The PATH Act made a number of tax breaks permanent when it was passed in December of 2015. However, there were a few valuable individual tax breaks that were only extended through 2016. While most of the possible tax legislation talked about so far this year has focused on either wide-sweeping tax reform or taxes that are part of the Affordable Care Act, it’s still possible that Congress could extend some or all of these breaks for 2017. If they do, it’s important to plan ahead so you can take advantage of them.
An education break
One break the PATH Act extended through 2016 was the above-the-line deduction for qualified tuition and related expenses for higher education. The deduction was capped at $4,000 for taxpayers whose adjusted gross income (AGI) didn’t exceed $65,000 ($130,000 for joint filers) or, for those beyond those amounts, $2,000 for taxpayers whose AGI didn’t exceed $80,000 ($160,000 for joint filers).
You couldn’t take the American Opportunity credit, its cousin the Lifetime Learning credit and the tuition deduction in the same year for the same student. If you were eligible for all three breaks, the American Opportunity credit would typically be the most valuable in terms of tax savings.
But in some situations, the AGI reduction from the tuition deduction might prove more beneficial than taking the Lifetime Learning credit. For example, a lower AGI might help avoid having other tax breaks reduced or eliminated due to AGI-based phaseouts.
Mortgage-related tax breaks
Under the PATH Act, through 2016 you could treat qualified mortgage insurance premiums as interest for purposes of the mortgage interest deduction. The deduction phased out for taxpayers with AGI of $100,000 to $110,000.
The PATH Act likewise extended through 2016 the exclusion from gross income for mortgage loan forgiveness. It also modified the exclusion to apply to mortgage forgiveness that occurs in 2017 as long as it’s granted pursuant to a written agreement entered into in 2016. So even if this break isn’t extended, you might still be able to benefit from it on your 2017 income tax return.
Please check back with us for the latest information. In the meantime, keep in mind that if you qualify and you haven’t filed your 2016 income tax return yet, you can take advantage of these breaks on that tax return. The deadline for individual extended returns is October 16, 2017.
If you have questions about these or other tax breaks or want to discuss tax planning for yourself or your business, JLK Rosenberger can help. For more information, call us at 949-860-9902 or click here to contact us.