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Avoid Losing Out on these Tax Breaks

By Bobby Whirley CPA and Kim Dore

Whirley & Associates, LLC

Certified Public Accountants

2500 Northwinds Parkway

Suite 190 – Alpharetta, GA 30009

770.932.1919 (ph) and 770.932.1192 (fax)

Dear ME-P Subscribers,

We wanted to let ME-P readers know about several important tax provisions affecting individuals and businesses that are slated to expire at the end of this year. While a budget conference is underway between the House and Senate, there is no way to know whether any agreement resulting from these negotiations will extend any expiring tax provisions. Because of this uncertainty, where possible, you should take action now to avoid losing out on tax breaks.

· Above-the-line deduction for certain higher education expenses – An above-the-line deduction is allowed for an individual taxpayer’s qualified tuition and related expenses. For 2013, the maximum deduction is $4,000 for taxpayers with modified AGI of not more than $65,000 ($130,000 for joint filers), and $2,000 for taxpayers with modified AGI that is equal to or more than the above amount but not more than $80,000 ($160,000 for joint filers). In general, the deduction is allowed for any tax year only to the extent the expenses are in connection with enrollment at an institution of higher education during that tax year. However, the deduction is allowed for qualified tuition and related expenses paid during a tax year if they are in connection with an academic term beginning during that tax year or during the first three months of the next tax year. The deduction does not apply for tax years beginning after 2013.

So, you may want to prepay in 2013 tuition due for an academic term beginning in Jan., Feb. or Mar. 2014 if that would increase your 2013 tax savings from the expiring deduction.

· Non-business energy credit –  Subject to limits (listed below), a taxpayer may be able to take a credit under Code Sec. 25C equal to the sum of: (1) 10% of the amount paid or incurred for qualified energy efficiency improvements, such as insulation material, exterior windows and skylights, and exterior doors, installed during 2013; and (2) any residential energy property costs, such as electric heat pumps, central air conditioners, natural gas, propane, or oil water heaters, or qualified natural gas, propane, and oil hot water boilers, paid or incurred in 2013. The expenses must be for property originally placed in service by the taxpayer and located in the U.S., and used as a principal residence at the time of installation. However, the credit is limited as follows:

·        A total combined credit limit of $500 for all tax years after 2005.

·        A combined credit limit of $200 for windows for all tax years after 2005.

·        A credit limit for residential energy property costs for 2013 of $50 for any advanced main air circulating fan; $150 for any qualified natural gas, propane, or oil furnace or hot water boiler; and $300 for any item of energy efficient building property.

So, if you have not made full use of the credit and are contemplating making such energy efficient improvements in the near future, you should do so before year-end to take advantage of the credit.

· Home mortgage debt forgiveness relief – For indebtedness discharged before Jan. 1, 2014, taxpayers generally may exclude up to $2 million of mortgage debt forgiveness on their principal residence. Gross income doesn’t include any discharge of qualified principal residence indebtedness. Generally, this relief allows the exclusion of income realized as a result of modification of the terms of the mortgage, foreclosure on a principal residence, or where the mortgage loan is not fully satisfied (e.g., in a short sale) and a lender cancels the unsatisfied debt. The basis of the taxpayer’s principal residence is reduced by the excluded amount, but not below zero.

So, if you are in the process of attempting to secure such relief from your lender you should take all possible steps to ensure that the discharge occurs before January 1st. of next year.

· Mortgage insurance premiums treated as deductible interest  – Mortgage insurance premiums paid or accrued by a taxpayer in connection with acquisition indebtedness with respect to the taxpayer’s qualified residence are treated as deductible qualified residence interest, subject to a phase-out based on the taxpayer’s AGI. However, this provision does not apply to premiums paid or accrued after Dec. 31, 2013 or properly allocable to any period after that date.

Thus, prepaying 2014 premiums this year won’t yield a deduction.

·  Above-the-line deduction for expenses of elementary and secondary school teachers. An eligible educator is allowed an above-the-line deduction, not in excess of $250, for otherwise allowable trade or business expenses paid or incurred by him in connection with books, supplies (other than nonathletic supplies for courses of instruction in health or physical education), computer equipment (including related software and services) and other equipment, and supplementary materials used by him in the classroom. The deduction is allowed only to the extent the expenses exceed the amount excludable for the tax year. This provision does not apply for tax years beginning after 2013.

So, a teacher who is not over the limit and who plans to purchase items in 2014 that would qualify for the deduction if it remained in effect should consider accelerating the purchases to 2013 to gain a deduction this year.

More:

• 2013 Year End Tax Planning Update
• More Year-End Tax Planning Insights for Medical Professionals

Conclusion

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Filed under: Accounting, Taxation | Tagged: Bob Whirley CPA, Expiring Tax Provisions‏ |