While the purpose of the $700 billion federal bailout bill was touted
by President Bush and congressional leaders as a rescue of the nation's
financial system, the final bill approved by Congress includes a number
of tax benefits added to garner enough support from holdout Republicans
and conservative Democrats to pass it.
Those tax benefits include an extension of tax forgiveness on the
cancellation of mortgage debt; extended protections preventing middle
income families from being subject to the alternative minimum tax;
extended tax deductions for residents of states without income taxes;
deductions for elementary and secondary school teachers; and continued
provisions allowing banks to make tax-free distributions from IRAs for
Tammy Graven, a licensed tax consultant and owner of HandR Block in Baker City, said she believes extending the ability of banks to make tax-free distributions from IRAs to charities was a good incentive for people who make charitable contributions.
"It's not one that we see a lot of people using in this area, but it is good for people who want to give to charities," Graven said.
Bruce Nichols, a certified public accountant with Nichols Mitchell in Baker City, said most of the provisions tacked onto the federal bailout bill are things that were in place this year, and many would have expired if congressional members who supported them hadn't fought to tack them onto the bailout bill.
"Probably one of the most important was the extension of the alternative minimum tax credit," Nichols said, adding that extending that tax credit was important because "the alternative minimum tax was dragging a lot of people into what, in my opinion, was an extremely unfair tax."
Many in Congress viewed the federal bailout bill as possibly the last best opportunity to pass the tax exemptions, given uncertainty about the outcome of the 2008 presidential election in November, Nichols said.
"Anytime you have a bunch of tax things right before election time you know who it is usually good for - the people up for election," Nichols said.
Overall, Dave Lindley, a certified public accountant with Baker City's Guyer Lindley Bailey and Martin firm, said the tax provisions added to the bailout bill should generally be good for most taxpayers in the Baker City area.
"The new or continuation of tax provisions in the bill should be favorable to low- and middle-income families, as well as small businesses," Lindley said. "The various provisions should lower taxes or increase refundable credits."
Business tax benefit extensions added to the bill include research and marketing tax credits, as well as a 15-year cost recovery for investment in restaurant improvements and retail space.
Baker County's farmers and ranchers stand to benefit from a tax break treating certain farm business machinery as five-year property, and sheep producers might benefit from an extension of duty suspension on wool products, wool research and wool duty refunds.
Mine owners in Baker County and across the country stand to benefit from provisions allowing transfers of money to the abandoned mine reclamation fund, as well as an extension of mine rescue team training tax credits and a provision allowing expensing of environmental remediation costs.
For Baker County and other timber-dependent counties and cities, the bill extends the secure rural schools and community self-determination program.
Additional tax relief is also provided for families with children through an increase in the child tax credit to $8,500.
Other tax relief tacked on to the federal bailout bill relates to film and television productions. There's an excise tax exemption for wooden arrows for use by children, a tax break for rum runners and an extension of tax credits for railroad track repairs.
In the social benefits category, the bailout tax breaks include an extension of tax credits for Hurricane Katrina and the Gulf Opportunity Zone, income averaging for money received in connection with the Exxon Valdez litigation and enhanced charitable deductions for food and books.
The bill also provides temporary tax relief for areas damaged by the 2008 severe storms, tornadoes and flooding in the Midwest, and provides temporary tax-exempt bond financing and low-income housing tax relief for areas damaged by Hurricane Ike.
In addition, the bill amends national disaster relief requirements for losses attributable to federally declared disasters. Those chances allow expensing of qualified disaster relief, as well as net operating losses attributable to federally declared disasters.
The bill also provides special depreciation allowances and increased expensing allowances for qualified property losses associated with a federally declared disaster, such as the droughts that hit Baker County and much of Eastern Oregon over the past few years.
For accountants and other tax preparers, there's also a reduction in the penalty levied against tax preparers for understating the tax liability of their clients.
Other tax provisions tacked onto the bill include an extension of tax credits for economic development in American Samoa, American Indian employment tax credits, accelerated depreciation for business property on Indian reservations and a seven-year recovery for investments in motor-sports racing track facilities.