President Bush signed the Emergency Economic Stabilization Act of 2008 into law on October 3, hoping this plan would bring stability to the financial markets. The new legislation includes a wide range of provisions affecting financial institutions and individuals. For instance, it authorizes the government to spend $700 billion for troubled financial assets, curbs excessive compensation arrangements for executives of financial firms, raises the FDIC insurance limit to $250,000 per account through December 31, 2009, and provides relief for certain homeowners.

Although these provisions have been well-publicized, less attention has been paid to the $100 billion in tax breaks added to the package late in negotiations. The changes generally extend a series of recently expired tax provisions through 2009. Here is a summary  of the key tax extensions.

• AMT relief
  The new law "patches" the alternative minimum tax (AMT) again by raising the exemption amounts for 2008 to $46,200 for single filers and $69,950 for joint filers. The patch also allows you to offset AMT liability with nonrefundable personal personal credits.
   
• Tuition reduction
  The new law reinstates the above-the-line deduction for qualified higher education expenses paid for yourself, your spouse, or a dependent. The deduction is $4,000 for single filers with adjusted gross income (AGI) of $65,000 or less and joint filers with and AGI of $130,000 or less. It drops to $2,000 for an AGI of up to $80,000 for single filers and $160,000 for joint filers. No deduction is allowed over these thresholds.
   
• Sales tax deduction
  In lieu of deducting state and local income taxes, you can elect to deduct sales tax paid during the year. The sales tax deduction may be based on amounts in an IRS table plus actual amounts paid for certain big-ticket items like cars, or you can keep actual receipts for taxes paid.
   
• Teacher's deduction
  Teachers and other educators may claim an above-the-line deduction for up to $250 of unreimbursed classroom expenses. This covers books, supplies, equipment, and software.
   
• Charitable IRA rollovers
  Under the new law, those age 70 1/2 or over can still transfer up to $100,000 directly from an IRA to a qualified charity without paying any tax. This provision is reinstated through 2009.
   
• Nonitemizer's deduction
  The new law extends the special property tax deduction for nonitemizers previously available only in 2008. The deduction is actual property tax paid, up to $500 limit for single filers and $1,000 for joint filers.
   
• Business tax breaks
  Among other provisions for business owners, the new law extends the research tax credit (with certain modifications), the fast 15-year write-off for restaurant and leasehold improvements, and enhanced charitable deductions for donations of food, books, and computers.

Contact us for details on the new law and its impact on your personal and business tax situation.

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