Summary of 2007 Tax Changes:
- Tax relief is available to struggling homeowners whose mortgage debt is forgiven.
- Retirement savings incentives expand.
- A new deduction is available for some mortgage insurance premiums. And
- New recordkeeping rules apply to cash donations to charity.
AMT Exemption Increased for One Year
For tax-year 2007, Congress raised the alternative minimum tax exemption to $66,250 for a married couple filing a joint return, up from $62,550 in 2006. The exemption rises to $33,125 for a married person filing separately, up from $31,275, and it rises to $44,350 for singles and heads of household, up from $42,500. Under current law, these exemption amounts will drop to $45,000, $22,500 and $33,750, respectively, in 2008. Form 6251
Extender Tax Breaks Reappear on IRS Forms
Eligible taxpayers will no longer have to follow special instructions in order to claim the deduction for state and local sales taxes, the educator expense deduction and the tuition and fees deduction.
Those who itemize, rather than taking the standard deduction, can choose to claim state and local sales taxes on Form 1040 Schedule A, Line 5.
The educator expense deduction is reported on Form 1040, Line 23 or Form 1040A, Line 16.
Taxpayers who choose to claim the tuition and fees deduction must fill out and attach new Form 8917. The resulting deduction is reported on Form 1040 Line 34 or Form 1040A Line 19. Note that many who qualify for the tuition and fees deduction may reap greater tax savings by instead claiming the Hope credit or the lifetime learning credit for a particular student. Figure these credits on Form 8863. Publication 970 has details.
Contribution Limits Rise for IRAs and Other Retirement Plans
More people can make tax-deductible contributions to a traditional IRA. The deduction is phased out for singles and heads of household who are covered by a wo