Changes to the Form 1040 for 2008

FORM 1040, INDIVIDUAL INCOME TAX RETURN
Gross Income:
Line 7. Wages, salaries, tips, etc. Excludable qualified military benefits include any bonus payment made by a state or political subdivision to a member or former member of the U.S. uniformed services, or to his dependent, because of the member’s service in a combat zone.

Payments made by Veterans Affairs under a work therapy program are tax exempt.
Line 13. Capital gain or (loss). For revised homesale exclusion rules for surviving spouses and for certain Peace Corps volunteers, see entries for Form 1040, Schedule D.

Line 21. Other income. An exclusion applies for qualified state or local tax benefits (such as reduction or rebate of state or local income or property tax) and qualified reimbursement payments (up to $360 a year) granted to members of qualified volunteer emergency response organizations (e.g., state or local organizations whose members provide volunteer firefighting or emergency medical services).

Adjusted Gross Income:
Line 25. Health Savings Account deduction. An individual is allowed a maximum HSA contribution of $2,900 for single coverage ($5,800 for family coverage).

Line 26. Moving expenses. The deduction for moving expenses is 19¢ per mile for Jan. 1 to June 30, 2008 and 27¢ per mile from July 1 to Dec. 31, 2008.

Line 32. IRA deduction. The IRA contribution limit is $5,000 ($6,000 if over 50 at the end of 2008). For 2008, the AGI phaseout ranges for making deductible contributions to regular IRAs by taxpayers that are active participants in an employer-sponsored retirement plan are higher (e.g., $85,000 to $105,000 for joint return filers).

Tax and Credits:
Lines 39c and 40. Standard deduction. For 2008, the standard deduction is $5,450 for single filers and for married persons filing separately, $10,900 for joint filers and qualifying widow(er)s, and $8,000 for heads of household. Also, for qualifying taxpayers, it is increased by the real property tax deduction and the disaster loss deduction and a box must be checked on line 39c if either increase is claimed.

Line 42. Personal exemptions. The exemption for 2008 is $3,500. Exemption starts to phase out if adjusted gross income exceeds: $159,950 for single filers, $119,970 for married persons filing separately, $239,950 for joint filers and qualifying widow(er)s, and $199,950 for heads of household. For 2008, a taxpayer loses only 1/3 of the amount he would otherwise lose under the regular phaseout computation.

Line 44. Tax. A zero tax rate applies to most long-term capital gain and dividend income that would otherwise be taxed at the regular 15% rate and/or the regular 10% rate.

The kiddie tax applies to children age 18, and children over age 18 but under age 24 who are full-time students—if their earned income doesn’t exceed one-half of the amount of their support.

Line 45. Alternative minimum tax. For 2008, the AMT exemption amounts are increased to $69,950 for married individuals filing jointly and surviving spouses, $46,200 for unmarried individuals, and $34,975 for married individuals filing separately.

For 2008, nonrefundable credits may offset an individual’s regular tax and AMT.
The AMT refundable credit may be claimed more rapidly and is no longer subject to phaseout rules. Tax underpayments (plus interest and penalties) outstanding on Oct. 3, 2008, that are attributable to pre-2008 phantom incentive stock option income under the AMT rules are abated.

Line 50. Education credits. For 2008, the Hope and Lifetime credits phase out ratably for taxpayers with modified AGI of $48,000 to $58,000 ($96,000 to $116,000 for joint filers). For 2008, the Hope credit is 100% of up to $1,200 of qualified higher education tuition and related expenses plus 50% of the next $1,200 of such expenses. Use Form 8863.

Line 53. Credits from certain forms. This line is used to report the residential energy efficient property credit from Form 5695. For 2008, there are two new components to the residential energy efficient property: qualified small wind energy property expenditures and qualified geothermal heat pump property expenditures.

This line is also used to report the adoption credit from Form 8839. The maximum adoption credit for 2008 is $11,650, and begins to phase out when modified AGI exceeds $174,730.

Line 54 Other credits. Qualifying expenditures paid or incurred after May 22, 2008 may qualify for a new agricultural chemical security credit, subject to conditions and limitations.

There is a new credit for small business employers that pay differential wages after June 17, 2008, to active duty members of the uniformed services.

Other Taxes:
Line 57. Self-employment tax. Maximum amount of self-employment income subject to FICA tax is $102,000; no ceiling on Medicare wage base.

Conservation Reserve Program payments are not treated as self-employment income for SECA tax purposes if received by an individual who is getting Social Security retirement or disability payments.

An individual may use the farm optional method only if (a) his gross farm income was not more than $6,300 or (b) his net farm profits were less than $4,548. It permits individuals to compute their farm self-employment earnings as the smaller of (1) 66 2/3% of gross farm income, or (2) $4,200.

An individual may use the nonfarm optional method only if (a) his net nonfarm profits were less than $4,548 and also less than 72.189% of his gross nonfarm income and (b) he had net earnings from self-employment of at least $400 in 2 of the prior 3 years. Individuals may compute their self-employment earnings as the smaller of two-thirds of gross nonfarm income or $4,200.

A self-employed individual with both farm and nonfarm incomes is allowed to use both optional computation methods if the farm income qualifies for the farm optional method and the nonfarm income qualifies for the nonfarm optional method. If both optional methods are used to compute net earnings from self-employment, the maximum combined total net earnings from self-employment for any tax year can’t be more than $4,200.

Payments:
Line 65. Excess social security and RRTA tax withheld. Maximum Social Security (OASDI) tax for 2008 is $6,324 (computed on the first $102,000 of wages) for purposes of credit for excess tax withheld.

