SECTION 3. 2007 ADJUSTED ITEMS
.01 Tax Rate Tables. For taxable years beginning
in 2007, the tax rate tables under § 1 are as follows:
.02 Unearned Income of Minor Children Taxed as if Parent’s
Income (the “Kiddie Tax”). For taxable years beginning
in 2007, the amount in § 1(g)(4)(A)(ii)(I), which is used to reduce
the net unearned income reported on the child’s return that is subject
to the “kiddie tax,” is $850. This amount is the same as the
$850 standard deduction amount provided in section 3.11(2) of this revenue
procedure. The same $850 amount is used for purposes of § 1(g)(7)
(that is, to determine whether a parent may elect to include a child’s
gross income in the parent’s gross income and to calculate the “kiddie
tax”). For example, one of the requirements for the parental election
is that a child’s gross income is more than the amount referenced in
§ 1(g)(4)(A)(ii)(I) but less than 10 times that amount; thus, a
child’s gross income for 2007 must be more than $850 but less than $8,500.
.03 Adoption Credit. For taxable years beginning
in 2007, under § 23(a)(3) the credit allowed for an adoption of
a child with special needs is $11,390. For taxable years beginning in 2007,
under § 23(b)(1) the maximum credit allowed for other adoptions
is the amount of qualified adoption expenses up to $11,390. The available
adoption credit begins to phase out under § 23(b)(2)(A) for taxpayers
with modified adjusted gross income in excess of $170,820 and is completely
phased out for taxpayers with modified adjusted gross income of $210,820 or
more. (See section 3.15 of this revenue procedure for the adjusted items
relating to adoption assistance programs.)
.04 Child Tax Credit. For taxable years beginning
in 2007, the value used in § 24(d)(1)(B)(i) to determine the amount
of credit under § 24 that may be refundable is $11,750.
.05 Hope and Lifetime Learning Credits.
(1) For taxable years beginning in 2007, the Hope Scholarship Credit
under § 25A(b)(1) is an amount equal to 100 percent of qualified
tuition and related expenses not in excess of $1,100 plus 50 percent of those
expenses in excess of $1,100, but not in excess of $2,200. Accordingly, the
maximum Hope Scholarship Credit allowable under § 25A(b)(1) for
taxable years beginning in 2007 is $1,650.
(2) For taxable years beginning in 2007, a taxpayer’s modified
adjusted gross income in excess of $47,000 ($94,000 for a joint return) is
used to determine the reduction under § 25A(d)(2)(A)(ii) in the
amount of the Hope Scholarship and Lifetime Learning Credits otherwise allowable
under § 25A(a).
.06 Elective Deferrals and IRA Contributions by Certain Individuals.
For taxable years beginning in 2007, the applicable percentage under § 25B(b)
is determined based on the following amounts:
.07 Earned Income Credit.
(1) In general. For taxable years beginning in
2007, the following amounts are used to determine the earned income credit
under § 32(b). The “earned income amount” is the amount
of earned income at or above which the maximum amount of the earned income
credit is allowed. The “threshold phaseout amount” is the amount
of adjusted gross income (or, if greater, earned income) above which the maximum
amount of the credit begins to phase out. The “completed phaseout amount”
is the amount of adjusted gross income (or, if greater, earned income) at
or above which no credit is allowed.
The instructions for the Form 1040 series provide tables showing the
amount of the earned income credit for each type of taxpayer.
(2) Excessive investment income. For taxable years
beginning in 2007, the earned income tax credit is not allowed under § 32(i)
if the aggregate amount of certain investment income exceeds $2,900.
.08 Low-Income Housing Credit. For calendar year
2007, the amounts used under § 42(h)(3)(C)(ii) to calculate the
State housing credit ceiling for the low-income housing credit is the greater
of (1) $1.95 multiplied by the State population, or (2) $2,275,000.
.09 Alternative Minimum Tax Exemption for a Child Subject
to the “Kiddie Tax.” For taxable years beginning in
2007, for a child to whom the § 1(g) “kiddie tax” applies,
the exemption amount under §§ 55 and 59(j) for purposes of
the alternative minimum tax under § 55 may not exceed the sum of
(1) the child’s earned income for the taxable year, plus (2) $6,300.
.10 Transportation Mainline Pipeline Construction Industry
Optional Expense Substantiation Rules for Payments to Employees under Accountable
Plans. For calendar year 2007, an eligible employer may pay certain
welders and heavy equipment mechanics an amount of up to $15 per hour for
rig-related expenses that is deemed substantiated under an accountable plan
if paid in accordance with Rev. Proc. 2002-41. If the employer provides fuel
or otherwise reimburses fuel expenses, up to $9 per hour is deemed substantiated
if paid under Rev. Proc. 2002-41.
