Tax Deductions

The Obama administration's budget threatens to cut a benefit many Americans view as practically a right -- the mortgage interest tax deduction -- and powerful real estate interests are fighting back. The move would affect only households earning $250,000 or more, but opponents say it could prolong the housing crisis by slowing already torpid home sales and deal another blow to home values ravaged by the market crash.

The Internal Revenue Service, citing the drain that high gasoline prices are having on people's finances, said Monday that it was raising the automobile mileage rate that businesses and others can claim as tax deductions. The agency said the optional standard rate to calculate deductible operating costs for business vehicles would rise to 58.5 cents a mile from 50.5 cents for the final six months of 2008.

Hollywood would get a little unexpected boost from the proposed $700-billion bailout of the nation's financial system. The bill wending its way through Congress would provide tax breaks worth more than $470 million over the next decade for movie and TV producers that shoot in the U.S. That's not a lot of money, given that the average studio movie costs $106.6 million to make and market, but it could keep some low-budget productions -- and jobs -- from going offshore.

President Bush can balance the budget within five years, or he can get Congress to extend his tax cuts beyond their scheduled expiration, the Congressional Budget Office reported Wednesday -- but probably not both. Bush has said otherwise, committing himself in Tuesday's State of the Union address, as he did earlier this month, to providing Congress on Feb. 5 with spending and tax proposals for fiscal 2008 that would put the budget on a path toward balance by 2012.

A new income-tax deduction is available to homeowners who carry private mortgage insurance -- a protection for the lender should the buyer default. The Tax Relief and Healthcare Act of 2006 -- which went into effect Jan. 1 and will end Dec. 31 -- added a provision for home buyers with down payments smaller than 20% that allows them to deduct the total cost of PMI they may be required to carry.

Joe and Melody Sheridan had no idea that the federal government would help them finance their 21-year-old daughter's college education until a few weeks ago, when a tax-savvy friend happened to mention it. "This means that we may be able to save a little -- and not deplete our savings account so much," said Joe. The fact that he would have completely missed a $4,000 deduction if not for this coincidence is tragically common, tax experts say. The U.S.

SUE Carpenter pays about $6,100 a year in federal income taxes. But she might owe just half that amount if she had a mortgage, and nothing at all if she had minor children. The fact that Carpenter doesn't have these deductions makes her part of a dwindling group: U.S. taxpayers. An estimated 50 million Americans won't pay any federal income tax this year. That's nearly a third of all adults, up from 18% in 1980. To many, the shrinking tax base is not a big deal.

A key senator said Tuesday that he wanted to change a quirk in the tax law that has allowed companies to claim tax deductions for stock options that are billions of dollars more than the option expenses on the firms' books. The discrepancy, which reflects different rules for accounting and taxation, came to $43 billion from December 2004 to June 2005, according to the Senate Permanent Subcommittee on Investigations. Sen. Carl Levin (D-Mich.

California's larger-than-life governor is unabashed about living large, but keeping him in luxury sometimes depends on the same taxpayer subsidies granted to hand-to-mouth charities. Arnold Schwarzenegger, a millionaire many times over, bills much of his overseas travel to an obscure nonprofit group that can qualify its secret donors for full tax deductions, just as if they were giving to skid row shelters or the United Way.

Why is mortgage interest deductible without limit on two homes and not just the primary residence? Some accountants have jokingly referred to this as the "Congressman's Rule" because some lawmakers have residences in the nation's capital and another in their home states. But what if you own more than two homes? Before 1987, mortgage interest on all residences could be deducted without limit.