August 7, 2014
By Salvatore J. Armao, CPA/PFS, CFP, CFE, CGMA
Managing Partner, Armao LLP
Who’s thinking about taxes during the lazy, hazy, crazy days of summer? Well, at Armao LLP, we are…and so should you!
You probably didn't notice, but when the clock struck midnight on December 31, 2013, a number of popular tax benefits, commonly included in the list of provisions referred to as "tax extenders" expired.
While it's possible that Congress could retroactively extend some or all of these items, you'll have to evaluate your 2014 tax situation based on the fact that they're no longer available.
1. Deduction for higher education expenses: The above-the-line deduction for qualifying tuition and related expenses that you pay for yourself, your spouse, or a dependent is not available for 2014.
2. Classroom educator expense deduction: The above-the-line deduction for up to $250 of unreimbursed out-of-pocket classroom expenses paid by qualified education professionals also expired at the end of 2013.
3. State and local sales tax deduction: If you itemize deductions for the 2014 tax year, you won't have the option of claiming a deduction for state and local sales tax in lieu of the deduction for state and local income tax.
4. Depreciation and expense limits: The maximum amount that can be expensed under Internal Revenue Code Section 179 drops significantly from its 2013 level of $500,000 to $25,000 for 2014. The special 50% "bonus" first year additional depreciation deduction has also ended.
5. Mortgage insurance premiums: Starting in 2014, individuals who itemize deductions will no longer have the ability to treat premiums paid for qualified mortgage insurance as deductible interest on IRS Form 1040, Schedule A.
6. Employer-provided commuter expenses: For 2013, you could exclude from income up to $245 per month in transit benefits (e.g., transit passes) and $245 per month in parking benefits. For 2014, the monthly limit for qualified parking increases to $250, but the monthly limit for transit benefits drops to $130.
7. Energy efficient home improvements and property: The non-business energy property credit offset some of the costs associated with the installation of energy efficient qualified home improvements (e.g., insulation, windows) and qualified residential energy property (e.g., water heater, central air). Specific qualifications and limits applied, and an overall lifetime cap of $500 was in effect for 2013. The credit is not available at all in 2014.
8. Discharge of debt on principal residence: Since 2007, individuals have generally been allowed to exclude from income amounts resulting from the forgiveness of debt on their principal residence. This provision expired at the end of 2013.
9. Qualified charitable distributions: For the past few years, a qualified charitable distribution (QCD) of up to $100,000 could be made from an IRA directly to a qualified charity if you were age 70½ or older. Such distributions were excluded from income and counted toward satisfying any required minimum distribution (RMD) that you would otherwise have had to take from your IRA for that tax year. QCDs aren't an option for 2014, however.
10. Qualified small business stock exclusion: For qualified small business stock issued and acquired after September 27, 2010, 100% of the capital gain resulting from a sale or exchange could be excluded from income, provided certain requirements, including a five-year holding period, are met. For qualified small business stock issued and acquired after 2013, however, the amount that can be excluded from income drops to 50%.