Consider yourself forewarned.
If you didn’t take advantage of a wide array of tax credits and deductions last year, it looks like you’ll be out of luck in 2014.
The Congressional Research Service says there are dozens of expiring “tax extenders.” Most — but not all — had been put in place or given new life as part of legislation passed by Congress at the end of 2012 to avert the fiscal cliff of automatic tax increases and spending cuts.
While the Bush-era tax cuts were made permanent, a wide array of deductions and credits were given short lifespans.
“The provisions that are scheduled to expire in 2013 are diverse in purpose, including provisions for individuals, businesses, the charitable sector, energy, community assistance, and disaster relief,” CRS said in a report to Congress.
Think education, energy and state sales tax. Also, mortgage forgiveness and insurance, and a wide array of other tax breaks.
“You’ve got all these regularly expiring provisions,” said Mark Luscombe, principal tax analyst for CCH. “Congress seems to always get around to renewing them at least retroactively,” he said. But there’s no guarantee.
There are a variety of reasons why Congress passes temporary, rather than permanent, tax provisions. It gives lawmakers a chance to see how they work — and affect the overall budget, according to CRS. “Temporary tax provisions may be also used to provide relief during times of economic weakness or following a natural disaster,” CRS said. “Congress may also choose to enact temporary provisions for budgetary reasons.”
Among the tax credits and deductions that expired last Dec. 31 affecting individuals:
—Students or their parents will no longer be able to take a maximum $4,000 deduction for tuition and required fees to attend an institution of higher education. In some cases, related expenses had included activity fees, books, supplies and equipment — but not room and board, transportation or sports, according to the Internal Revenue Service.
Although the tuition and fees deduction expired, there will still be other education-related tax breaks available for students and their parents during the 2014 tax year, including a deduction for interest paid on student loans and the American Opportunity and lifetime learning credits.
—Unless Congress acts, elementary, middle school and high school teachers will no longer be able to take a $250 deduction for school supplies paid out of pocket. According to CRS, this deduction has been on the books since 2002.
STATE AND LOCAL SALES TAX
Taxpayers had temporarily been given the choice of deducting state and local sales taxes instead of state and local income taxes. This had been particularly beneficial for taxpayers who lived in states like Florida, Nevada and Texas without an income tax, and for those who made a purchase significant in value.
“Folks aren’t going to see it anymore,” said Craig Richards, managing partner and director of tax services at Fiduciary Trust.
In an attempt to help people who lost their homes during the housing crisis or who owed more on the home than its value, Congress had passed legislation that allowed homeowners to exclude up to $2 million in mortgage forgiveness from taxable income. That tax break was not extended beyond 2013.
Nina Olson, the national taxpayer advocate, says there’s an important exception — taxpayer insolvency. If the taxpayer is insolvent — defined on the taxpayer advocate’s website as “when a taxpayer’s total debt exceeds his or her total assets” — the mortgage writeoff would not be considered taxable income, she said
In another change affecting housing, Congress let the deduction for the cost of premiums for home mortgage insurance expire.
Taxpayers older than 70 1/2 no longer have the option of contributing to charities directly from their individual retirement accounts. This direct contribution allowed seniors to avoid having to declare the amount withdrawn from the IRA as income — and pay taxes on it.
“This is something that we’ve seen a lot of our clients utilize over the years,” Richards said.
For many taxpayers, he said, the math worked out better than withdrawing the money, donating it and then taking a deduction for a charitable contribution. “You can’t get better than not have to recognize income even if you don’t get the deduction,” he said.
For the past several years, taxpayers have been able to get a tax credit for making their homes more energy efficient. But list that among the tax breaks that weren’t renewed for the 2014 tax year.
In its most recent incarnation, the credit was a lifetime maximum of $500 for such things as insulation, more efficient heating, cooling and hot water systems, doors and windows.
Tax credits for certain electric cars continue into 2014.
COMMUTING TO WORK
Many workers take advantage of employer programs that allow them to pay for certain commuting costs pretax — the cost is deducted straight from income before any taxes are withheld. For the 2013 tax year, the amounts for parking and public transportation were equal — $245 per month. But beginning this year, the public transportation pretax benefit drops to $130 per month.
Consider yourself forewarned.
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