As the end of year quickly approaches many corporate taxpayers will begin year-end tax planning. Generally these are steps taken to leverage incentives and programs that can reduce overall tax liabilities. In the past this has included activities like mortgage premium interest, tuition expenses, IRA distributions to charities, energy efficiency improvements and other tax saving activities. However, last year many familiar tax credits, incentives and benefits expired. Unless Congress takes action to enhance or extend these incentives, the tax planning process for 2014 will be much different than in prior years. Below we have provided a brief summary of the more common tax incentives that have expired.
Expired Individual Tax Provisions
- Personal Energy Property Credit – This incentive provided a $500 lifetime credit on qualifying energy efficiency improvements and expenses incurred for the benefit of the taxpayer’s principal residence. There was no adjusted gross income (AGI) exclusions so all taxpayers could benefit. Examples of qualifying improvements included new window, doors, natural gas or propane furnace or hot water heater high efficiency air conditioning units. In 2014, this tax credit will no longer be available.
- Tuition & Fees Deduction – This incentive allowed taxpayers to deduct up to $4,000 in college tuition and essential fees from income taxpayers. Qualifying expenses included activity fees, course materials, book, supplies and equipment. Costs for sports, games and non-essential activities were generally not permitted unless directly related to the student’s course of study. Unfortunately in 2014 this credit is no longer available.
- Mortgage Insurance Premium Deduction – The PMI deduction allowed homeowners with private mortgage insurance to deduct the premiums as a personal itemized deduction. This was an added benefit to those taxpayers who made less than a 20% down payment on their principal residence. For example, if a taxpayer made a $250 monthly payment towards PMI they could deduct $3,000 on their federal taxes at year end. However, in the current tax year this deduction is no longer available.
- IRA Charitable Donations – This incentive was very popular among boomers who wanted to make charitable contributions using funds in their IRA. It allowed taxpayers age 70 ½ and older the ability to make tax free transfers of up to $100,000 to qualifying charities. Under this program, any amount transferred counted towards the individual’s required minimum distribution, but not as a charitable contribution. This popular tax incentive was not renewed and is not available in 2014.
- Mortgage Debt Forgiveness – This incentive prevented homeowners who went through a short sale of foreclosure from being tax on the amount of their mortgage debt that was forgiven by the bank. This was a helpful incentive for the many Americans who were underwater in their home and elected to move out of the situation. In 2014, this benefit is no longer available to individual taxpayers. The result of a short sale or foreclosure on impacted taxpayers could now be substantial.
Unsure how your individual taxes will be impacted by these changes? Contact us today, we want to help! For additional information please contact Larson & Company. We look forward to speaking with you soon.