NEW YORK (MainStreet) — They have become known as the “tax extenders” – a laundry list of temporary tax benefits for individuals and businesses that Congress has been extending for one or two years at a time going back to the mid-2000s.
These “extenders” had originally expired on December 31, 2013. As has become the custom, Congress waited until the very last minute to retroactively extend these tax benefits for tax year 2014 only. President Obama signed “The Tax Increase Prevention Act,” into law on December 19. They once again expired on December 31, 2014, and these deductions and credits are currently not available for tax year 2015.
What this means is that the following items can be claimed on your 2014 Form 1040 (or 1040A).
Teachers, counselors, principals and aides of students in kindergarten through 12th grade who have worked at least 900 hours during the school year can deduct as an “adjustment to income” up to $250 of unreimbursed out-of-pocket expenses for books, supplies, computer software, equipment and other classroom materials. If both husband and wife are qualified educators, they each get up to $250. Educators who spend more than $250, as most do, can deduct the excess as an “Employee Business Expense” on Schedule A if their total miscellaneous deductions exceed 2% of Adjusted Gross Income (AGI).
Tuition and Fees:
Most undergraduate college students get the best tax benefit by claiming the American Opportunity Credit. Graduate students can claim either a Lifetime Learning Credit or the special Tuition and Fees Deduction.
Joint filers with an AGI of $130,000 or less, and single filers with AGI of $65,000 or less, can also deduct as an “adjustment to income” up to $4,000 in qualifying expenses for tuition and fees and required books, supplies and equipment. The deduction is limited to $2,000 for married couples with an AGI of between $130,001 and $160,000 and singles with AGI between 65,001 and $80,000.
Option to Deduct State and Local Sales Tax
Individuals who itemize have the option of claiming a deduction for state and local sales tax instead of state and local income tax. If you deduct state and local income tax on your Schedule A, you cannot also deduct state and local sales tax, and vice versa.
For this purpose state and local income tax include the deductible unemployment (SUI), disability (SDI), and/or family leave (FLI) contributions withheld in certain states. If you elect to deduct sales tax, you cannot also deduct state unemployment, disability and/or family leave taxes.
You have two options for claiming a sales tax deduction – the actual amount paid for the year, per receipts, or the amount taken from the IRS-generated Optional State Sales Tax Tables, with an additional amount allowed if you also pay local sales tax, plus the tax paid on the purchase of “big-ticket” items such as a car, motorcycle, truck, van, recreational vehicle, sport utility vehicle, off-road vehicle, boat, airplane, motor home, home, home building materials and any sales tax paid on the lease of a motor vehicle.
The IRS has an excellent online Sales Tax Deduction Calculator tool. Click here.
The amount you can deduct if you use the IRS tables is based on your “total available income,” your state of residence and the number of exemptions you claim. Your “total available income” is your Adjusted Gross Income plus any nontaxable receipts.
This provides a tax deduction for residents of states that do not have a state income tax, and I have found that it often provides a better tax deduction for retired seniors.
Deducation for Mortgage Insurance Premiums
Although it's not interest, you can deduct mortgage insurance premiums paid to the Department of Veterans Affairs (VA), the Federal Housing Administration (FHA), the Rural Housing Service (Rural Housing), or private mortgage insurers on contracts issued after 2006 in connection with acquisition debt on a primary or secondary residence as interest.
Mortgage insurance is a policy that compensates lenders for losses if a borrower defaults on a mortgage loan. It is generally required by lenders when a borrower has less than a 20% down payment.
The deduction is “phased-out” if your Adjusted Gross Income (AGI) is between $100,000 and $109,000 (between $50,000 and $54,500 if married filing separately) at a rate of 10% for each $1,000 ($500 if filing separately), or part thereof, of excess AGI.
If you pay a lump-sum premium for several years “up-front,” you must allocate the payment over the term of the loan or 84 months, whichever is shorter.
The amount of qualified premiums paid is reported in Box 4 of Form 1098.
Residential Energy Credit
The credit is 10% of the cost, up to a lifetime maximum of $500. Some items are limited to a credit from $50 to $300. The qualifying purchase must be for an existing home that is your principal residence.
If you claimed at least $500 in energy tax credits on your 2006 through 2013 returns, you are not eligible for a credit for 2014. If you claimed $300 in energy credits over the years, the most you can claim in 2014 is $200.
The credit is available for –
- Biomass Stoves
- Heating Ventilating, Air Conditioning (Advanced Main Air Circulating Fan, Air Source Heat Pumps, Central Air Conditioning, Gas, Propane, or Oil Hot Water Boiler, and Natural Gas, Propane or Oil Furnace)
- Roofs (Metal and Asphalt)
- Water Heaters (Gas, Propane or Oil Water Heater, and Electric Heat Pump Water Heater)
- Windows and Doors
Not every new window, door, boiler, heater, or furnace will qualify. There are very specific "energy efficiency" requirements for each of the qualifying items. You can go to the Energy Star website to find out what the specific qualifications are for individual items.
Many tax benefits for small business were also extended for 2014, including the bonus depreciation and the increased Section 179 deduction.
The annual Alternative Minimum Tax (AMT) “fix” had been one of the “tax extenders," but this has thankfully been made permanent.
We will have to wait, probably again until December, to see if Congress extends these tax benefits for tax year 2015 and beyond.
—Written by Robert D. Flach for MainStreet
Robert Flach has more than 40 years of experience as a tax professional and also blogs as The Wandering Tax Pro.