The House Ways and Means Committee has passed a bill by a margin of 22 to 13 that would keep the Alternative Minimum Tax from spreading to more than 23 million families, which the full House is expected to debate this week.
The $77.8 billion bill, H.R. 3996, the Temporary Tax Relief Act of 2007, would ensure that no additional taxpayers would pay the AMT this year, while also extending popular tax credits and deductions that expire at the end of the year.
"This legislation provides responsible tax relief for families across America without adding to the Federal deficit," said committee chairman Charles Rangel, D-N.Y., in a statement.
The bill contains provisions to change the tax treatment of carried interest for investment fund managers. Under the legislation, they would no longer be able to receive the capital gains tax rate of 15 percent on their earnings.
Other provisions of the bill would extend the work opportunity tax credit for Hurricane Katrina victims, extend a special rule for S corporations making charitable contributions of property, extend the deduction of state and local sales taxes, extend the above-the-line deduction for qualified tuition and related expenses, and extend tax-free distributions from individual retirement plans for charitable purposes.
The bill includes various provisions for mortgage forgiveness debt relief, including a permanent exclusion from gross income of discharged home mortgage indebtedness and a long-term extension of the deduction for mortgage insurance. It also increases the eligibility for the refundable child tax credit.
But the legislation may encounter obstacles in the Senate, according to one observer. "The first showdown for this legislation will be in the Senate," said Clint Stretch, managing principal of tax policy at Deloitte. "If past is prologue, there is a strong possibility the Senate will pass the relief but not exercise the budget discipline to pay for it."
The AMT patch is coming down to the wire as the IRS needs to produce forms for the 2008 season soon. Acting IRS Commissioner Linda Stiff has warned that if the AMT patch is not issued soon, then up to 50 million taxpayers could see delays in the processing of their returns and it would hold up approximately $75 billion in refunds.
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