Line 66. Additional child credit. For 2008, the earned income formula for the determination of the refundable child credit has been modified to apply to 15% of earned income in excess of $8,500.

Line 69. First-time homebuyer credit. Eligible first-time homebuyers buying principal residences in the U.S. after Apr. 8, 2008 and before July 1, 2009, may claim a refundable tax credit (on Form 5405) equal to the lesser of 10% of the purchase price or $7,500 ($3,750 for married individuals filing separately). Purchases after Dec. 31, 2008, and before July 1, 2009, may be treated as made on Dec. 31, 2008.

FORM 1040, SCHEDULE A ITEMIZED DEDUCTIONS 2008
Line 1. Medical and dental expenses. The standard mileage rate for medically-related use of an auto is 19¢ per mile for Jan. 1 to June 30, 2008 and 27¢ per mile from July 1, to Dec. 31, 2008.

Line 17. Gifts to charity other than by cash or check. The higher limits on qualified conservation contributions by qualified farmers or ranchers are expanded through the end of 2008 to apply to contributions of apparently wholesome food inventory by qualified farmers and ranchers.

Line 20. Casualty or theft losses. The 10% of AGI floor doesn’t apply to an individual’s casualty or theft losses arising in a federal disaster.

Line 21. Unreimbursed employee expenses. The standard mileage rate is 50.5¢ per mile for Jan. 1 to June 30, 2008 and 58.5¢ per mile from July 1, to Dec. 31, 2008.

Line 29. Total itemized deductions. The allowable amount of itemized deductions will be reduced if adjusted gross income in 2008 is more than $159,950 ($79,975 for married filing separately). For 2008, a taxpayer will lose only 1/3 of the amount he would otherwise lose under the regular reduction computation.

FORM 1040, SCHEDULE B INTEREST AND DIVIDEND INCOME 2008
Line 1. Interest. Accrued interest on Series E or EE U.S. savings bonds issued in ’68 or in ’78 is taxable.
Line 3. Excludable interest on Series EE or Series I U.S. savings bonds. The exclusion for education related savings bond interest phases out at higher income levels. For 2008, the phaseout begins at modified adjusted gross income above $67,100 ($100,650 on a joint return).

FORM 1040, SCHEDULE C PROFIT OR LOSS FROM BUSINESS 2008
Line 9. Car and truck expenses. The standard mileage rate is 50.5¢ per mile for Jan. 1 to June 30, 2008 and 58.5¢ per mile from July 1, to Dec. 31, 2008. ( ¶ 1561 )

Line 13. Depreciation and section 179 expense. See entries for Form 4562, below.
Line 27. Other expenses. A taxpayer to elect to treat any qualified disaster expense as a deduction for the tax year in which paid or incurred.

FORM 4562, DEPRECIATION AND AMORTIZATION
Part I. Election to expense certain tangible property under Sec. 179.

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  • The amount that may be expensed under Code Sec. 179 in 2008 is $250,000, with investment-based phaseout beginning at $800,000.
  • The expensing allowance for qualified GO Zone property is $350,000 for 2008 ($250,000 +$100,000), and the investment ceiling limit is $1,400,000 for 2008 ($800,000 + $600,000).
  • The expensing allowance for qualified enterprise zone and renewal property is $285,000 for 2008 ($250,000 + $35,000), with only 50% of expensing-eligible property taken into account in applying the investment ceiling limit.
  • For property placed in service after Dec. 31, 2007, with respect to disasters declared after that date, the maximum Code Sec. 179 expensing amount is increased by the lesser of: (1) $100,000, or (2) the cost of qualified section 179 disaster assistance property placed in service during the tax year. Several types of property (including property eligible for bonus depreciation under Code Sec. 168(k) ) are ineligible for this increase.

Part II. Special depreciation allowance.

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  • Taxpayers may claim a 50% bonus depreciation deduction for qualified property.
  • For property placed in service after Dec. 31, 2007, with respect to disasters declared after that date, taxpayers may claim 50% bonus depreciation deduction for qualified disaster assistance property. However, bonus depreciation may not be claimed twice for the same property.

Part II. MACRS depreciation. A five year recovery period applies for any machinery or equipment (other than any grain bin, cotton ginning asset, fence, or other land improvement) which is used in a farming business and the original use of which commences with the taxpayer.

Part V. Listed property. First-year luxury auto limits for vehicles first placed in service in 2008 are $10,960 for autos and $11,160 for light trucks or vans.

FORM 1040, SCHEDULE D CAPITAL GAINS AND LOSSES
A zero tax rate applies to most long-term capital gain and dividend income that would otherwise be taxed at the regular 15% rate and/or the regular 10% rate.

A surviving spouse may qualify for the up-to-$500,000 homesale exclusion if the sale occurs not later than 2 years after the spouse’s death, provided the requirements for the $500,000 exclusion were met immediately before the spouse’s death and the survivor has not remarried as of the date of the sale. An individual may elect to suspend for a maximum of 10 years the homesale exclusion’s five-year test period for ownership and use during certain absences due to volunteer service in the Peace Corps.

FORM 1040, SCHEDULE J INCOME AVERAGING FOR FARMERS AND FISHERMEN
Effective Oct. 3, 2008, qualified taxpayers (such as fishermen) may report qualified settlement income (otherwise includible interest and punitive damages) received from the ’89 Exxon Valdez oil spill civil action using 3-year income averaging.

Source:  Federal Taxes Weekly Alert (preview) 10/30/2008, Volume 54, No. 44