You know all those tax breaks that were scheduled to expire at the end of 2014? More than 50 of them didn’t expire after all but were extended at the last minute by Congress and the president with the Tax Increase Prevention Act, which was signed Dec. 19, 2014.
That’s good news for people who have private mortgage insurance, suffered a foreclosure or short sale or live in a state with no income tax. Teachers and college students also benefited, as did homeowners who made energy-saving improvements.
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The 50-plus tax breaks, which applied to both businesses and individuals, now will mostly expire at the end of 2015 — unless they’re extended again. Yes, this happened last year, too.
“It seems like each year [Congress is] waiting longer and longer to sign the bill,” says Jessie Seaman, senior associate attorney at the Tax Defense Network in Jacksonville, Florida. “I have a feeling it will be the same way in 2015.”
In recent years, the tax breaks have been extended piecemeal — one or two years at a time — because many members of Congress say they want to revamp the tax code. So far, that hasn’t happened. But by extending the tax breaks for a year at a time, Congress leaves its options open.
Will the tax breaks be extended at the end of 2015? It’s really anybody’s guess.
“That would require a lot more than a crystal ball,” says Bob Meighan, vice president of TurboTax in San Diego. “It would require tremendous insight into the incoming Congress.”
The tax breaks include regular deductions, which require you to itemize to deduct the amount from your adjusted gross income, “above the line” deductions, available even to those who don’t itemize, and tax credits, which are deducted from your tax liability.
Here are seven freshly extended tax breaks that will save individual taxpayers money:
Deduction for private mortgage insurance. Anyone who buys a house with less than 20 percent down has to pay private mortgage insurance. The ability to deduct PMI for mortgages taken out on primary residences in 2007 or later was extended one more year for homeowners who meet income limits. “You get to deduct not only the interest you’re paying, but the [private mortgage] insurance,” Seaman says. “That’s a big write-off that’s going to affect a lot of homeowners.”
Deduction of sales tax in states with no income tax. State income tax is deductible on your federal tax return. The bill extended for one year an equivalent benefit for those in states without income tax: Florida, Texas, Washington, Wyoming, Alaska, Nevada and South Dakota. This is also useful to some taxpayers in states with low income tax. “Any state that doesn’t have income tax, you can take a deduction for the sales tax you paid all year,” Seaman says. While you could save receipts and deduct the exact amount, that will only pay off in a year you make big purchases, such as a car or boat. The IRS has a formula for the allowable deduction based on your residence and adjusted gross income.
No tax for canceled debt on a primary residence. Before the Mortgage Forgiveness Debt Relief Act of 2007, Americans who lost their homes to foreclosure or did a short sale owed tax on the forgiven debt. That means if you owed $250,000 on your house, and it was sold in a short sale or foreclosure sale for $125,000, you would owe regular income tax on the difference, or $125,000. That’s a hefty sum for someone who couldn’t pay the mortgage. The extension means that debt forgiven on a mortgage for a primary residence (up to $2 million) is not taxed. “It’s extremely valuable for those who are affected,” Meighan says.
Tax-free distributions for charitable gifts from retirement accounts. Once someone reaches the age of 70 1/2, he or she has to start drawing money from an individual retirement account, even if the money isn’t needed. A big downside is the amount withdrawn is subject to income tax. But with this tax break, taxpayers 70 1/2 years or older can donate to charity up to $100,000 withdrawn from an IRA without paying taxes on it.
Deduction for teachers. Teachers can claim a deduction of $250, without itemizing, for supplies they buy for their classrooms. “Even though it’s not a large dollar amount, it affects all teachers,” Meighan says.
A $4,000 deduction for tuition and educational expenses. Many people save more money through the American Opportunity Tax Credit. But for those who qualify, this deduction can be used even if you don’t itemize. Expenses included are tuition and fees paid directly to the institution.
Energy tax credit. Homeowners can get a tax credit of up to $500 for making home improvements that save energy to their primary residences. This could include installing new windows around your home or getting a new roof, air conditioning system, furnace and more. In general, the deduction is 10 percent of the cost of the improvements, up to $500. But there are dollar limits on some items, and the $500 is the total you can claim over all years. There is also a credit for purchasing an electric vehicle. A separate Residential Energy Efficient Property Credit, which was not part of this extension and is in effect through the end of 2016, gives credits of up to 30 percent for qualifying alternative energy improvements.
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7 (Recently Extended) Tax Breaks That Will Save Taxpayers Money originally appeared on usnews.com
