IRS magic tricks – Deductions that will disappear on December 31!
Congress should be blamed more than IRS for these disappearing deductions which serve as hidden rate increases for 2014. In order to make the deficit appear smaller, Congress has for many years treated certain write-offs as temporary and subject to an annual renewal. This keeps them off the books for long-term budget and deficit reporting. The “temporary” label is misleading, as dozens of these types of deductions have been renewed year after year. This may make Congress look good, but it makes your tax planning difficult. Most of the following deductions are scheduled to vanish into thin air on January 1, 2014. We can’t promise that any of the following will still be around next year, but we can promise that if enough people use this link to contact their Congressmen, some of this budgetary voodoo might stop. Clients who see themselves being hurt by this hidden rate increase are welcome to Contact Us for a year-end review.
For 2013: Grades K–12 teachers, instructors, counselors, principals and aides can deduct up to $250 of out-of-pocket costs above the line.
Cancellation of Debt – Vanishes in 2014
For 2013: Individuals can exclude up to $2 million ($1 million for married filing separately) of COD income from qualified principal residence indebtedness that is canceled because of their financial condition or decline in value of the residence.
Mortgage Insurance Premiums – Vanishes in 2014
For 2013: Taxpayers with AGI no greater than $109,000 can treat qualified mortgage insurance premiums as home mortgage interest.
Personal Energy Property – Vanishes in 2014
For 2013: A credit (subject to a $500 lifetime cap) is available for qualified energy efficiency improvements and expenditures to a taxpayer’s principal residence.
State and Local Sales Taxes – Vanishes in 2014
For 2013: Individuals can elect to deduct state and local general sales taxes instead of state and local income taxes.
For 2013: Individuals can claim an above-the-line deduction for tuition and fees for qualified higher education expenses.
Qualified Charitable Transfers from your IRA – Vanishes in 2014
For 2013: Taxpayers over age 70-1/2 can make tax-free transfers from an IRA directly to a charity. Any amounts so transferred count toward the individual’s required minimum distribution, but are not deductible as charitable contributions.
Section 179 Depreciation – Reduced in 2014
For 2013: The Section 179 deduction and qualifying property limits are $500,000 and $2,000,000, respectively. In addition, off-the shelf computer software qualifies for Section 179 expensing, and taxpayers can amend or irrevocably revoke a Section 179 election.
For 2014: The limits fall back to $25,000 and $20,000. You lose the ability to change a 179 election.
Special (Bonus) Depreciation – Restricted in 2014
What it is now: 50% special depreciation is allowed for qualified property additions placed in service in 2013.
For 2014: This will be available only for some types of aircraft and production-period property.
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