Congress evidently did not have the time to address the slew of expiring tax breaks before the end of 2013. Additionally it can be expected that budget talks and other such “crisis” situations will take most of their time in the coming year. As a result we probably won’t know which expired tax deductions and credits will be retroactively revived and which ones won’t until sometime in late 2014. Among those which will be missed the most are:

1. The Tuition and Fees Deduction – Up to $4,000 of education costs were allowed as a deduction in 2013 (limited for upper incomers). More than 2 million taxpayers claimed this break in 2010.

2. Teachers Expenses – Not that it adds up to much, but in year’s past teachers who spent their own funds on supplies for their students and classrooms were allowed to deduct $250 on the front page of their return.

3. Direct IRA Distributions to Charity – This has been a favorite of retirees who don’t need to live on the funds they’ve saved up in an IRA but are still required to take a taxable required minimum distribution (RMD). In 2013 up to $100,000 could be transferred from an IRA directly to a charity. While no charitable deduction can be taken for such a transfer, no income is recognized to the taxpayer and the RMD requirement is met for the year.

4. Deduction of Sales Tax in Lieu of Income Tax – This is a big one for residents of FL, TX and others without a state income tax. In 2013 residents of such states can forgo the state income tax deduction on Schedule A of their return and deduct sales tax instead.

5. Mortgage Debt Forgiveness – When a bank forgives or cancels a mortgage debt through a short sale or foreclosure, the taxpayer is hit with income on the amount of the loan that was forgiven. However, since 2007 homeowners have been able to exclude this income from their tax returns if the loan was on a personal residence. This has been an important break to many over the last few years especially.

6. Nonbusiness Energy Property Credit – 2013 was your last chance to get a credit of up to $500 if energy efficient improvements (such as new windows and doors) were made to your primary residence. Credits may still be taken on solar, wind, and geothermal energy improvements going forward.

Keep in mind these are just a few of the tax breaks that we are leaving behind in 2013. It is almost certain that some of these will be retroactively reinstated for 2014 – which ones will come back is anyone’s guess. We will certainly keep on readers updated as any related news progresses through the year.

Stephen Osborne
Accountant
sosborne@mo-cpa.com