Prior to its annual Memorial Day recess, Congress passed two new laws that pinpoint tax breaks for certain taxpayers. Here are some of the highlights.
Heroes Act: Officially titled the Heroes Earnings Assistance and Relief Tax Act of 2008 (more commonly known as the Heroes Act or HEART Act), this new law provides a number of tax benefits for military personnel and their families. The changes include, but are not limited to, the following:
*Reservists on active duty are permanently allowed to make penalty-free withdrawals from an IRA, 401(k) plan or other qualified retirement plan.
*Joint filers are entitled to receive economic stimulus payments if one spouse has a valid Social Security number and is a member of the U.S. Armed Forces.
*Contributions from military death benefits and military insurance proceeds may be made to a Roth IRA or Coverdell Educational Savings Accounts (ESAs) without regard to the dollar limitations for contributions to Roth IRAs and Coverdell ESAs.
*Any member of an Armed Forces reserve component ordered or called to active duty may take a tax-free distribution of unused benefits in a health flexible spending arrangement (FSA).
Under the "pay-go" rules, Congress must offset tax breaks with revenue-generating provisions. The Heroes Act results in increased taxes for some foreign subsidiaries of U.S. companies and certain wealthy individuals who have renounced their U.S. citizenship.
Farm Act: The Food, Conservation and Energy Act of 2008-commonly referred to as the Farm Act-was vetoed by the president, but Congress summoned enough support to override the veto. The Farm Act includes the following provisions:
*Enhanced deductions for donations of conservation easements, which had expired after 2007, are extended through 2009. In brief, a donor can claim deductions of up to 50% of adjusted gross income (AGI)-100% of AGI for qualified farmers and ranchers-with a carryover period of 15 years for any excess. Normally, the AGI cap is 30% and the carryover is limited to five years.
*A new tax credit bond has been created for qualified forest conservation projects.
*Conservation reserve program payments may be excluded from self-employment tax by individuals receiving Social Security retirement or disability benefits.
*A tax-free, like-kind exchange may be arranged for transfers involving stock in a mutual ditch, reservoir or irrigation company.
The revenue-raisers in the Farm Act include a provision restricting taxpayers from claiming farm losses if they are receiving certain subsidies.
Reminder: This is just an overview of several key provisions. Consult with a professional tax adviser for an application of either of the two new tax laws.