.11 Standard Deduction.
(1) In general. For taxable years beginning in
2007, the standard deduction amounts under § 63(c)(2) are as follows:
(2) Dependent. For taxable years beginning in
2007, the standard deduction amount under § 63(c)(5) for an individual
who may be claimed as a dependent by another taxpayer cannot exceed the greater
of (1) $850, or (2) the sum of $300 and the individual’s earned income.
(3) Aged or blind. For taxable years beginning
in 2007, the additional standard deduction amount under § 63(f)
for the aged or the blind is $1,050. These amounts are increased to $1,300
if the individual is also unmarried and not a surviving spouse.
.12 Overall Limitation on Itemized Deductions.
For taxable years beginning in 2007, the “applicable amount”
of adjusted gross income under § 68(b), above which the amount of
otherwise allowable itemized deductions is reduced under § 68, is
$156,400 (or $78,200 for a separate return filed by a married individual).
.13 Qualified Transportation Fringe. For taxable
years beginning in 2007, the monthly limitation under § 132(f)(2)(A),
regarding the aggregate fringe benefit exclusion amount for transportation
in a commuter highway vehicle and any transit pass, is $110. The monthly
limitation under § 132(f)(2)(B), regarding the fringe benefit exclusion
amount for qualified parking, is $215.
.14 Income from United States Savings Bonds for Taxpayers
Who Pay Qualified Higher Education Expenses. For taxable years
beginning in 2007, the exclusion under § 135, regarding income from
United States savings bonds for taxpayers who pay qualified higher education
expenses, begins to phase out for modified adjusted gross income above $98,400
for joint returns and $65,600 for other returns. The exclusion is completely
phased out for modified adjusted gross income of $128,400 or more for joint
returns and $80,600 or more for other returns.
.15 Adoption Assistance Programs. For taxable
years beginning in 2007, under § 137(a)(2) the amount that can be
excluded from an employee’s gross income for the adoption of a child
with special needs is $11,390. For taxable years beginning in 2007, under
§ 137(b)(1) the maximum amount that can be excluded from an employee’s
gross income for the amounts paid or expenses incurred by an employer for
qualified adoption expenses furnished pursuant to an adoption assistance program
for other adoptions by the employee is $11,390. The amount excludable from
an employee’s gross income begins to phase out under § 137(b)(2)(A)
for taxpayers with modified adjusted gross income in excess of $170,820 and
is completely phased out for taxpayers with modified adjusted gross income
of $210,820 or more. (See section 3.03 of this revenue procedure for the
adjusted items relating to the adoption credit.)
.16 Private Activity Bonds Volume Cap. For calendar
year 2007, the amounts used under § 146(d)(1) to calculate the State
ceiling for the volume cap for private activity bonds are the greater of (1)
$85 multiplied by the State population, or (2) $256,235,000.
.17 Safe Harbor Rules for Broker Commissions on Guaranteed
Investment Contracts or Investments Purchased for a Yield Restricted Defeasance
Escrow. For calendar year 2007, under § 1.148-5(e)(2)(iii)(B)(1),
a broker’s commission or similar fee for the acquisition of a guaranteed
investment contract or investments purchased for a yield restricted defeasance
escrow is reasonable if (1) the amount of the fee that the issuer treats as
a qualified administrative cost does not exceed the lesser of (A) $33,000,
and (B) 0.2 percent of the computational base (as defined in § 1.148-5(e)(2)(iii)(B)(2))
or, if more, $3,000; and (2) the issuer does not treat more than $93,000 in
brokers’ commissions or similar fees as qualified administrative costs
for all guaranteed investment contracts and investments for yield restricted
defeasance escrows purchased with gross proceeds of the issue.
.18 Personal Exemption.
(1) Exemption amount. For taxable years beginning
in 2007, the personal exemption amount under § 151(d) is $3,400.
The exemption amount for taxpayers with adjusted gross income in excess of
the maximum phaseout amount is $1,133 for taxable years beginning in 2007.
(2) Phaseout. For taxable years beginning in 2007,
the personal exemption amount begins to phase out at, and reaches the maximum
phaseout amount after, the following adjusted gross income amounts:
.19 Election to Expense Certain Depreciable Assets.
For taxable years beginning in 2007, under § 179(b)(1) the aggregate
cost of any § 179 property a taxpayer may elect to treat as an expense
can not exceed $112,000. Under § 179(b)(2) the $112,000 limitation
is reduced (but not below zero) by the amount by which the cost of § 179
property placed in service during the 2007 taxable year exceeds $450,000.
