Congress Passes Tax Extenders for Individuals Retroactive to January 1, 2014

The Tax Increase Prevention Act of 2014 was passed on December 16, 2014, and reinstated the following provisions retroactive to January 1, 2014, but they expire again on December 31, 2014.

Qualified Tuition Deduction. This write-off, which can be as much as $4,000 or $2,000 for higher-income folks, expired at the end of 2013. The Act retroactively restores it for 2014.

Tax-free Treatment for Forgiven Principal Residence Mortgage Debt. For federal income tax purposes, a forgiven debt generally counts as taxable Cancellation of Debt (COD) income. However, a temporary exception applied to COD income from cancelled mortgage debt that was used to acquire a principal residence. Under the temporary rule, up to $2 million of COD income from principal residence acquisition debt that was cancelled in 2007-2013 was treated as a tax-free item. The Act retroactively extends this break to cover eligible debt cancellations that occur in 2014.

$500 Energy-efficient Home Improvement Credit. In past years, taxpayers could claim a tax credit of up to $500 for certain energy-saving improvements to a principal residence. The credit equals 10% of eligible costs for energy-efficient insulation, windows, doors, and roof, plus 100% of eligible costs for energy-efficient heating and cooling equipment, subject to a $500 lifetime cap. This break expired at the end of 2013, but the Act retroactively restores it for 2014.

Mortgage Insurance Premium Deduction. Premiums for qualified mortgage insurance on debt to acquire, construct, or improve a first or second residence can potentially be treated as deductible qualified residence interest. The deduction is phased out for higher-income taxpayers. Before the Act, this break wasn’t available for premiums paid after 2013. The Act retroactively restores the break for premiums paid in 2014.

Option to Deduct State and Local Sales Taxes. In past years, individuals, who paid little or no state income taxes, had the option of claiming an itemized deduction for state and local general sales taxes. The option expired at the end of 2013, but the Act retroactively restores it for 2014.

IRA Qualified Charitable Contributions. For 2006-2013, IRA owners who had reached age 70½ were allowed to make tax-free charitable contributions of up to $100,000 directly out of their IRAs. These contributions counted as IRA Required Minimum Distributions (RMDs). Thus, charitably inclined seniors with more IRA money than they needed could reduce their income tax by arranging for tax-free QCDs to take the place of taxable RMDs. This break expired at the end of 2013, but the Act retroactively restores it for 2014, so that it’s available for qualifying distributions made before 2015.

$250 Deduction for K-12 Educators. For the last few years, teachers and other eligible personnel at K-12 schools could deduct up to $250 of school-related expenses paid out of their own pockets-whether they itemized or not. This break expired at the end of 2013. The Act retroactively restores it for 2014.

Qualified Conservation Contribution Breaks. Qualified conservation contributions are charitable donations of real property interests, including remainder interests and easements that restrict the use of real property. Liberalized deduction rules applied through 2013 that increased the maximum write-off for these contributions. The Act retroactively restores these liberalized rules for contributions made in 2014.

100% Gain Exclusion for Qualified Small Business Corporation (QSBC) Stock. The Act retroactively restores the temporary 100% gain exclusion and the exception from alternative minimum tax preference treatment for sales of QSBC stock acquired in 2014. However, you must hold QSBC shares for more than five years to be eligible for the 100% gain exclusion.

Contact Gregory J. Spadea of Spadea & Associates, LLC

If you have any questions or need help preparing your taxes feel free to contact Gregory J. Spadea online or at 610-521-0604, of Spadea & Associates, LLC in Ridley Park, Pennsylvania.