|
After months of political infighting, and with its planned holiday recess at risk, Congress finally approved a fix to the alternative minimum tax on December 20, 2007, weeks after missing crucial IRS deadlines.
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.
Given the split Congress, only one avenue for reform was open to lawmakers. Republicans and President George W. Bush insisted that a temporary tax mistakenly overcharging middle-class taxpayers should not be replaced with a new permanent tax. Democrats also wanted an AMT fix, but one that was offset by new taxes. Ultimately, a presidential veto threat led Democrats to drop their demands for an offset bill, as they didn't have the votes to pass an offset into law.
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
- $33,125 for married filing separately
The 2007 exemption amounts are higher than the 2006 exemption amounts.
Nonrefundable personal credits. For the 2007 tax year, the new law allows taxpayers to use most nonrefundable personal credits to offset AMT liability. These include the dependent care, HOPE and Lifetime learning education credits and the District of Columbia first-time homebuyer's credit. The adoption, child and saver's credits were already allowed under prior law to the full extent of the individual's regular tax and AMT.
Unfortunately, because Congress waited so long to pass the AMT patch, the tax filing season will be delayed. Early filers expecting refunds may have to wait a few more weeks to receive their checks. In addition, some 12 IRS forms will have to be redesigned and the IRS will need seven weeks to reprogram its computers for the new law's provisions, adding further delays to the filing season.
And because the AMT patch is only good for one year, we can look forward to having the same situation repeat itself this time next year. Happy Holidays, indeed!
- Related items:
- Clean Patch for AMT Clears Senate
- Delayed Start to 2008 Filing Season Could Mean Numerous Problems for IRS, Taxpayers
- No Changes Anticipated in Tax Extenders Package
- House Approves One-Year AMT Patch Legislation
- Congress Begins Work on Temporary AMT Patch, Extenders Bill
- Year-End Tax Planning Must Deal with Uncertainty
- Tax Rate Projections for 2008
- Senate Finance Panel Hears Solutions for AMT Problem
- IRS Begins Tax Season With Important Issues Unresolved
- Permanent AMT Fix Poses Difficult Choices
Posted January 3, 2008.
|
