Tax Extenders Equal Individual Tax Savings

Earlier this month Congress retroactively passed legislation that temporarily renewed over 50 tax provisions and incentives that expired at the end of 2013. The legislation signed by President Obama offers individual taxpayers access to new tax savings opportunities. Although the renewal is welcome news, it creates some complexities for those who did not consider these incentives in their tax planning strategy. To help clients, prospects and others understand the significance of this legislation; JLK Rosenberger has provided a brief summary of the key provisions.

Key Individual Tax Relief Extenders:

  1. Energy incentives – The “extender” legislation involved energy incentives, including up to $500 worth of credits for energy-efficient home improvements. These include the installation of certain appliances (water heaters and qualified heating and air conditioning systems), qualified insulation, windows, doors, and roofs. And, if you own a business, don’t forget to share your improvements to create an energy-efficient commercial building with your tax professional to see if they qualify.
  2. Teachers’ classroom expense deduction – No longer will teachers have to take all of their classroom expenses straight from their pockets. If you still need construction paper or crayons for the second half of the school year, it may be wise to purchase them now. This measure lets school teachers deduct up to $250 for the costs of classroom supplies they buy with their own money. It’s available to all elementary and secondary school teachers, whether they itemize or not.
  3. Higher education tuition and fees deduction – Taxpayers who meet certain income criteria are allowed to claim up to $4,000 in education expenses for themselves, their spouse, or their dependents. Qualified education expenses include tuition and related expenses (books, supplies, student-activity fees, and equipment) that are required for enrollment or attendance at any college, university, vocational school, or other post-secondary educational institution eligible to participate in a student aid program administered by the U.S. Department of Education.
  4. Mortgage insurance premium deduction – For those who could not put 20% down on the home mortgage, you were probably required to pick up private mortgage insurance (PMI). These fees are once again deductible from your individual income taxes.
  5. Tax-free charitable distributions from IRAs – This provision reinstates the rule that Individual Retirement Arrangement (IRA) owners age 70½ and older are allowed to exclude up to $100,000 per year from their gross income if those funds are paid directly to certain public charities.
  6. Income exclusion of forgiven principal residence debt – When you sell your home for less than what you owe or your home is foreclosed, the bank may agree to forgive the remaining debt. Unfortunately, for those in this less than desirable situation, the IRS makes it worse by recognizing forgiven debt as taxable income. The result is generally an increase in taxes owed. However, for 2014 this exclusion allows taxpayers to exclude any forgiven debt from federal taxable income.

 

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