by Martin A. Smith
At the end of every year, certain federal tax breaks face a sunset. Some are renewed, some expire. Here is a list of some of notable tax provisions that may go away this year – offering some opportunities that you may want to take advantage of this year.
Qualified tuition deduction. As you may recall in 2013, individual taxpayers had the chance to claim an above-the-line deduction for tuition and fees. This applies only to qualified higher education expenses. This deduction is set to expire at the end of this year; it may or may not be extended.1,2
Mortgage insurance premiums deductions. Are you paying for private mortgage insurance (PMI)? This year, you can treat qualified PMI premiums as home mortgage interest, but the deduction only applies if your adjusted gross income is no greater than $109,000. This tax break may go away this year. It was available only for mortgages entered into during 2007-13.
Mortgage debt relief. Last year, canceled mortgage debt of up to $2 million (or $1 million, in the case of married taxpayers filing separately) could be excluded from taxable income. The debt must be forgiven on a qualified principal residence (i.e., a taxpayer’s primary home) due to the borrowers’ financial condition or a decline in value of the residence. You can thank the Mortgage Debt Relief Act of 2007 for this. The tax break was set to sunset at the end of 2013, though – therefore, any such debt forgiven this year will be taxable income.
State & local general sales tax deduction. 2013 may have been the last year individual taxpayers could choose to deduct state and local general sales taxes, as opposed to state and local income taxes. This option was set to expire at the end of 2013.
Educator out-of-pocket expenses deduction. Classroom teachers/instructors, counselors, principals and aides who work in grades K-12 have enjoyed a special deduction of up to $250 in out-of-pocket costs above the line in 2013. As for 2014, this deduction is still a question mark.
Qualified charitable distributions from an IRA. If you are over 70½, you had through December 31 to make a tax-free transfer of assets from an IRA directly to a qualified charity. While you can’t deduct the amount as a charitable contribution, it does count toward your annual required minimum distribution (RMD). Will this option be extended into this new year, or be made permanent? No one knows just yet.
Increased expensing & bonus depreciation allowances. Last year, the Section 179 deduction was set at $500,000, while the qualifying property limit is $2 million. However, this year, these limits are slated to drop dramatically: a Section 179 deduction of $25,000, a qualifying property limit of $200,000. In 2013 you could have expensed off-the-shelf software under Section 179; not so in 2014. Last year, you could have amended or irrevocably revoked a Section 179 election; however this year, a Section 179 election will generally be irrevocable with IRS consent. While you could have claimed the Section 179 deduction on up to $250,000 of qualified real property in 2013, 2014 may offer you no such chance. For 2013, qualified leasehold and retail improvements and qualified restaurant property were given a 15-year straight-line recovery period; in 2014 the straight-line recovery period becomes 39 years. Congress may act to preserve all these current allowances.
Currently, 50 percent special depreciation is permitted for qualified property additions placed into service in 2013, only long production-period property and certain kinds of aircraft is slated to qualify to special depreciation in 2014. Again, Congress may preserve last year’s allowance.
Electric vehicle credit. If you bought (or even leased) an electric car in 2013, you may be eligible for a tax credit of up to $7,500 (variable based on the size of the battery pack used by the vehicle). This tax perk is set to sunset this year. If you bought a qualifying 2-wheel or 3-wheel plug-in electric vehicle this year, you are eligible for a federal tax credit of up to $2,500.2,3
Personal energy property credit. Since 2006, a $500 lifetime tax credit has been available to taxpayers who remodel their homes for energy efficiency. If you haven’t remodeled enough to claim the full $500 credit yet, sorry. It was set to expire by Dec. 31, 2013.
R&D tax credit. This credit is admittedly hard to figure, but it can bring about major savings and can be carried forward or back. Up to 20 percent of R&D expenses (above a base) may generally be used as a credit against tax owed. It may not be around for the duration of 2014.
Transit benefits. Last year, the exclusion for transit passes and/or vanpooling, provided by an employer, is $245 monthly; this is the same as the exclusion for employer-provided parking. This year, the benefit for public transportation falls to $100 per month (with adjustment for inflation), while the exclusion for employer-provided parking stays at $245 per month.
One more thing to keep in mind. The IRS will delay the start of the tax-filing season by at least a week, a consequence of October’s federal government shutdown. It had planned to accept tax returns on January 21 but postponed it to January 28 or later. The April 15 deadline for filing returns or requesting extensions still applies.