Monday, December 2, 2013

Tax Provisions Expiring on December 31, 2013

We have been reviewing tax provisions scheduled to expire at the end of this year, December 31, 2013. This is an unhappy, contemporary development in federal taxation. Taxpayers in recent years have waited on Congress to come to the rescue, even if that rescue was in January and retroactive.  I am not optimistic for any breakthrough this year. The Senate nuclear-option fiasco last week tells you that the parties will not be sending Christmas cards across the aisle this year.
 (1)  Mortgage debt relief
The tax code considers the forgiveness of debt to be similar to you receiving a paycheck. Your wealth has gone up (in this case, because your debts have gone down), so the IRS considers this income to you. There has been an exception for debt discharged on your principal residence.
 (2)  Deduction for mortgage insurance premiums
You buy this insurance when you put down less than 20% on the purchase of a house.
 (3)  Teachers classroom expenses
This is the $250 deduction for unreimbursed teacher school supplies.
(4) IRA distributions to Charity
 If you are age 70 ½, the IRS requires you to take “minimum required distributions” from your IRA (but not from your Roth IRA). This provision lets you donate that distribution to charity without counting it as income. You don’t get the charitable deduction, of course, but it can stop you from being pushed into tax phase-outs because of the increase to your gross income.
(5)  State sales taxes
If you live in a state without income taxes (Florida and Texas, for example), this provision allows you to deduct sales taxes in lieu of income taxes.
 (6)  Research & development tax credit  
 It seems that this credit has been “extended” as long as I have been in practice. It will again, if only because some very powerful interests (think Apple and Intel) will make it so.
 (7)  Credit for construction of new energy efficient homes
This $2,000 credit goes to the contractor for building your energy-efficient new home. Granted, it has not meant as much in recent years, except perhaps to the cash-strapped contractor.
(8)  Credit for energy efficient home improvements
This is the $500 credit for doors, windows, insulation and exterior doors. There are other, less recognizable, categories, such as a biomass stove.
 (9) Expensing of depreciable assets
Also referred to as the Section 179 deduction, it is scheduled to drop to $25,000 next year from $500,000 this year.
 (10)     50 percent depreciation
You are allowed (for a brief remaining time) to immediately deduct 50% of a wide range of business assets, other than real estate.
 (11)     Work opportunity tax credit
Many people associate this credit with hiring welfare recipients, but it also covers military veterans. The credit can be as much as $9,600 per employee.
 (12)     Depreciation for certain leasehold, restaurant and retail  improvements
 Depreciation on real estate is brutal: the tax Code requires one to depreciate over 39 years. This break allows a business or restaurant (think Applebee’s or Kroger) to depreciate their build-out over 15 rather than 39 years.
(13)     Deduction for qualified tuition and related expenses
This is the deduction of up to $4,000 (not to be confused with the tax credit!) for you or your child attending college.
 (14)     Child tax credit
This is the credit for a child under age 17. It is worth $1,000 this year. It drops to $500 in 2014.

This is just stuff that is going away. We haven’t talked about new tax stuff, such as the increase in the maximum individual tax rate, the new capital gains rate, the 3.8% Obama tax on investments, the 0.9% Obama tax on your W-2, the disallowance of your itemized deductions, the disallowance of your personal exemptions, the ObamaCare individual mandate penalty for 2014, the new dollar limits on your FSA, and so on and so on.

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