AMT Relief & more: new legislative and judicial developments.

• Author: Josephs, Stuart R.
• Position: Fed Tax - Alternative minimum tax

The 2007 Tax Increase Prevention Act (PL. 110-166) was signed into law Dec. 26, 2007 and provides the following alternative minimum tax exemptions for 2007 only:

[ILLUSTRATION OMITTED]

* $66,250 for married individuals filing jointly and surviving spouses;

* $44,350 for single individuals, including heads of households; and

* $33,125 for married individuals filing separately.

The Act did not change the AMT exemption phase-out rules.

This new law also allows taxpayers to use most nonrefundable personal credits to offset their AMT liability for 2007 only.

2007 Mortgage Forgiveness Debt Relief Act

New Exclusion for Discharges of Certain Mortgages: This Act (PL. 110-142), signed into law Dec. 20, 2007, applies to debt discharged after 2006 and before 2010. It generally allows taxpayers to exclude from gross income discharges of up to $2 million ($1 million for married individuals filing separately) of debt that is secured by the taxpayer's principal residence and was incurred in the acquisition, construction or substantial improvement of that residence. This type of debt is called qualified principal residence indebtedness (QPRI).

Refinancing of such debt is eligible for this treatment to the extent that the refinancing amount does not exceed the amount of the refinanced debt.

The residence's basis is reduced by the excluded income, but not below zero.

If any loan is completely or partially discharged and only part of the loan is QPRI, this exclusion applies only to so much of the amount discharged as exceeds the amount of the loan (determined immediately before the discharge), which is not QPRI.

This exclusion does not apply to the discharge of a loan if the discharge is on account of services performed for the lender or any other factor not directly related to a decline in the residence's value or to the taxpayer's financial condition.

The exclusion also does not apply to taxpayers in a Title 11 bankruptcy case.

The existing law's exclusion for debt discharges of insolvent taxpayers, who are not in a Title 11 bankruptcy case, will not apply to a taxpayer eligible for this new mortgage forgiveness exclusion unless the taxpayer elects to apply the insolvency exclusion instead of the new exclusion.

Treatment of Mortgage Insurance Premiums as Interest: The 2006 Tax Relief and Health Care Act (PL. 109-432) temporarily allowed taxpayers to treat qualified mortgage insurance as qualified residence interest, which is an itemized deduction. To be...