Top 5 New Income Tax Deductions for 2013

PORTLAND, Ore. (TheStreet) -- Welcome to March, when people who haven't filed their taxes yet are fearing the inevitable hit, looking for time to do the math, tracking down someone to do that math for them or trying to figure out all of the changes to the tax code.

All those folks still sorting out how the fiscal cliff debate affected them will probably want to take a moment to look over the tax deductions created or extended by the American Taxpayer Relief Act of 2012. That's basically the tax portion of the fiscal cliff fix, and it just added a bunch of writeoffs to a collection of breaks most Americans miss anyway.

According to Rebecca Pavese, head of the tax practice at wealth management group Palisades Hudson Financial, American taxpayers are already missing a whole lot of simple deductions that existed well before the fiscal cliff. Pavese notes, for instance, that because it's usually a one-time expense, most Americans don't write off the costs of a job-related move or money they spent installing energy-saving windows, doors and insulation for their home.

Taxpayers also often tend to miss out on deductions for adoption costs, which can run into the thousands of dollars. In the case of members of couples who adopt their partner's child, the $12,650 benefit for second-parent adoption is the only such benefit extended to same-sex couples whose marriages are recognized by their home states.

Even some IRA contributions made until April 15 can be deducted, including Simple IRA, SEP IRA or Keogh plans. Taxpayers who apply for an automatic extension can include those when they file as late as Oct. 15 of this year.

Once taxpayers are up to speed on those deductions, they can start saving even more money by factoring these five fiscal cliff fixes into their 2012 filing

Student-loan interest
Are you one of the fortunate indebted graduates who was able to put some of that graduation money toward your student loans? It turns out early, voluntary interest payments are now deductible.

You can deduct the full amount of student loan interest -- up to $2,500 annually - even if you paid more interest than required, Pavese says. You can also deduct interest for as long as you have the loan instead of just for the first 60 months, as was the case before the new law changed that stipulation permanently. You may have entered the real world with some crushing debt, but at least it's deductible debt.

Cancellation of mortgage debt on a principal residence
Think the housing crisis is getting better? Just ask the folks on the selling end of a short sale and see what their answer is.

Short sales are getting a lot of homeowners out from under water and taking a lot of homes off the banks' hands, but that escape route almost came at a cost. Thanks to the fiscal cliff fix, if a lender forgave homeowners' mortgage debt through 2013 - basically said they were off the hook for whatever the selling price of the house didn't cover -- you don't have to report that amount as income.

A short sale still isn't such a great time for the folks losing their home, but at least they're not suffering yet another blow come tax time.

Donating land for conservation
So what if you don't have a lot of liquid assets around, but you have a whole valley full of land? If you parted with some of it in 2012 to prevent those acres from becoming yet another discount-store-anchored strip mall, there's a chance you can write it off.

If that land was bringing in capital gains and the owner slapped a conservation easement on it, those former owners can deduct the contribution up to 50% of their adjusted gross income. Considering the old limit was 30%, land barons looking for a little savings may want to consider suggesting a wildlife reserve with their name on it to the local land management agency.

Private mortgage insurance premiums

So you couldn't come up with a large enough down payment and your lender slapped a PMI on top of your mortgage payment. That isn't great, but at least the temporary rule making them as deductible as mortgage interest is now permanent.

"This deduction is commonly missed because PMI premiums have only recently been deductible," Pavese says.

Well, now it's the law of the land, so don't worry, cash-strapped homeowners: That deduction will stay in place until you can pay down that PMI or refinance yourself into a better deal.

Child tax credit
The good news is that this once-temporary benefit that gives couples a $1,000 credit for every dependent under age 17 is now permanent.

The bad news? The more you make, the less likely you are to get it.
Married couples can get the full benefit only if they make $110,000 in modified adjusted gross income a year or less. For single taxpayers, that threshold falls to $75,000. For every $1,000 above those amounts, the child credit drops $50.

The new law extends the credit permanently. You can get a $1,000 credit for each dependent child under 17. The catch: The credit starts to phase out for married couples with $110,000 of modified adjusted gross income; and at $75,000 for single taxpayers. The credit is reduced by $50 for each $1,000 of income above the threshold amount.

-- Written by Jason Notte in Portland, Ore.

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Jason Notte is a reporter for TheStreet. His writing has appeared in The New York Times, The Huffington Post, Esquire.com, Time Out New York, the Boston Herald, the Boston Phoenix, the Metro newspaper and the Colorado Springs Independent. He previously served as the political and global affairs editor for Metro U.S., layout editor for Boston Now, assistant news editor for the Herald News of West Paterson, N.J., editor of Go Out! Magazine in Hoboken, N.J., and copy editor and lifestyle editor at the Jersey Journal in Jersey City, N.J.

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