BYE BYE TAX DEDUCTIONS!!
WHAT TO DO BEFORE DECEMBER 31ST 2013
If you want, or need, tax deductions for 2013, be aware that some of the more common ones are set to expire at the end of the year. If these apply to your situation, you may want to do what it takes to take advantage.
Of course, no one knows what Congress and the President may do to extend these deductions, or make them permanent, but these are the tax breaks that are scheduled to disappear.
Personal Energy Property Credit: Many people are preparing their home to be fuel efficient. This includes such items as energy efficient doors, windows, water heaters, furnaces, insulation, and the like. There is a $500 lifetime limit that may be used, if it qualified, to reduce taxes. This will not be available after 2013 unless the law is changed.
State and Local Sales Tax: Typically, people deduct State and Local Income Tax from their Schedule A return, but some people who make large purchases and pay sales tax on it during the year gain an advantage over income tax. Not after 2013. Sales Tax will no longer be used. Therefore, if you have a number of large purchases, and you pay little income tax, make sure you track the sales tax paid…or make that extra purchase to increase the sales tax deduction…but only if you have the money to make the purchase. I never suggest “buying” a tax deduction. Only purchase if you have the money and it is needed.
Educator’s Expenses: It is a very common practice for K-12 teachers to use money out of their own pocket for school items: books, tissues, crayons, paper, etc. Because of this, teachers were allowed a $250 above-the-line deductions if they can prove where the money went. This will also vanish in 2014.
50% Bonus Depreciation: This is allowed for qualified property placed into service during 2013 with a 20 year or less life. This allowed businesses to write off half the cost of this property, but as of 2014 the allowable items are very narrow.
Section 179 Deduction: For 2013, a Section 179 deduction could be up to $500,000 for $2,000,000 of purchases. In 2014, Section 179 will be limited to $25,000 for purchased up to $200,000. Need big ticket machinery? Buy in 2013 to take advantage of the deduction.
Tuition and Fees Deduction: For those paying tuition and fees for their spouse or children, that break will end on December 31, 2013. This is an above-the-line deduction that couples earning under $160,000 a year were happy to have. Will it be renewed by Congress? Maybe…or maybe not.
Mortgage Insurance Premiums (PMI): Those of you who have to pay mortgage insurance premiums on your home were allowed to deduct those as part of your mortgage interest, if your AGI was under $109,000. After December 31st, this will not be allowed as a deduction.
Cancellation of First Home Mortgage Debt: For the last few years, homes that went into foreclosure or had some kind of debt forgiveness on their homes were allowed to exclude up to $2 million (if filing jointly; $1million for separate filers). This was very important because, typically, those who lost their homes, or were allowed to reduce the debt on it, have no money! The mortgage holder would issue a 1099 where the couple had to pay tax on that “gain”. This law allowed debt on your home (not credit card debt or other types of debt) to reduce that expense to zero unless it was more than $1 or $2 million. This will not be allowed in 2014. If you are in the unfortunate position where this may have to be done, you may want to make sure it happens in 2013.
These are a few of the possible lost deductions after 2013 if Congress and the President do not come to an agreement on them. Will they be “saved”?? Who knows! My crystal ball is totally fogged up so I cannot see! Keep your ears open for news.
My suggestion is, though not all agree with me, never to buy something just for a tax deduction. Buy it for the deduction if you need it, or will need it in the very near future, and can pay for it.
Again, talk to your tax advisor to find out all the specifics of these deductions. If you do not have a tax advisor, please feel free to contact me.
Plack, Henry. September 30, 2013. 11 Expiring Deductions for 2013.
Sherlock, Molly F. June 27, 2013. Tax Provisions Expiring in 2013. CRS Report