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Scorecard of the Key Expired Tax Breaks for Individuals

March 06, 2014

Noteworthy deductions for individuals and credits that won't be available — or will be significantly reduced — in 2014.

There are several federal income tax breaks for individuals and businesses that expired at the end of 2013. Although we are well into 2014, Congress has—so far—failed to extend many of tax savings opportunities that you’ve become accustomed to. (Some observers predict that Congress won’t act for months — perhaps even until after the November mid-term elections.)

Below is a summary of some noteworthy deductions for individuals and credits that won’t be available — or will be significantly reduced — in 2014. Many of these federal income tax breaks were available (at varying levels) for several years before expiring on 12/31/2013.

Expired Tax Breaks for Individuals

Option to Deduct State and Local Sales Taxes- In 2013, individuals had the option of claiming an itemized deduction for general state and local sales taxes instead of claiming an itemized deduction for state and local income taxes. This option was beneficial for taxpayers who live in states with no personal income taxes and taxpayers who pay only minimal state income taxes.

Tax-Free Treatment for Forgiven Principal Residence Mortgage Debt- For federal income tax purposes, cancelled debts generally count 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 provision, up to $2 million of COD income from principal residence acquisition debt that was cancelled between 2007 and 2013 was treated as a tax-free item for federal income tax purposes.

Charitable Donations from IRAs- Individual retirement account (IRA) owners who had reached age 70 1/2 by December 31, 2013, were allowed to make charitable donations of up to $100,000 directly out of their IRAs in 2013. The donations counted as IRA required minimum distributions.

So, charitably-inclined seniors who had more IRA funds than needed could reduce taxes by arranging for IRA donations to take the place of taxable required minimum distributions in 2013.

Deduction for Higher Education Tuition and Related Fees- In 2013, you could deduct up to $4,000 (or up to $2,000 for higher-income folks) for qualifying higher education tuition and related fees paid for you, your spouse or your dependents.

$500 Energy-Efficient Home Improvement Credit- For 2013, taxpayers could claim a tax credit of up to $500 for certain energy-saving improvements to a principal residence.
Salary Reduction for Transit Passes- Your employer may allow you to sign up to reduce your taxable salary to pay for mass transit passes to commute to and from work. In 2013, the maximum monthly amount you could set aside on a tax-free basis was $245. The maximum monthly amount for 2014 will be only $130 unless Congress decides to allow a larger amount. (If that happens, the larger amount would be $250.)

$250 Deduction for Teachers’ School Expenses- For 2013, teachers and other personnel at K-12 schools could deduct up to $250 of school-related expenses they paid out of their own pockets, regardless of whether they itemized or not.

Deduction for Home Mortgage Insurance Premiums- In 2013, eligible taxpayers were allowed to treat qualifying personal residence mortgage insurance premium amounts as deductible home mortgage interest.

Charitable Qualified Conservation Contributions- Charitable qualified conservation contributions are donations of real property interests (including remainder interests and easements) that restrict the use of real property. For individuals, the maximum write-off for 2013 qualified conservation contributions of long-term capital gain property was increased from the normal 30 to 50 percent of adjusted gross income.

In addition, qualified conservation contributions were not counted when calculating an individual’s allowable 2013 write-offs for other charitable contributions. Qualified conservation contributions in excess of what could be written off in 2013 could be carried forward for 15 years (only a five-year carryover period is allowed under the normal rules). For an individual who was a qualified farmer or rancher, the qualified conservation contribution write-off for 2013 donations of farm or ranch real property could be as much as 100 percent of the donor’s adjusted gross income.

Zero Percent Tax Rate on Future Gains from Qualified Small Business Stock- For qualified small business corporation (QSBC) stock that was issued in calendar year 2013, a 100 percent federal gain exclusion break is potentially available. That equates to a 0 percent federal income tax rate on future profits from selling QSBC shares down the road. You must hold the shares for more than five years to be eligible, and many companies will fail to meet the definition of a QSBC. Also, C corporation shareholders are ineligible. For QSBC shares issued in 2014, the “normal” gain exclusion percentage of 50 percent will apply unless Congress restores the 100 percent gain exclusion deal.

Personal Credit for Alternative Fuel Vehicle Refueling Property- In 2013, individuals could claim a federal tax credit for up to 30 percent of the cost of installing non-hydrogen alternative fuel vehicle refueling property. This credit could be claimed for expenditures such as equipment to recharge electric-powered car batteries at a principal residence. For individuals, the annual cap for this credit was only $1,000. A credit for hydrogen refueling property is allowed through 2014.

Stay tuned for our next blog on the Key Expired Tax Breaks For Businesses.

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