.20 Eligible Long-Term Care Premiums. For taxable
years beginning in 2007, the limitations under § 213(d)(10), regarding
eligible long-term care premiums includible in the term “medical care,”
are as follows:
.21 Retirement Savings.
(1) For taxable years beginning in 2007, the applicable dollar amount
under § 219(g)(3)(B)(i) for taxpayers filing a joint return is $83,000.
If the taxpayer’s spouse is not an active participant, the applicable
dollar amount for the spouse under § 219(g)(3)(B)(i) is $156,000
for taxable years beginning in 2007.
(2) For taxable years beginning in 2007, the applicable dollar amount
under § 219(g)(3)(B)(ii) for all other taxpayers (except for married
taxpayers filing separately) is $52,000.
(3) The applicable dollar amount under § 219(g)(3)(B)(iii)
for married taxpayers filing separately is $0.
.22 Medical Savings Accounts.
(1) Self-only coverage. For taxable years beginning
in 2007, the term “high deductible health plan” as defined in
§ 220(c)(2)(A) means, for self-only coverage, a health plan that
has an annual deductible that is not less than $1,900 and not more than $2,850,
and under which the annual out-of-pocket expenses required to be paid (other
than for premiums) for covered benefits does not exceed $3,750.
(2) Family coverage. For taxable years beginning
in 2007, the term “high deductible health plan” means, for family
coverage, a health plan that has an annual deductible that is not less than
$3,750 and not more than $5,650, and under which the annual out-of-pocket
expenses required to be paid (other than for premiums) for covered benefits
does not exceed $6,900.
.23 Interest on Education Loans. For taxable years
beginning in 2007, the $2,500 maximum deduction for interest paid on qualified
education loans under § 221 begins to phase out under § 221(b)(2)(B)
for taxpayers with modified adjusted gross income in excess of $55,000 ($110,000
for joint returns), and is completely phased out for taxpayers with modified
adjusted gross income of $70,000 or more ($140,000 or more for joint returns).
.24 Health Savings Accounts.
(1) Monthly contribution limitation. For calendar
year 2007, the monthly limitation for any month on deductions under § 223(b)(2)(A)
for an individual with self-only coverage under a high deductible plan as
of the first day of the month is 1/12 of the lesser of (1) the annual deductible,
or (2) $2,850. For calendar year 2007, the monthly limitation for any month
on deductions under § 223(b)(2)(B) for an individual with family
coverage under a high deductible plan as of the first day of the month is
1/12 of the lesser of (1) the annual deductible, or (2) $5,650.
(2) High deductible health plan. For calendar
year 2007, a “high deductible health plan” is defined under § 223(c)(2)(A)
as a health plan with an annual deductible that is not less than $1,100 for
self-only coverage or $2,200 for family coverage, and the annual out-of pocket
expenses (deductibles, co-payments, and other amounts, but not premiums) do
not exceed $5,500 for self-only coverage or $11,000 for family coverage.
.25 Roth IRAs.
(1) For taxable years beginning in 2007, the applicable dollar amount
under § 408A(c)(3)(C)(ii)(I) for taxpayers filing a joint return
is $156,000.
(2) For taxable years beginning in 2007, the applicable dollar amount
under § 408A(c)(3)(C)(ii)(II) for all other taxpayers (except for
married taxpayers filing separately) is $99,000.
(3) The applicable dollar amount under § 408A(c)(3)(C)(ii)(III)
for married taxpayers filing separately is $0.
.26 Treatment of Dues Paid to Agricultural or Horticultural
Organizations. For taxable years beginning in 2007, the limitation
under § 512(d)(1), regarding the exemption of annual dues required
to be paid by a member to an agricultural or horticultural organization, is
$136.
.27 Insubstantial Benefit Limitations for Contributions Associated
with Charitable Fund-Raising Campaigns.
(1) Low cost article. For taxable years beginning
in 2007, the unrelated business income of certain exempt organizations under
§ 513(h)(2) does not include a “low cost article” of
$8.90 or less.
(2) Other insubstantial benefits. For taxable
years beginning in 2007, the $5, $25, and $50 guidelines in section 3 of Rev.
Proc. 90-12, 1990-1 C.B. 471 (as amplified by Rev. Proc. 92-49, 1992-1 C.B.
987, and modified by Rev. Proc. 92-102, 1992-2 C.B. 579), for disregarding
the value of insubstantial benefits received by a donor in return for a fully
deductible charitable contribution under § 170, are $8.90, $44.50,
and $89, respectively.
