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Two New Tax Laws Target Special Groups - Tax relief for military personnel and farmers

Prior to its annual Memorial Day recess, Congress passed two new laws that pinpoint tax breaks for certain taxpayers. Here are some of the highlights.
Heroes Act: Officially titled the Heroes Earnings Assistance and Relief Tax Act of 2008 (more commonly known as the Heroes Act or HEART Act), this new law provides a number of tax benefits for military personnel and their families. The changes include, but are not limited to, the following:

*Reservists on active duty are permanently allowed to make penalty-free withdrawals from an IRA, 401(k) plan or other qualified retirement plan.

*Joint filers are entitled to receive economic stimulus payments if one spouse has a valid Social Security number and is a member of the U.S. Armed Forces.

*Contributions from military death benefits and military insurance proceeds may be made to a Roth IRA or Coverdell Educational Savings Accounts (ESAs) without regard to the dollar limitations for contributions to Roth IRAs and Coverdell ESAs.

*Any member of an Armed Forces reserve component ordered or called to active duty may take a tax-free distribution of unused benefits in a health flexible spending arrangement (FSA).
Under the "pay-go" rules, Congress must offset tax breaks with revenue-generating provisions. The Heroes Act results in increased taxes for some foreign subsidiaries of U.S. companies and certain wealthy individuals who have renounced their U.S. citizenship.
Farm Act: The Food, Conservation and Energy Act of 2008-commonly referred to as the Farm Act-was vetoed by the president, but Congress summoned enough support to override the veto. The Farm Act includes the following provisions:

*Enhanced deductions for donations of conservation easements, which had expired after 2007, are extended through 2009. In brief, a donor can claim deductions of up to 50% of adjusted gross income (AGI)-100% of AGI for qualified farmers and ranchers-with a carryover period of 15 years for any excess. Normally, the AGI cap is 30% and the carryover is limited to five years.

*A new tax credit bond has been created for qualified forest conservation projects.

*Conservation reserve program payments may be excluded from self-employment tax by individuals receiving Social Security retirement or disability benefits.

*A tax-free, like-kind exchange may be arranged for transfers involving stock in a mutual ditch, reservoir or irrigation company.
The revenue-raisers in the Farm Act include a provision restricting taxpayers from claiming farm losses if they are receiving certain subsidies.
Reminder: This is just an overview of several key provisions. Consult with a professional tax adviser for an application of either of the two new tax laws.

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