Effects of Emergency Economic Stabilization Act provisions on individuals.

• Author: Cohen, Gary N.

On October 3, 2008, President Bush signed into law the Emergency Economic Stabilization Act of 2008, P.L. 110-343. The act provides alternative minimum tax (AMT) relief, energy tax credits, and disaster relief for individuals. It also extends the availability of the exclusion from gross income of discharges of qualifying mortgage debt and several other provisions affecting individuals that had expired at the end of 2007 or were scheduled to expire at the end of this year. This item discusses the implications of those provisions.

AMT

The act provides individuals with several areas of relief from AMT liability.

Increased individual AMT exemption amounts: The 2008 exemption amounts are increased from:

* $45,000 to $69,950 for married couples filing jointly and surviving spouses;

* $33,750 to $46,200 for other unmarried individuals; and

* $22,500 to $34,975 for married individuals filing separate returns (Sec. 55(d)(1)).

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Implications: The increase in the exemption amounts for 2008 is the latest in a series of annual increases. As in past years, this increase is effective for only one year. Under current law, the exemption is phased out at higher levels of alternative minimum taxable income (AMTI). The exemptions are fully phased out at $429,800 of AMTI for married couples filing jointly and surviving spouses ($297,300 for other unmarried individuals and $214,900 for married individuals filing separately) (Sec. 55(d)(3)(A)). This increases the income range in which AMT taxpayers would be subject to a marginal tax rate of as high as 22% on capital gains and qualified dividends (i.e., 15% + (.25 x 28%)).

AMT relief for personal tax credits: The act extends the ability of individuals to offset their entire regular tax and AMT liabilities with personal nonrefundable tax credits to tax years beginning in 2008 (Sec. 26(a)).

Implications: Eligible nonrefundable personal tax credits include the dependent care credit, the credit for the elderly and disabled, the adoption credit, the child credit, the credit for interest on certain home mortgages, the Hope scholarship and lifetime learning credits, the credit for savers, the credit for certain nonbusiness energy property, the credit for residential energy-efficient property, and the DC first-time homebuyer credit.

Increase in AMT refundable credit: The act extends and modifies the amount of the refundable AMT credit for long-term unused minimum tax credits (i.e., minimum tax credits attributable to tax years before the third tax year immediately preceding the current tax year). Under the act, 50% of long-term unused minimum tax credits may be refunded over each of two years, rather than 20% per year over five years as under previous law (Sec. 53(e)(2)). In addition, the adjusted gross income (AGI) phaseout for the refundable credit...