No one likes figuring out their tax returns, but if youâ€™re financially strapped, it’s smart to ask about the special provisions under the tax law that can save you money during these tough economic times.
Some tips from the American Institute of Certified Public Accountants to get you started:
Homeowners who lost their home to foreclosure or had their mortgage restructured do not pay tax on the amount of debt the lender discharged under the Mortgage Forgiveness Debt Relief Act of 2007.Â This break only applies to your principal residence. It does not apply to a second home or vacation home. Married taxpayers can exclude up to $2 million and single taxpayers up to $1 million.
Investors who lost money in taxable accounts may be able to deduct these capital losses. To qualify, you must have sold at a loss by Dec. 31, 2008. (Sorry â€“ good only for taxable accounts. So losses in your IRAs, 401-k plans or 529 college savings plans do not qualify.) You can use the losses to offset any profits made from selling bonds, property or stocks. Also, up to $3,000 of losses not used to offset capital gains can be deducted from other income. If your losses exceed these amounts, you can apply the remaining losses in future years.
Job changers who move to take a new post might be able to deduct moving expenses.Â To qualify, your new workplace must be at least 50 miles farther from your former home than your previous workplace was from that home. Thereâ€™s also a time rule. The time test, according to the IRS, generally requires you work full-time for at least 39 weeks during the 12 months immediately after your move.Â Keep good records of your moving expenses, but note that meals are not a deductible moving expense.
Job seekers should track what you spent during your job search. Costs to print your resume or hiring a consultant to help with the search are deductible.
Low-income workers can benefit from the earned income credit (EITC), a refundable tax credit worth up to $6,500. If you were married filing jointly and earned less than $41,646 ($38,646 for individuals, surviving spouses or heads of household) in 2008, you may qualify. It’s complicated, but the EITC is worth exploring if you or someone you know has low earnings.
Check out some of my answers to reader questions on taxes: