6 extenders for ’17 returns

The Tax Cuts and Jobs Act (TCJA) isn’t the only major tax law passed by Congress in the last few months.

Alert: The new Bipartisan Budget Act of 2018 (BBA), which extended funding of the federal government, also revived around 30 tax provisions that had expired at the end of 2016. These extensions are generally retroactive to 2017, but only last for just the one year.

While many of the “tax extenders” are obscure or industry-specific, here are six that may be right up your alley. If you’ve already filed your 2017, consider filing an amended return, Form 1040X, to claim these tax breaks.

1. Obtain a passing tax grade. An above-the-line deduction for tuition and related fees can be claimed, but deduction is subject to a phase-out based on modified adjusted gross income (MAGI).

  • The maximum deduction is $4,000 for an MAGI of up to $65,000 for single filers; $130,000 for joint filers
  • The maximum deduction is $2,000 for an MAGI between $65,000 and $80,000 for single filers; $130,000 and $160,000 for joint filers.

No deduction is allowed for an MAGI above $80,000; $160,000 for joint filers.

BP Handbook D

Tip: Most taxpayers will still fare better with a credit, if they qualify.

2. To forgive is divine. Generally, forgiveness of a debt constitutes taxable income. However, the BBA retroactively revives tax-free treatment for up to $2 million of forgiven qualified home mortgage debt. This break now applies to qualified debt discharges that occurred in 2017.

Tip: The debt must be for your principal residence (e.g., not a vacation home).

3. Protect mortgage insurance deduction. The BBA enables you to deduct mortgage insurance premiums, subject to a phase-out beginning at $100,000 of adjusted gross income (AGI). The phase-out is complete at $110,000 of AGI.

Tip: Unlike mortgage debt forgiveness, this tax break can be claimed for any qualified residence (i.e., your principal residence and one other home).

4. Energize your tax return. The residential energy credit, which has expired and been renewed numerous times in the past, gets another life. Generally, the credit for energy-saving improvements in the home equals 10% of the cost of qualified expenses, but it’s capped at $500 for your lifetime (with limits of $200 for windows and skylights).

Tip: Credits previously claimed on past returns reduce the $500 lifetime cap.

5. Be more energy efficient: Also, you can claim a tax credit for installing certain residential energy-efficient property, like solar electric property or solar water-heating property. The credit is based on a percentage decreasing from 30% for 2017-2019, to 26% for 2020, and 22% for 2021.

6. Get in the zone. Businesses and individual residents within designated empowerment zones are eligible for special tax breaks. This includes a 20% wage credit, liberalized Section 179 expensing, tax-exempt bond financing and deferral of capital gains tax on the sale of qualified assets.

Tip: Amended 2017 returns to claim these resurrected breaks must be filed on paper even if you initially e-filed.