Biggest Tax Breaks Extended for 2014

Biggest Tax Breaks Extended for the Middle Class!

 

A last minute deal was recently passed by Congress to extend dozens of expired tax breaks affecting millions of Americans.  The Tax Increase Prevention Act of 2014 includes more than 50 tax breaks, most of which expired at the end of 2013. The bill is retroactive so it covers the entire tax year 2014.

Five of the biggest tax breaks for individuals included in the Tax Increase Prevention Act of 2014 are as follows:

 

1. Teachers’ Classroom Expense Deduction

This extension is relatively small in the overall economic picture, but it affects millions of teachers who pay taxes. The teachers’ classroom expense deduction allows primary and secondary education professionals (grades K-12, including school administrators and assistants) to deduct above-the-line qualified expenses. You can deduct up to $250 ($500 if married filing joint and both spouses are educators, but not more than $250 each) of any unreimbursed expenses you paid or incurred for books, supplies, computer equipment (including related software and services), other equipment, and supplementary materials that you used in the classroom.
In order to qualify, you need to work at least 900 hours a school year in a school that provides elementary or secondary education as determined under state law. For courses in health and physical education, expenses for supplies are qualified expenses only if they are related to athletics.

2. Tuition and Fees Deduction

This tax break is still available to taxpayers for 2014, even if they don’t itemize. It allows for the deduction of qualified tuition and fees for post-secondary education, such as college and graduate school. The maximum deduction is $4,000 for taxpayers with AGI not exceeding $65,000 ($130,000 for a joint return), $2,000 for taxpayers with AGI $65,000 to $80,000 ($130,000 to $160,000 for joint filers), and $0 for other taxpayers. Under regulations, expenses paid by year-end for an academic term starting on or before March 31 of the following year qualify for the deduction in the year paid.
Qualified expenses you pay for yourself, your spouse, or your dependents are eligible for this deduction. Please note that you cannot take this deduction for room and board expenses or optional fees. Course-related books and supplies are also not eligible unless you are required to purchase them as a condition of enrollment or attendance. Furthermore, you are not allowed to deduct qualified education expenses for a student on your income tax return if you or anyone else claims an American Opportunity or Lifetime Learning Credit for that same student in the same year.

 

3. Residential Energy Credit

Incentives for energy conservation expired at the end of 2013, but the extension of Code Sec. 25C provides a nonbusiness tax credit to people who made qualified energy efficiency improvements to residential property. Examples of qualified property are improvements such as adding insulation, energy efficient exterior windows, and energy efficient heating and air conditioning systems. A tax credit is also available for the construction of new energy-efficient homes.
Some energy tax benefits were not extended. The plug-in electric vehicle credit and energy-efficient appliance credit were left behind.

 

4. State and Local Sales Tax Deduction

If you itemize your taxes, this extension allows you to deduct state and local sales taxes you paid in lieu of state income taxes. However, this deduction is not only potentially beneficial to taxpayers in states without an income tax. As Dixon Hughes Goodman notes, taxpayers who made a big ticket purchase in 2014, such as a motor vehicle before year-end could benefit by weighing the deduction for state and local general sales taxes against their deduction for state and local income taxes.

 

5. Mortgage Debt Forgiveness

Although a lender might be willing to forgive debt you owe when you sell your home for less than what’s left on the mortgage, the IRS typically treats this cancellation of debt as income. Under the tax extension bill, cancellation of mortgage debt on a principal residence of up to $2 million ($1 million for a married taxpayer filing separately) will be excluded from income for 2014. This includes foreclosures, short sales, or loan modifications.

 

Thanks to Eric McWinnie for some of the layout of this article.