10235 Chapel Hill Road Morrisville, NC

2007 Legislative Update

The end of 2007 has seen Congress very busy with legislative acts which will have great impact not only on 2007 tax filings but for years to come.

Not only did Congress pass The Tax Increase Protection Act of 2007 and the Energy Bill both reported to the NSTP membership last week but on December 20 both houses of Congress passed the Mortgage Relief Bill . The President has already signed the Energy Bill and Virginia Tech Relief into law and today, December 26, signed the Mortgage Relief Bill into law. The White House has indicated he will sign The Tax Increase Protection Act of 2007 upon the legislation reaching his desk.

The following is a summary of the most recently passed legislation:

The Prevent Taxation of Payments to Virginia Tech Victims and Families Act

Signed into law by President Bush on December 19, 2007 .

Excludes from gross income payments from a special memorial fund for victims of the April 2007 Virginia Tech tragedy.

Increases the penalty for failing to file a partnership return by $1 beginning in 2008 to pay for the tax break.

It should be noted that along with the penalty in the Mortgage Debt Relief Act of 2007 , the penalty is now $86 per partner per month.

While Congress has recessed for the holidays, they will return to Washington for some last minute legislation which will likely include:

  • Military tax breaks
  • Tax gap legislation
  • Tax shelter issues
  • Lower corporate tax rates
  • Farm-related tax incentives

The Federal Tax Alert reported that the name of Doug Shulman has been sent to the Congress for confirmation as the next IRS Commissioner.

On December 19 Congress passed Sen.2436 which clarifies that an appointee serves the remainder of the vacating commissioner's five-year term rather than starting a new five-year term. However, irrespective of any appointment or nomination delays, each five-year term is measured from November 13, 1997 . Consequently the commissioner appointed to fill the vacancy left by the former Commissioner will fill the five-year term of office which began running on November 13, 2007 and will complete on November 12, 2012 .
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Mortgage Forgiveness Debt Relief Act of 2007

  Passed by Congress, awaiting the signature of President Bush.

Mortgage Relief:

  • A three-year exception for debt forgiveness on qualified home loans, retroactive to January 1, 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.
  • Indebtedness also includes refinancing of such acquisition indebtedness as long as the refinancing does not exceed the amount of the original indebtedness.
  • The definition of principal residence for purposes of the Act is the same as that under §121 for the home sale gain exclusion.
  • The basis of the taxpayer's principal residence is reduced by the amount excluded from income under the Act.
  • Tax years relief is granted include 2007, 2008 and 2009.
Mortgage Insurance Deduction:
  • Extended the Tax Relief and Health Care Act of 2006 allowing taxpayers to take an itemized deduction for premiums paid or accrued on qualified mortgage insurance as deductible qualified residence interest for three years through December 31, 2010 .
  • Deduction is phased out at 10 percent for each $1,000 by which the taxpayer's AGI exceeds $100,000.
  • Qualified mortgage insurance is mortgage insurance provided by the Veterans Administration, the Federal Housing Administration, the Rural Housing Administration or private mortgage insurance in Section 2 of the Homeowners Protection Act of 1998 .

Survivor's Home Sale Exclusion:

  • Beginning January 1, 2008 , the sale of a residence that had been jointly owned and occupied by the surviving and deceased spouse is entitled to the $500,000 gain exclusion.
  • The sale must occur no later than two years after the date of death of the individual's spouse.

Volunteer Emergency Responders:

  • Individuals receiving a qualified state and local tax benefit, any reduction or rebate of tax and qualified payments of up to $360 each year provided on account of their volunteer services can exclude them from income.
  • Tax treatment applies to tax years beginning after December 31, 2007 .

Definitions:

The Act clarified the low-income housing credit and the definition of a cooperative housing corporation.

Other provisions:

  • Increased the failure to file penalty for partnerships from $50 to $85 per partner per month. Along with the $1 penalty increase in the Prevent Taxation of Payments to Virginia Tech Victims and Families Act brings the penalty to $86 per partner per month.
  • S Corporation new failure to file penalty of 85 per S shareholder per month, up to 12 months.
  • Increase in corporate estimated tax payments for corporations with 1 billion-plus assets, by 1.5 percent to 117.25 percent for payments due in July, August and September 2012.