Unless Congress enacts a new “extenders” tax bill in 2014, as many as 55 tax breaks that expired at the end of 2013 will stay off the books for good.
Strategy: Hope for the best and plan for the worst. Although some of these items have been extended in the past, often retroactively, there are no guarantees this time around.
Here are 13 key breaks for individuals and small business owners that expired after 2013.
1.deductions: Previously, your business could deduct up to $500,000 of qualified property placed in service in 2013, subject to a phaseout above $2 million. The maximum deduction plummets to $25,000 for tax years beginning in 2014 with a $200,000 phaseout threshold.
2. Bonus depreciation: In addition to Section 179 deductions, your business could claim a 50% bonusfor qualified new (not used) property placed in service in calendar year 2013. Generally, bonus depreciation isn’t available after 2013.
3. Building writeoffs: A special tax law provision allowed you to use a fast 15-year depreciation period for qualified leasehold improvements, qualified restaurant buildings and improvements placed in service in 2013. Beginning in 2014, the usual 39-year period applies.
4. Tuition deduction: Parents of children in college may be able to deduct tuition and related fees. This above-the-line deduction, which phases out for higher-income taxpayers, is either $2,000 or $4,000, depending on modified adjusted gross income (MAGI). But it’s gone for 2014 unless Congress renews it.
5. State and local sales taxes: Prior to 2014, you could choose to deduct state and local general sales taxes instead of state and local income taxes. This tax return option was especially valuable to residents of states with no income tax or states with relatively low rates.
6. IRA transfers to charity: An individual age 70½ or older could transfer up to $100,000 tax-free from an IRA to a charity in 2013. This transfer counted as a “required minimum distribution” (RMD). Note: RMDs from IRAs are required after age 70½.
7. Qualified small business stock: Investors in “qualified small business stock” (QSBS) issued before 2014 may be able to exclude 100% of the gain if the shares are sold after being held for more than five years. The gain exclusion drops to only 50% for QSBS issued in 2014 and beyond.
8. Forgiven mortgage debts: Under a special tax law exception, in 2007-2013 a homeowner could exclude from taxable income up to $2 million of forgiven mortgage debt that was used to acquire a principal residence. Normally, forgiven debt is treated as taxable income (although certain other exceptions may get the taxpayer off the hook).
9. Mass transit break: For 2013, the maximum tax exclusion for employer provided mass transit passes was $245 per month, the same as the exclusion amount for employer-provided parking benefits. But for 2014, the maximum monthly limit on tax-free transit passes will be only $130 unless Congress restores the bigger break.
10. Residential energy credits: A homeowner could claim a credit for part of the cost of energy-saving home improvements made in 2013 (subject to certain limitations and subject to a lifetime credit maximum of $500). This credit has been extended numerous times, but its future for 2014 and beyond is uncertain.
11. Health coverage tax credit: For 2013, a tax credit for 72.5% of health insurance premiums was available to eligible individuals who paid more than 50% of the premiums to a qualified plan. The credit applied to family coverage.
12. Mortgage insurance premiums: Previously, a taxpayer could deduct mortgage insurance premiums paid on a qualified residence such as a principal residence or second home (e.g., vacation home). But the deduction was phased out for an AGI between $100,000 and $110,000.
13. Credit for hiring: Generally, a business was able to claim a Work Opportunity Tax Credit (WOTC) of up to $2,400 for wages paid to newly hired workers from certain disadvantaged groups (up to $9,600 for a veteran with a service-related disability). All versions of the WOTC expired at the end of 2013.
Tip: We will keep a close watch on proceedings in Congress.
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