.28 Funeral Trusts. For a contract entered into
during calendar year 2007 for a “qualified funeral trust,” as
defined in § 685, the trust may not accept aggregate contributions
by or for the benefit of an individual in excess of $8,800.
.29 Expatriation to Avoid Tax. For calendar year
2007, an individual with “average annual net income tax” of more
than $136,000 for the five taxable years ending before the date of the loss
of United States citizenship under § 877(a)(2)(A) is subject to
tax under § 877(b).
.30 Foreign Earned Income Exclusion. For taxable
years beginning in 2007, the foreign earned income exclusion amount under
§ 911(b)(2)(D)(i) is $85,700.
.31 Valuation of Qualified Real Property in Decedent’s
Gross Estate. For an estate of a decedent dying in calendar year
2007, if the executor elects to use the special use valuation method under
§ 2032A for qualified real property, the aggregate decrease in the
value of qualified real property resulting from electing to use § 2032A
for purposes of the estate tax can not exceed $940,000.
.32 Annual Exclusion for Gifts.
(1) For calendar year 2007, the first $12,000 of gifts to any person
(other than gifts of future interests in property) are not included in the
total amount of taxable gifts under § 2503 made during that year.
(2) For calendar year 2007, the first $125,000 of gifts to a spouse
who is not a citizen of the United States (other than gifts of future interests
in property) are not included in the total amount of taxable gifts under §§ 2503
and 2523(i)(2) made during that year.
.33 Tax on Arrow Shafts. For calendar year 2007,
the tax imposed under § 4161(b)(2)(A) on the first sale by the manufacturer,
producer, or importer of any shaft of a type used in the manufacture of certain
arrows is $0.42 per shaft.
.34 Passenger Air Transportation Excise Tax. For
calendar year 2007, the tax under § 4261(b) on the amount paid for
each domestic segment of taxable air transportation is $3.40. For calendar
year 2007, the tax under § 4261(c) on any amount paid (whether within
or without the United States) for any air transportation, if the transportation
begins or ends in the United States, generally is $15.10. However, for a
domestic segment beginning or ending in Alaska or Hawaii as described in § 4261(c)(3),
the tax applies only to departures and the rate is $7.50.
.35 Reporting Exception for Certain Exempt Organizations with
Nondeductible Lobbying Expenditures. For taxable years beginning
in 2007, the annual per person, family, or entity dues limitation to qualify
for the reporting exception under § 6033(e)(3) (and section 5.05
of Rev. Proc. 98-19, 1998-1 C.B. 547), regarding certain exempt organizations
with nondeductible lobbying expenditures, is $95 or less.
.36 Notice of Large Gifts Received from Foreign Persons.
For taxable years beginning in 2007, recipients of gifts from certain foreign
persons may be required to report these gifts under § 6039F if the
aggregate value of gifts received in a taxable year exceeds $13,258.
.37 Persons Against Whom a Federal Tax Lien Is Not Valid.
For calendar year 2007, a federal tax lien is not valid against (1) certain
purchasers under § 6323(b)(4) who purchased personal property in
a casual sale for less than $1,290, or (2) a mechanic’s lienor under
§ 6323(b)(7) that repaired or improved certain residential property
if the contract price with the owner is not more than $6,450.
.38 Property Exempt from Levy. For calendar year
2007, the value of property exempt from levy under § 6334(a)(2)
(fuel, provisions, furniture, and other household personal effects, as well
as arms for personal use, livestock, and poultry) can not exceed $7,720.
The value of property exempt from levy under § 6334(a)(3) (books
and tools necessary for the trade, business, or profession of the taxpayer)
can not exceed $3,860.
.39 Interest on a Certain Portion of the Estate Tax Payable
in Installments. For an estate of a decedent dying in calendar
year 2007, the dollar amount used to determine the “2-percent portion”
(for purposes of calculating interest under § 6601(j)) of the estate
tax extended as provided in § 6166 is $1,250,000.
.40 Attorney Fee Awards. For fees incurred in
calendar year 2007, the attorney fee award limitation under § 7430(c)(1)(B)(iii)
is $170 per hour.
.41 Periodic Payments Received under Qualified Long-Term Care
Insurance Contracts or under Certain Life Insurance Contracts.
For calendar year 2007, the stated dollar amount of the per diem limitation
under § 7702B(d)(4), regarding periodic payments received under
a qualified long-term care insurance contract or periodic payments received
under a life insurance contract that are treated as paid by reason of the
death of a chronically ill individual, is $260.
