Mike’s Real Estate Show

A first look at tax rates and deductions for April 15th. It’s not too early to learn what’s ahead!

First In Our Tax Prep Series

Most homeowners will see some tax relief next April 15th as Congress has extended some tax programs and others are set to be “indexed” to provide for more relief. Unlike many changes to the tax laws, which are in effect for only limited periods of time, indexing has become a settled part of the tax code, according to George Jones, JD, CCH senior tax analyst.

“Some tax cuts in recent years are only temporary, and are scheduled to be followed by increases down the line, indexing works year after year, and it’s likely to be a part of the tax laws for the foreseeable future irrespective of whether Congress plans to tinker more with the tax rates themselves,” Jones noted.

Indexing of brackets lowers tax bills by including more incomes in lower brackets - in the 15-percent rather than the 25-percent bracket, for example.

Every year the IRS sets new levels of income and deductions to reflect inflation. The highest tax bracket, 35% applied to income over $349,000 will have it’s limit raised to $357,700 next year.

Among the many upcoming changes that will be in effect in April, the Standard Deduction is being raised. Over two-thirds of all taxpayers opt for the standard deduction. Last year it was $10,700 and now moves up $200 for married couples filing jointly. For most singles the deduction will rise $100 to $5,450. The personal exemption will rise to $3,500, a $100 increase.

The big question is if and when Congress will deal with the AMT (Alternative Minimum Tax). The AMT is another tax system meant to reduce deductions normally afforded to taxpayers in certain income ranges. Because it was not designed to be indexed (changed for inflation year over year) it snags a growing number of taxpayers. In 2006 it dramatically increased tax bills for 4 million and without Congress doing something in the next few months it will ensnare 25 million taxpayers.

Below are some charts that are estimated by CCH to give you a glimpse of what to expect come April 15th. As with all tax information, please consult a tax professional for your particular situation. A good place to start is asking your Club Sponsor.

CCH’S 2008 TAX PROJECTIONS (1)

Married Filing Jointly (& Surviving Spouse)
2008 Taxable Income  Tax Rate  2007 Taxable Income  Tax Rate 
$0-$16,050 10% $0-$15,650 10%
$16,050-$65,100 15% $15,650-$63,700 15%
$65,100-$131,450 25% $63,700-$128,500 25%
$131,450-$200,300 28% $128,500-$195,850 28%
$200,300-$357,700 33% $195,850-$349,700 33%
$357,700 + 35% $349,700 + 35%

Married Filing Separately
2008 Taxable Income  Tax Rate  2007 Taxable Income  Tax Rate 
$0-$8,025 10% $0-$7,825 10%
$8,025-$32,550 15% $7,825-$31,850 15%
$32,550-$65,725 25% $31,850-$64,250 25%
$65,725-$100,150 28% $64,250-$97,925 28%
$100,150-$178,850 33% $97,925-$174,850 33%
$178,850 + 35% $174,850 + 35%

 
Single Filers
2008 Taxable Income  Tax Rate  2007 Taxable Income  Tax Rate 
$0-$8,025 10% $0-$7,825 10%
$8,025-$32,550 15% $7,825-$31,850 15%
$32,550-$78,850 25% $31,850-$77,100 25%
$78,850-$164,550 28% $77,100-$160,850 28%
$164,550-$357,700 33% $160,850-$349,700 33%
$357,700 + 35% $349,700 + 35%

 
Head of Household

2008 Taxable Income  Tax Rate  2007 Taxable Income  Tax Rate 
$0-$11,450 10% $0-$11,200 10%
$11,450-$43,650 15% $11,200-$42,650 15%
$43,650-$112,650 25% $31,850-$77,100 25%
$112,650-$182,400 28% $110,100-$178,350 28%
$182,400-$357,700 33% $178,350-$349,700 33%
$357,700 + 35% $349,700 + 35%

Standard Deduction Amounts
Filing Status  2008 2007 Increase
Married Filing Jointly (& Surviving Spouse) $10,900 $10,700 $200
Married Filing Separately $5,450 $5,350 $100
Single  $5,450 $5,350 $100
Head of Household  $8,000 $7,850 $150

 
Standard Deduction for Dependents (”Kiddie” Standard Deduction)

 
2008 2007 Increase
$900 $850 $50
Income Level At Which 3-Percent Itemized
Deduction Limitation Takes Effect
(Adjusted Gross Income)

Filing Status  2008 2007 Increase
Married Filing Jointly (& Surviving Spouse) $159,950 $156,400 $3,550
Married Filing Separately $79,975 $78,200 $1,775
Single  $159,950 $156,400 $3,550
Head of Household  $159,950 $156,400 $3,550

 
Personal Exemption Amounts

2008 2007 Increase
$3,500 $3,400 $100

 
Threshold for Personal Exemption Phase out

Filing Status  2008 2007 Increase
Married Filing Jointly (& Surviving Spouse) $239,950 $234,600 $5,350
Married Filing Separately $119,975 $117,300 $2,675
Single  $159,950 $156,400 $3,550
Head of Household  $199,950 $195,500 $4,450

 
Gift Tax Exemption
2008 2007 Increase
$12,000 $12,000 $0

 
Income Limit for Full Roth IRA contribution

Filing Status  2008 2007 Increase
Married Filing Jointly $159,000 $156,000 $3,000
Single  $101,000 $99,000 $2,000

(1) These numbers are projected for the 2008 tax year and have not been confirmed by the Internal Revenue Service.

Source: CCH, a Wolters Kluwer business