INDIVIDUAL Extenders

The tax extenders bill passed in mid December 2014.  There were a number of tax provisions that were scheduled to expire at the end of 2013. Here is a list of the tax breaks that were set to expire for individual taxpayers

INDIVIDUAL Extenders: 

Teacher $250 Above the Line Deduction for Classroom Expenses:  Extends through 2014 the up to $250 above-the-line deduction for certain expenses of elementary and secondary school educators that otherwise would have to be itemized. This provision allows teachers and other eligible educators a deduction on line 23 of form 1040. This includes books, supplies, equipment, and supplementary materials used in the classroom. For purposes of the deduction, eligible educators are defined as teachers, instructors, counselors, principals or aides for kindergarten through 12th grade who put in at least 900 hours during the school year in a school that provides elementary or secondary education, as determined under state law. 

Discharge of Qualified Principal Residence Indebtedness on Principal Residence Excluded from Gross Income:  Extends through 2014 the exclusion from gross income for the discharge of qualified principal residence acquisition indebtedness as the result of foreclosure or short sale of the taxpayer's primary residence during 2014. The Mortgage Forgiveness Debt Relief Act was passed in 2007.  Prior to 2007, forgiven mortgage debt was reported to the IRS and could be includable as taxable income. The Act offered an exception to the rule that the forgiven mortgage debt is excluded from gross income generally.

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Parity for exclusion from income for employer-provided commuter transit and parking benefits: This provision brings the monthly exclusion of employer-provided commuter transit fringe benefits into parity with parking benefits for 2014. Under section 132(f) of the Tax Code, certain fringe benefits provided by employers for commuting and transportation are tax-free to employees. Transit passes were $130 while the fringe benefit exclusion for qualified parking is $250.  As a result of the bill, the monthly exclusion amount for transit passes and van-pooling increased from $130 to $250 for 2014. This matches the exclusion for qualified parking benefits.  

Mortgage insurance premiums treated as qualified  residence interest: Extends through 2014 the treatment of qualified mortgage insurance premiums as qualified residence interest. Lenders may require a taxpayer to purchase private mortgage insurance (PMI).  The homeowner pays the premiums and in the case of a default, the lender receives the benefit.  This law allowed taxpayers to include the premiums paid for mortgage insurance on line 13 of the Schedule A. This deduction is subject to ratable income phaseouts for taxpayers with adjusted gross income of $100,000 to $110,000 married filing joint and $50,000 to $55,000 for married filing separate. 

Tax Deduction for State and Local general sales taxes:  Extends through 2014 the option to take an itemized deduction for state and local general sales taxes in lieu of an itemized deduction for state and local income taxes. This provision allows states like Alaska, Florida, Nevada, South Dakota, Texas, Washington and Wyoming (where there is no or low state income tax) to participate by claiming state and local general sales tax in lieu of state and local income tax.  The provision is available to all taxpayers who itemize.  The taxpayer may either deduct the actual amount of sales tax paid in the tax year or an amount prescribed by the Internal Revenue Service. 

Contributions of Capital Gain Real Property Made for Conservation Purposes:  Extends through 2014 the special rule for contributions of capital gain real property made for conservation purposes. Generally, a charitable income tax deduction is allowed for qualified conservation contributions. Qualifying conservation purposes include (but are not limited to) the preservation of land or open spaces for scenic enjoyment, for recreational or educational purposes, or to protect national habitats.  Gifts of appreciated property are generally deductible at the fair market value, but, for individuals, are subject to the lower limits (30% of income) than ordinary gifts such as cash (50% of income).  The limit for appreciated property contributed for conservation purposes increased to 50% for individuals.  For farmers and ranchers, including individuals and for corporations that are not publicly traded, the limit is increased to 100% of income.*

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Above-the-line Deduction for Qualified Tuition and Related Expenses:  Extends through 2014 the provision that permits an above-the-line deduction for qualified tuition and related expenses for higher education. There are some income limitations - the taxpayer may claim up to $4,000 in education expenses for an individual, adjusted gross income (AGI) does not exceed $65,000 ($130,000 for joint filers) or $2,000 for an individual whose AGI does not exceed $80,000 ($160,000 for joint filers). The deduction is available for the taxpayer, spouse and dependants.

Tax-free Distributions from IRAs to Certain Public Charities for Individuals age 70.5 or Older, Not to Exceed $100,000 Per Taxpayer Per Year:  Extends through 2014 the provision that permits tax-free direct transfers of up to $100,000 from individual retirement plans to a qualified charity for taxpayer's age 70.5 and older while counting towards the taxpayer's Required Minimum Distribution (RMD) requirement. Prior to this provision, and IRA owner must pay tax on the IRA funds when withdrawn even if the funds were donated to a charity.  To get the benefit of the donation, the taxpayer must itemize; however, the distribution is included in gross income.

Credit for Nonbusiness Energy Property:  Extends through 2014 the provision allowing a credit of 10% of the amount paid or incurred by the taxpayer for qualified energy improvements, up to $500. The provision is available for existing homes and applies to heating, air conditioning, stoves, water heaters, doors, windows ($200 limit).

For a list of key provisions impacted by P.L. 113-295 (H.R. 5771, Tax Increase Prevention Act of 2014 please visit http://www.irs.gov/uac/Tax-Increase-Prevention-Act-of-2014:-Extenders

*Congressional Research Service Recently Expired Charitable Tax Provisions ("Tax Extenders"):  In Brief by Jane G. Gravelle & Molly Sherlock http://www.fas.org/sgp/crs/misc/R43517.pdf

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This blog is not meant to offer legal or comprehensive advice.  You should consult a tax professional for questions regarding your unique situation.