at the end of 2009:

Mortgage Forgiveness Debt Relief Act (enacted in 2007) is extended from the end of 2009 through 2012.  This act excludes from income the cancelled debt of a foreclosure up to $2 million ($1 million if married filing separately) secured by a principal residence.

EESA also includes an alternative minimum tax (AMT) patch.  In 2008, the AMT exemption amounts are increased to $69,950 if married filing jointly; $46,200 for single and head of household filers; and $34,975 if married filing separately.  This patch also provides relief to those folks left holding worthless incentive stock options but a large tax bill, based on AMT calculations.  The patch decreases AMT liability stemming from the exercise of ISOs before 2008.

Enhancements to the Child Tax Credit.  Previously, the credit was refundable to the extent of 15 percent of the taxpayer’s earned income in excess of $12,050.  The EESA changes the earned income floor to $8,500.  It changes the definition of a qualifying child and ties the child tax credit to the child dependency exemption.  It also modifies the definition of a qualifying child.  Your qualifying child must be younger than the claimant, must be unmarried, and their benefits are only allowed to the child’s parents.  The Child Tax Credit is denied unless the child is the taxpayer’s dependent.

Energy efficient home improvements credits which expired in 2007 have been reinstated and could get you a credit of up to $500.

A new credit, based on the hybrid tax credit, has been instituted for electric car buyers.

Bicycle Commuters may be eligible to receive a $20 per month tax-free fringe benefit from your employer.  There are two "buts" in this portion of the bill:  BUT your employer has to offer the benefit; BUT your employer can’t offer the benefit until January 1, 2009.

Click here for further reading (Source – CCH).

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