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The new law revives old tax benefits.
Several important tax breaks for individuals expired at the end of 2007; the new law extended them for 2008 and 2009. Some of these extensions are even longer.
Tuition and fees deduction. Individuals with modified adjusted gross income (MAGI) below a threshold amount can deduct up to $4,000 in qualified higher education costs from their gross income. For 2008 tax returns, due in 2009, single taxpayers and heads of household must have MAGI no higher than $65,000. Couples filing a joint return can deduct $4,000 worth of qualified higher education costs with MAGI up to $130,000.
Some taxpayers with slightly higher MAGI can take a $2,000 deduction rather than a $4,000 deduction. Single taxpayers and heads of household in the $65,001-$80,000 range can deduct up to $2,000 of qualified higher education costs, while joint filers can take the $2,000 deduction with MAGI over $130,000 but not over $160,000.
The tuition and fees deduction is available for qualified taxpayers whether or not they itemize deductions on Schedule A of their tax return. Individuals eligible for the tuition and fees deduction also may be eligible for a Hope or Lifetime Learning credit; if so, they can choose the tax deduction or credit that produces the greater savings. However, you can't use both breaks in the same year.
State and local sales taxes. Taxpayers who itemize their deductions on Schedule A can opt to deduct state and local sales taxes instead of state and local income taxes. The sales tax deduction is the amount allowed by an IRS table based on household size and income for each state. However, the basic deduction amount can be increased by the sales tax on certain big ticket items such as a car, boat, or home building materials. Thus, while this provision primarily benefits individuals who live in states with no income tax, even those who live in a state with an income tax may find the sales tax deduction to be larger than the one for income tax.
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Source: HighBeam Research, The new law revives old tax benefits.