Just a 46-year-old mom of 2 in Northern California. My kids are Monkey Monkey(MM) and Drama Llama (DL). I am married to Monkey Hubby (MH). Lots of interesting stuff on the tax front:
Federal Taxes
Just got a summary on some of the little less known tax changes in the American Housing Rescue/Foreclosure Prevention Act.
1 - $7500 tax credit for "first time home buyers." You've heard of it.
The "credit" (loan, really) phases out between incomes of $75k-$95k singles and $150k-$170k marrieds.
Not very exciting for most of you. But I hadn't heard that. For Sacramento means little. From my friends back home asking me about it - they won't qualify. HCOL comes with high wages.
2 - Temporary property tax deduction for non-itemizers.
What in holy hell? Benefits so few, for one year only. What a waste of taxpayers dollars MAKING this one. Whatevah.
Enjoy it if you can. $500 tax deduction is single; $1000 if married (max anyway) if you pay property taxes but do not itemize.
3 - Beginning 1/1/09, tax laws change on converting rentals to primary residences. The good thing is it is not really retroactive.
Before, if you had a rental for many years and converted it to a primary residence for simply 2 years, you could completely exclude the gain if it fell under the usual exclusions for primary residences ($250k single/$500k MFJ).
New rule is complicated. You can only exclude gain for portion of time you used it as a primary residence, in comparison to how long you owned the property. So at face value if you rented it 20 years and lived in it 2 years, you can only exclude 2/22 (9%) of the gain.
It's not retroactive though and I honestly don't understand the whole thing. I have an example here that someone who moved into a home on 1/1/10, and lived in it 2 years, would only have one unqualified year (2009 - when law starts). So though they owned the home 7 years, they would only have to pay tax on 1/7 of the gain, for the one year they rented it out under new law.
Likewise, I am not sure at face value how this law coincides with the prior one. Not sure if you still have to live in the place 2 of the past 5 years before selling. It looks like those rules still stand as well, but these trump them a bit.
(This one will take a while to wrap my brain around - complicated).
------------------------------------
California can't agree on a budget and all Arnold can do is offer to raise taxes by some insane figure. (Increase already high sales taxes by over 10%, or increase top tax brackets by 1-3%. They were already increased 1% a couple of years ago. HELLO. The rich are FLEEING. IT doesn't seem to be helping revenues, for sure. Basic economic theory. Particularly when you can move a few hours away and pay NO state income taxes - more than one nearby state offers this enticing perk).
Anyway, I got a lovely, really useful e-mail yesterday (not).
"WARNING: The state legislature may:
•Add (another) 1% surcharge to income over $1 million;
•Institute 10% and 11% tax rates;
•Eliminate certain credits;
•Conform to some federal provisions – or not;
•Eliminate NOL carryovers into 2008;
•Plus others we don't yet know about.
"
This is our starting point for year-end tax planning.
UGH!
----------------------------------
I just got an interesting article on our profession, in the state.
**Foreclosures - California doesn't really conform to Federal tax laws anymore, which is a complete nightmare. So this is a big issue - such a heavily foreclosured state and the state government has not decided if it will conform to the Federal relief laws.
Another ugh.
Reports are that 2 types of foreclosure heavy in the state:
1 - People who purchased homes in affordable cities but had long commutes. Foreclosing due to gas costs. (Interesting).
2 - People who bought in the bubbles (expected).
Just interesting observations from the trenches.
I have to admit I can not believe how much some people paid to live in the middle of nowhere and commute. "Affordable" is debatable. Not sure if anyone has bought affordable housing in this state for a while.
My boss just said he didn't expect any of our clients to foreclose. I wouldn't be so sure. Most of his long-time clients are financially savvy, but we have a few *winners.* I can think of a few who may be struggling (the younger ones, for sure, which are more under my charge). IT will be an interesting tax season. (Of course none would bother to give us a heads up - this is the kind of stuff you find out right about April 15th - which of your clients have lost their homes. We're always the last to know).
Anyway profession has lots of concerns over more aggressive preparer penalties in areas where it is really impossible to comply. (If clients don't tell us they make money on the side, why are we being penalized. Are we auditors?)
Profession is reporting that business is booming, we are "recession-proof" as usual.
But issues are:
1 - Business is up, but collections are more difficult
2 - More clients likely to evade taxes (work under the table) or not file tax returns at all (& as mentioned, concerns about overly zealous preparer penalties).
3 - Concerns how to keep clients but not prepare questionable returns. (Conflict of interest here, it seems). The basics to this is we are less likely to venture into gray areas, due to own personal concerns. BUT our clients are pushing the envelope more - so we are just more at odds.
My own observation is that we have been so slammed with work that we have had the luxury of firing bad clients at will and holding on to the really on-the-ball/honest types. So I don't expect to find the same issues in our office this year. But I am sure a few will rear their ugly heads. I appreciate the decades my boss has put into this practice, and the kind of clients we have. Particularly reading these points.
Just kind of an interesting report from the tax trenches.
Tax-y Blog Today
September 11th, 2008 at 07:48 pm
September 11th, 2008 at 08:38 pm 1221165493
What in holy hell? Benefits so few, for one year only. What a waste of taxpayers dollars MAKING this one. Whatevah.
Enjoy it if you can. $500 tax deduction is single; $1000 if married (max anyway) if you pay property taxes but do not itemize."
Question: I have a property that I rent out...and I do not itemize. Can I deduct the rental property taxes this coming April?
September 12th, 2008 at 12:31 am 1221179494
September 12th, 2008 at 12:56 am 1221181005
September 12th, 2008 at 01:43 am 1221183787
September 12th, 2008 at 01:46 pm 1221227182
Actually, you should be able to deduct them as a rental expense - so this wouldn't change anything for you. You can't take them as a personal residence property tax expense - no.
September 12th, 2008 at 01:52 pm 1221227550
I actually read an interesting article - Article said that taxes as a whole in California were not the highest. They are WAY the highest for the richest, but not the middle and lower classes. Which is exactly what I have been saying all along. I see in my line of work the wealthy and upper middle class getting taxed into oblivion, and so they, the taxpayers who generate MOST of our revenue, leave the state. Then revenues decrease and they raise taxes at the top. It's a vicious cycle.
Whereas a family like ours doesn't pay much in income taxes. But no current politician would raise our taxes. It's just silly all around.
So if you are not a top-tier income earner the taxes may not be so bad. Was interesting food for thought. I'll post that link for you scfr - or e-mail it.
September 12th, 2008 at 01:58 pm 1221227924
September 12th, 2008 at 04:12 pm 1221235922
September 12th, 2008 at 05:35 pm 1221240937
September 12th, 2008 at 05:40 pm 1221241243
September 12th, 2008 at 05:56 pm 1221242214
September 12th, 2008 at 10:24 pm 1221258242
September 14th, 2008 at 06:50 pm 1221418258
September 14th, 2008 at 09:21 pm 1221427293
You take the credit on your tax return, but have to repay it eventually ($500/year - 15 years to repay).
September 20th, 2008 at 06:57 pm 1221937040
September 21st, 2008 at 03:56 pm 1222012566
Gotta love the government!!!!
I guess in 2008 credits are now code for "loan."