9 New Tax Laws That Could Benefit You and Yours

You know the folks in Washington — they can't leave well enough alone! Actually, by law, inflation dictates how much tax provisions need to be adjusted each year. The poor inflation numbers in recent months may mean good news for us taxpayers.
By: Ken and Daria Dolan: Dolans.com
Some of the latest tax changes could actually help alleviate our tax burden when all is said and done… that is, IF we make sure they're applied to our 2007 returns!
Here, in a nutshell, is a quick breakdown of the tax changes you don't want to miss:

1. PMI deduction. This is an excellent one because for years, homeowners who bought a home with less than a 20% down payment had to not only purchase private mortgage insurance (PMI) to protect the lender against default — they also had zero tax benefits for those payments (which could add up to hundreds, and even thousands, of dollars over the course of just a few years)! Starting with any new mortgages from January 1, 2007, you can deduct this PMI expense along with your usual mortgage interest from your income tax. Recently, legislation was passed so this will apply for any new mortgages through 2010. However, your family income needs to be less than $100,000 per year — if it's higher, your mortgage insurance won't be 100% tax deductible. For each $1,000 of annual household income earned in a year, the deduction is reduced by 10%. Once a family's income is over $109,000, the PMI deduction will not apply.

2. Higher personal exemptions. The value of each personal and dependency exemption is $3,400 for 2007 — up $100 from 2006.

3. Standard deduction increase. The standard deduction for married couples filing a joint return is up $400 to $10,700. For singles and married individuals filing separately, the deduction is now $5,350 — up $200. (For heads of household, it's $7,850, or up $300.)

 Did You Know?

   Tax bracket thresholds increase for each filing status in 2007? For example, for

   a married couple filing a joint return, the taxable-income threshold separating

   the 15% bracket from the 25% bracket is $63,700 — up from $61,300 in 2006.

4. Higher income limits for deductible IRAs and Roth IRAs. You can now take a full IRA deduction if you're covered by a retirement plan at work if your modified adjusted gross income is less than $83,000 (married, filing jointly) or $52,000 (single or head of household). You can also take a partial deduction up to $103,000 for married filing jointly or $72,000 for singles and heads of households.

5. Tax relief due to foreclosures. There were certainly no shortages of foreclosures in 2007, and it looks like we'll be seeing the same kind of troubles this year and into 2009.
The positive news (if you can really call it that) applies to any foreclosures in 2007, 2008 and 2009. That is, any forgiven debt during those years in connection with a foreclosure, short sale or loan restructuring will not be treated as income, as it has in years past. There are a few restrictions, however:

  • This relief applies only to principal residences and not vacation home or

    investment property. (In most of those latter cases, the amount of debt canceled

    is considered taxable income.)



  • The amount of forgiven debt is capped at $2 million.



  • The loan must be secured by your principal residence and had to be used to buy,

    build or improve the property. (If it was a home equity loan or cash-out

    refinancing used for other purposes, then forgiven debt would be considered

    taxable income.)

The tax basis of the home is reduced by the amount of canceled debt excluded from income.

6. Increased Section 179 expense deduction. If you own your own business that requires that you to purchase heavy equipment, this deduction allows you to elect to deduct all or part of the cost of certain qualifying property in the year you place it in service. And thanks to a new law, the maximum amount of equipment that businesses can expand increases to $125,000 — a whopping $17,000 increase from 2006. The qualifying property must have been placed in service in 2007 and includes only depreciable and tangible personal property such as trucks, machinery and computers. Real property, such as buildings and their structural components, does not qualify. Also excluded from the deduction are land and improvements made directly to the land.

7. Tax-free parking for employees. If you're employed and your employer pays for your parking, you now have up to $215 a month in non-taxable employer-paid parking. That's up $10 per month from 2006 and can save you over $2,500 in taxable income. Also, the cap on tax-free transit passes that employers can give went up to $110 a month. That's another $1,200 per year savings.

8. Increased contribution limit for 401(k) plans. You can now contribute $15,500 to your 401(k) and other similar workplace retirement plans. This is up from $15,000 in 2006. By the way, if you're 50 or older, the limit rises to $20,500 — also a $500
increase.

9. Bigger health care deductions. If you have a health savings account (HSA), the maximum HSA deduction increases to $2,850 for singles or $5,650 for family coverage. That's up $185 and $200, respectively. And those ages 55 or older can add $800 on top of that.