The Tax Increase Prevention Act of 2014 (TIPA) was signed into law on December 19, 2014. Thankfully, TIPA retroactively extends most of the federal income tax breaks that would have affected many individuals and businesses through 2014. So, these provisions may have a positive impact on your 2014 returns. Unfortunately, these extended provisions expired again on December 31, 2014. So, unless Congress takes action again, these favorable provisions won’t be available for 2015.
In this article, we will discuss some of the extended provisions impacting individual taxpayers.
Qualified Tuition Deduction
This write-off, which can be as much as $4,000 for married taxpayers with adjusted gross income up to $130,000 ($65,000 if unmarried) or $2,000 for married taxpayers with adjusted gross income up to $160,000 ($80,000 if unmarried), expired at the end of 2013. TIPA retroactively restored it for 2014.
Tax-free Treatment for Forgiven Principal Residence Mortgage Debt
For federal income tax purposes, a forgiven debt generally counts as taxable Cancellation of Debt (COD) income. However, a temporary exception applied to COD income from canceled mortgage debt that was used to acquire a principal residence. Under the temporary rule, up to $2 million of COD income from principal residence acquisition debt that was canceled in 2007-2013 was treated as a tax-free item. TIPA retroactively extended this break to cover eligible debt cancellations that occurred in 2014.
$500 Energy-efficient Home Improvement Credit
In past years, taxpayers could claim a tax credit of up to $500 for certain energy-saving improvements to a principal residence. The credit equals 10% of eligible costs for energy-efficient insulation, windows, doors and roof, plus 100% of eligible costs for energy-efficient heating and cooling equipment, subject to a $500 lifetime cap. This break expired at the end of 2013, but TIPA retroactively restored it for 2014.
Mortgage Insurance Premium Deduction
Premiums for qualified mortgage insurance on debt to acquire, construct or improve a first or second residence can potentially be treated as deductible qualified residence interest. The deduction is phased out for higher-income taxpayers. Before TIPA, this break wasn’t available for premiums paid after 2013. TIPA retroactively restored the break for premiums paid in 2014.
Option to Deduct State and Local Sales Taxes
In past years, individuals who paid little or no state income taxes had the option of claiming an itemized deduction for state and local general sales taxes. The option expired at the end of 2013, but TIPA retroactively restored it for 2014.
IRA Qualified Charitable Contributions (QCDs)
For 2006-2013, IRA owners who had reached age 70½ were allowed to make tax-free charitable contributions of up to $100,000 directly out of their IRAs. These contributions counted as IRA Required Minimum Distributions (RMDs). Thus, charitably inclined seniors could reduce their income tax by arranging for tax-free QCDs to take the place of taxable RMDs. This break expired at the end of 2013, but TIPA retroactively restored it for 2014, so that it was available for qualifying distributions made before 2015.
$250 Deduction for K-12 Educators
For the last few years, teachers and other eligible personnel at K-12 schools could deduct up to $250 of school-related expenses paid out of their own pockets – whether they itemized or not. This break expired at the end of 2013. TIPA retroactively restored it for 2014.
What about 2015?
Unfortunately, as we said at the beginning of this article, none of these favorable provisions will be available for 2015, unless Congress takes further action. This is entirely possible, but far from certain. We’ll keep you posted as the year progresses.