The un-reimbursed classroom related expense deduction for teachers has been extended through 2007. This gives teachers a up to $250 "above the line" deduction for classroom expenses.
The deduction for higher education expenses for students was extended through 2007. The deduction is for tuition and fees only, and can be a maximum of $4,000. Parents of eligible students can get the deduction if the student is claimed as a dependent on the parents return.
Deduction for state and local general sales taxes for those of you that itemize deductions was extended. This primarily benefits taxpayers who made large purchases during the year such as vehicles, boats, homes, or home building materials. It also benefits those of you who live in a state that does not impose a state income tax.
The IRS will be focusing on charitable deductions. Taxpayers cannot deduct a monetary donation unless they have either (1) a bank record, such as a cancelled check or a bank statement or (2) a written receipt from the charity. For donations of $250 or more, the donor must receive a written acknowledgement from the charity.
Residential energy tax credits are available on your personal residence for energy saving items installed in 2007 such as windows, skylights, exterior doors, insulation, furnaces and central air conditioning units. Taxpayers wishing to claim this credit must have a manufacturer's certification.
A "savers credit" is now a permanent provision in the tax code. This credit applies to joint filer's with AGI of less than $52,000, and single filers with AGI of less than $26,000.
For Homeowners: Those of you that purchased a new home in 2007, can now take a deduction if you were required to purchase private mortgage insurance (commonly known as PMI). In an effort to help those adversely affected by the downturn in the real estate market, you will not have to report as income any debt forgiveness on qualified acquisition indebtedness up to $2,000,000 on your principal residence. This exclusion from income is effective for debts discharged on or after January 1, 2007 and before January 1, 2010.
And lastly, some of you may have read in the newspapers about fixes to the Alternative Minimum Tax (AMT). This patch is only good for 2007 and it saves many taxpayers that otherwise would have had to pay an Alternative Minimum Tax. President Bush is expected to sign this bill. The AMT is tremendously complex, and I won't go into details here, however, if you are affected by the AMT, it will show on page two of your 1040 form.
Now a couple of California issues.
The California Franchise Tax Board advises that they are increasing audit focus on the following:
Alimony payments for both payers and receivers.
Car and truck expenses for those of you that take this deduction.
Filers claiming Head of Household filing status
Always check with your tax advisor to confirm the recent changes.