Tax Benefits - WSJ

There have been several significant tax-law changes that could affect your returns for 2008. Some of the changes include: (1) Recovery rebate credit (2) Standard deduction (3) Mileage (4) Homebuyer credit (5) Mailing your return.

The following is an article published by Tom Herman of the Wall Street Journal. Click here for the full article found at wsj.com.


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Even if you've done your own tax returns for years and think you're an expert, get ready for some extra work this year.

There are several significant tax-law changes that could affect your returns for 2008. One that already has led to considerable confusion is the "recovery rebate credit," which is related to last year's economic-stimulus payments.

Another complex change involves a special tax credit designed to encourage people to buy homes -- a benefit which Congress recently enhanced.

"It's quite a bit more complicated this year" for millions of people, says Greg Rosica, tax partner at Ernst & Young in Tampa, Fla. "We've had multiple pieces of tax legislation -- and many changes within each act."

Here are some of the major changes and advice from tax professionals:

Recovery rebate credit: Many people are claiming this credit even though they aren't entitled to it, Internal Revenue Service officials say. Others have taken the wrong amount or made other bloopers, with about 15% of all returns filed early this year having some errors involving this one item.

The idea behind the credit sounds simple: It's designed to benefit millions of people who didn't get the full amount of last year's stimulus payment and now may qualify for some, or all, of the unpaid amount because of a change in circumstances -- such as a sharp drop in income last year or having a child.

Most taxpayers who received a stimulus payment last year aren't eligible for anything more. So for most people, the correct entry on that line "will be either blank or zero," the IRS says. When in doubt, enter "RRC," and the IRS will figure out whether a credit is due, and, if so, how much. For more details, see "Avoid Rebate Credit Confusion" on the IRS Web site (www.irs.gov).

Some people aren't sure if last year's stimulus payment is taxable. The short answer: No, it isn't taxable, says Eric Smith, an IRS spokesman.

Standard deduction: About two-thirds of taxpayers usually claim the standard deduction, instead of claiming "itemized deductions" -- such as charitable donations and mortgage interest -- on Schedule A of Form 1040. For 2008, the basic standard deduction is $10,900 for married couples who file jointly. For most singles, it's $5,450. There are higher amounts for those who are 65 or older, or blind.

Two significant changes for 2008: You can claim an additional standard-deduction amount for net disaster losses from federally-declared disasters. And your standard deduction also is increased by the state and local real-estate taxes you paid -- up to $500, or as much as $1,000 for joint filers, the IRS says.

Mileage: Many people deduct the costs of using their car or other vehicles for work, medical or moving purposes. They can choose to deduct their actual costs or use the IRS's optional standard mileage rates. Usually, there's one IRS rate for the entire year. But there are two separate sets of rates for 2008 because the IRS changed rates around mid-year to reflect higher gasoline prices.

The IRS business mileage rate was 50.5 cents a mile for the first half of 2008 and 58.5 cents in the second half. The IRS rates for medical and moving purposes were 19 cents for the first half of 2008 and 27 cents in the second half. (Note that, by law, the rate for charitable purposes is a flat 14 cents a mile.)

Homebuyer credit: Officially, it's called the "First-Time Homebuyer Credit." But, as the IRS's newly issued Form 5405 indicates, that title can be misleading. In general, you're considered a "first-time" homebuyer if you bought your main home in the U.S. after April 8, 2008 and before Dec. 1, 2009 and if you (and your spouse, if married) didn't own any other main home during the three-year period ending on the date of purchase. If you owned a home before that period, you still may qualify.

The credit works differently depending on when eligible taxpayers bought the home. If they bought last year, the credit essentially amounts to an interest-free loan that must be repaid over 15 years.

But it's even better if you're eligible and buy during the 2009 period: You don't have to repay the credit unless "the home ceases to be your main home within the 36-month period beginning on the purchase date," the IRS says.

In an unusual twist, eligible taxpayers who buy a home this year may claim the credit on their return either for 2008 or 2009.

Generally, the credit is $7,500, or $8,000 if you bought the home in 2009 (but only half of that amount if married filing separately), or 10% of the home's purchase price, whichever is smaller. But you aren't eligible if your income exceeds a certain amount. For example, you can't claim it if your modified adjusted gross income is $95,000 or more, or $170,000 or more if you're married and filing jointly.

You also can't claim it if the home is outside the U.S., or if you bought it from "a related person," such as your spouse or parents. For more details, see Form 5405 and the related instructions.

Mailing your return: Taxpayers in several areas who file paper returns are supposed to send them to different IRS offices this year. "If you received an envelope with your tax package, please use it," the IRS says.

Taxpayers who file electronically won't be affected by the address changes.