Alternative Minimum Tax (AMT) The Tax Increase Prevention Act of 2007 extends the AMT patch for one year only, beginning January 1, 2007. The patch was the driving force behind the new legislation. Without the patch, Treasury and the IRS predicted that for the 2007 tax year as many as 25 million taxpayers would face on average a $2,000 tax increase.
Higher AMT exemption amounts. The 2007 AMT exemption amounts are: - $44,350 for single taxpayers and heads of household; - $66,250 for married couples filing jointly; and - $33,125 for married couples filing separately.
Mortgage Forgiveness Debt Relief Act of 2007 One of the "must-pass" provisions needed to make the Treasury Department's recently-announced sub-prime mortgage relief plan work was an exclusion of mortgage debt forgiveness from a homeowner's income. Otherwise, beleaguered homeowners would also become saddled with unmanageable income tax debt. The centerpiece of the Mortgage Forgiveness Debt Relief Act of 2007 is a three-year exception for debt forgiveness on qualified home loans.
Foreclosure Relief When a lender:
- forecloses on property; - sells the home for less than the borrower's outstanding mortgage; and - forgives all or part of the unpaid mortgage debt
The Tax Code normally would consider the cancelled debt to be taxable income to the homeowner, the new tax law allows for forgiveness of that debt. The Mortgage Forgiveness Debt Relief Act of 2007, excludes from taxation discharges of up to $2 million of indebtedness that is secured by a principal residence and is incurred in the acquisition, construction or substantial improvement of the principal residence. This special relief is available for three years beginning January 1, 2007, and ending December 31, 2009. Relief is expected to total more than $600 million, which represents direct cost savings to homeowners. Impact:The new provision is retroactive to January 1, 2007
Mortgage Insurance Deduction
The Tax Relief and Health Care Act of 2006 temporarily allowed taxpayers to take an itemized deduction for premiums paid or accrued on qualified mortgage insurance as deductible qualified residence interest. To be deducible, the premiums must be paid or accrued for qualified mortgage insurance obtained in connection with the acquisition indebtedness on a qualified residence. The deduction is phased out at 10 percent for each $1,000 by which the taxpayer's AGI exceeds $100,000. The Mortgage Forgiveness Debt Relief Act of 2007 temporarily extends the deduction for qualified mortgage insurance premiums for three years, through December 31, 2010.
Comment: The new law extends the mortgage insurance deduction to amounts paid or accrued after December 31, 2007, but only with respect to contracts entered into after December 31, 2006, or prior to January 1, 2011.
