Business & Tech
6 Popular Tax Breaks That Could Disappear in 2014
Without extensions from Congress, several important tax breaks may end.
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Written by Dan Caplinger, Daily Finance
As the end of 2013 approaches, many taxpayers are beginning to look for ways to reduce what they'll owe the IRS when they file their returns next April. But it's April 2015 we're concerned about now, because several key tax breaks that tens of millions of taxpayers enjoy are set to expire on Dec. 31, and that could cost you a pretty penny in the new year.
In recent years, one of the biggest challenges in tax planning has been guessing whether the annual ritual of congressional extensions on tax breaks will happen again. Often, lawmakers pass last-minute or even retroactive extensions to preserve popular incentives for future years. But there's no guarantee that will happen.
So to give you fair warning, here are just a few of the most widely-used tax breaks currently slated to vanish for 2014:
Mortgage Debt Forgiveness
Usually, if borrowers have part of their debt written off or forgiven, they have to treat that amount as taxable income. But in the aftermath of the housing market's implosion, homeowners who defaulted on their mortgages and had their bank write off or forgive part or all of their loans weren't required to claim the forgiven amount as income. The Mortgage Forgiveness Debt Relief Act of 2007, which created this provision, has been extended before, but now, with home prices recovering somewhat, the incentive to preserve this provision is starting to fade. That makes it more likely that the mortgage-debt forgiveness provisions might not get renewed for 2014.
Itemized Deductions for Sales Tax
Federal tax law has allowed taxpayers to deduct state and local income taxes for years, but for the 57 million people who live in states that don't charge income tax, those provisions didn't provide any relief. That changed in 2004, when lawmakers allowed taxpayers to choose instead to take a similar deduction for sales taxes. The provision, which was originally slated to expire at the end of 2007, has been repeatedly extended by Congress. Over the years, it has provided $16.4 billion in deductions to affected taxpayers.
Deductions For Teachers' Expenses
Teachers from kindergarten to high school are allowed to deduct up to $250 for money they spend buying supplies for their classrooms. This deduction's available even to those who don't itemize, making it more valuable than most deductions. According to figures from The Tax Institute at H&R Block, more than 3.6 million teachers took advantage of this provision in 2010 to deduct $915 million in expenses. This deduction has been extended regularly ever since its initially scheduled expiration in 2005, so, even though it's on the chopping block again, it's a pretty good bet that lawmakers will let the tax break survive into 2014.
Equalizing Pre-Tax Benefits for Public Transportation Expenses
Under current law, employers may allow their employees to havepre-tax money taken from their paychecks and directed to paying for parking expenses or the cost of public transportation. But for years, the maximum amounts for public-transportation expenses were only about half what car-commuters could take for parking. In 2009, lawmakers equalized those amounts. In 2013, that meant that $245 a month worth of commuting-related expenses could be paid for tax-free, whether that meant a transit pass or parking fees. But after a last-minute battle at the beginning of this year to extend the benefit retroactively to 2012, transit-riders are once again facing the expiration of the provision. In June, three lawmakers introduced the Commuter Parity Act to make the provision permanent, but the bipartisan proposal is stuck in limbo in the House Ways and Means Committee.
Higher Education Tuition Deductions
These provisions allow certain taxpayers to deduct between $2,000 and $4,000 of qualified educational costs. This provision was also retroactively reinstated for 2012 at the beginning of this year. The difference, though, is that other tax breaks also exist for educational expenses, including the Lifetime Learning Credit and the American Opportunity Credit. (You have to pick either the tuition and fees deduction, or one of the two education credits. You're not allowed to double-dip.) Those tax credits makes it less crucial to extend the tuition deduction, although it's still a better deal for many people: The Tax Institute at H&R Block says that 2 million taxpayers used it to write off $4.36 billion in expenses in 2010.
Energy Efficiency Credits
Since 2006, taxpayers could claim a credit on certain expenses for remodeling their homes to make them more energy efficient. Currently, the maximum lifetime credit amount is $500, but amounts were higher in the past, and more than 43.5 million taxpayers have claimed an average of more than $765 using the credit.
You can follow Motley Fool contributor Dan Caplinger on Twitter@DanCaplinger or on Google+.
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