Realty Times - Important Tax Changes For 2004

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Important Tax Changes For 2004

by Julian Block

There have been lots of changes in the tax rules, many mandated by indexing – that is, annual upward adjustments to provide relief from inflation, as determined by increases in the Consumer Price Index. What follows are the highlights of several changes that might affect you.

Personal exemptions: You get a bigger break just for being you. Exemptions are worth $3,100 for 2004, up slightly from $3,050 for 2003.

Reductions of exemptions: For upper-incomers with AGIs (short for adjusted gross income, the figure on the last line of page one of Form 1040) above certain levels, the deductions for all exemptions -- including those for a spouse and dependents -- gradually decline. For 2004, the exemption phase-out starts when AGI exceeds $142,700 for singles, up from 2003's $139,500; $214,050 for joint filers, up from $209,250; $178,350 for heads of household, up from $174,400; and $107,025 for marrieds filing separately, up from $104,625.

Partial disallowance of itemized deductions: Most itemized deductibles have to be reduced by 3 percent of the amount by which your AGI exceeds a specified amount -- $142,700 for 2004, up from $139,500 for 2003. Stated differently, you forfeit $30 in total 2004 deductions for every $1,000 of AGI above $142,700 if you are single or filing jointly. The $142,700 figure drops to $71,350 if you are married and file a separate return; going on that path does not increase the threshold for a couple to a combined $285,400.

Standard deductions: The standard deduction is the no-questions-asked amount that is automatically available without having to itemize for such expenditures as charitable donations and real estate taxes. Just how much of a standard deduction you get depends on your filing status and age.

The normal standard deductions are $9,700 for joint filers; $4,850 for marrieds filing separately and singles; and $7,150 for heads of household.

Extra-large standard deductions for the elderly and blind: For those individuals who are at least 65 by the close of the 2004 tax year, the standard deduction rises by $950 for a married person (whether filing jointly or separately) and $1,200 for an unmarried person. Persons who are considered blind are entitled to those additional amounts or double those amounts if they are both 65 and blind.

There are special rules that lessen the deduction amounts allowed individuals (children, mostly, or elderly parents) who can be claimed as dependents on the returns of other people. The standard deduction can be as little as $800.

Published: January 9, 2004

Use of this article without permission is a violation of federal copyright laws.

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Julian Block is an attorney and author based in Larchmont, N.Y. He has been cited as “a leading tax professional” (New York Times), "an accomplished writer on taxes" (Wall Street Journal) and "an authority on tax planning" (Financial Planning Magazine).More of his articles are at julianblocktaxexpert.com. His books include “Julian Block’s Home Seller’s Guide to Tax Saving.” Law professor James Edward Maule of Villanova University praised it as “an easy-to-read and well organized explanation of the tax rules. Home sellers would be well advised to buy this book.” It is available from PassKey Publications, as well as at outlets such as Amazon and Barnes & Noble.

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