TemporaryTax Provisions Set to Expire in 2014
Somemay be renewed, others may not be.
Provided by Mark U. McGahee, CFP®, ChFC
At the end of every year, certain federal tax breaks face a sunset.Some are renewed, some expire. As 2014 will soon start, here is a list of someof notable tax provisions that may go away next year – offering someopportunities that you may want to take advantage of this year.
Qualified tuition deduction. For 2013, an individual taxpayer has the chance toclaim an above-the-line deduction for tuition and fees. This applies only toqualified higher education expenses. This deduction is set to expire at the endof this year; it may or may not be extended.
Mortgage insurance premiums deductions. Are you paying for private mortgage insurance (PMI)?This year, you can treat qualified PMIpremiums as home mortgage interest, but the deduction only applies if youradjusted gross income is no greater than $109,000. This tax break could go awayin 2014; it is available only for mortgages entered into during 2007-13.
Mortgage debt relief. In 2013, canceled mortgage debt of up to $2 million(or $1 million, in the case of married taxpayers filing separately) can beexcluded from taxable income. The debt must be forgiven on a qualifiedprincipal residence (i.e., a taxpayer’s primary home) due to the borrowers’financial condition or a decline in value of the residence. You can thank theMortgage Debt Relief Act of 2007 for this. The tax break is set to sunset atthe end of 2013, though – and if it does, then any such debt forgiven next yearwill be taxable income.
State & local general sales taxdeduction. 2013 might be the lastyear individual taxpayers can choose to deduct state and local general salestaxes as opposed to state and local income taxes. This option is set to expireat the end of the year.
Educator out-of-pocket expensesdeduction. Classroomteachers/instructors, counselors, principals and aides who work in grades K-12 haveenjoyed a special deduction of up to $250 in out-of-pocket costs above the linein 2013. As for 2014, this deduction is still a question mark.
Qualified charitable distributions froman IRA. If you are over 70½, you havethrough December 31 to make a tax-free transfer of assets from an IRA directlyto a qualified charity. While you can’t deduct the amount as a charitablecontribution, it does count toward your annual required minimum distribution(RMD). Will this option be extended into 2014, or be made permanent? No oneknows just yet.
Increased expensing & bonusdepreciation allowances. This year,the Section 179 deduction is set at $500,000 while the qualifying propertylimit is $2 million. In 2014, these limits are slated to drop dramatically: aSection 179 deduction of $25,000, a qualifying property limit of $200,000. In2013 you can expense off-the-shelf software under Section 179; not so in 2014.This year, you can amend or irrevocably revoke a Section 179 election; nextyear, a Section 179 election will generally be irrevocable with IRS consent.While you can claim the Section 179 deduction on up to $250,000 of qualifiedreal property this year, 2014 may offer you no such chance. For 2013, qualifiedleasehold and retail improvements and qualified restaurant property were givena 15-year straight-line recovery period; in 2014 the straight-line recoveryperiod becomes 39 years. Congress may act to preserve all these currentallowances.
Currently, 50% special depreciation is permitted for qualified propertyadditions placed into service in 2013, only long production-period property andcertain kinds of aircraft will are slated to qualify to special depreciation in2014. Again, Congress may preserve the current allowance.
Electric vehicle credit. If you bought (or even leased) an electric car thisyear, you may be eligible for a tax credit of up to $7,500 (variable based onthe size of the battery pack used by the vehicle). This tax perk is set tosunset in 2014. If you bought a qualifying 2-wheel or 3-wheel plug-in electricvehicle this year, you are eligible for a federal tax credit of up to $2,500.
Personal energy property credit. Since 2006, there has been a $500 lifetime tax creditavailable to taxpayers who remodel their homes for energy efficiency. If youhaven’t remodeled enough to claim the full $500 credit yet, a heads-up: it isset to expire at year’s end.
R&D tax credit. This credit is admittedly hard to figure, but it canbring about major savings and can be carried forward or back. Up to 20% ofR&D expenses (above a base) may generally be used as a credit against taxowed. Who knows, it may not be around for 2014.
Transit benefits. In 2013, the exclusion for transit passes and/or vanpooling,provided by an employer, is $245 monthly; this is the same as the exclusion foremployer-provided parking. Next year, the benefit for public transportationfalls to $100 per month (with adjustment for inflation) while the exclusion foremployer-provided parking stays at $245 per month.
One more thing to keep in mind. The IRS will delay the start of the tax-filing seasonby at least a week, a consequence of October’s federal government shutdown. Ithad planned to accept tax returns on January 21; that date will now be January28 or later, with the final determination coming in December. The April 15deadline for filing returns or requesting extensions still applies.
Mark McGahee may be reachedat (757) 539-9465 or firstname.lastname@example.org.
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