Virtual CFO Services - The Act extends a host of individual tax provisions,
including the above-the-line deductions for higher education expenses and
educators' expenses, deductions for state and local sales tax and mortgage
insurance premiums, the exclusion for discharged home mortgage debt, parity in
excludible transportation benefits, and the allowance of tax-free charitable transfers
from a taxpayer's IRA.
Above-the-Line Deduction for Educator
Expenses Extended
Eligible
elementary and secondary school teachers may claim an above-the-line deduction
for up to $250 per year of expenses paid or incurred for books, certain
supplies, computer and other equipment, and supplementary materials used in the
classroom.
Under
pre-Act law, the educator expense deduction didn't apply for expenses paid or
incurred in tax years after 2013.
New law. TIPA retroactively
extends the educator expense deduction one year so that it applies to expenses
paid or incurred in tax years through 2014
Exclusion for Discharged Home Mortgage Debt
Extended
Discharge
of indebtedness income from qualified principal residence debt, up to a $2
million limit ($1 million for married individuals filing separately) is
excluded from gross income.
Under
pre-Act law, this exclusion didn't apply to any debt discharged after Dec. 31,
2013.
New law. TIPA extends this
exclusion for one year so that it applies to home mortgage debt discharged
before Jan. 1, 2015.
Increase in Excludible Employer-Provided Mass
Transit and Parking Benefits Extended
Under
pre-Act law, for 2014, an employee may exclude from gross income up to: (1)
$250 per month for qualified parking, and (2) $130 a month for transit passes
and commuter transportation in a commuter highway vehicle (including van
pools). However, notwithstanding the applicable statutory limits on the
exclusion of qualified transportation fringes (as adjusted for inflation), for
any month beginning before Jan. 1, 2014, a parity provision required that the
monthly dollar limitation for transit passes and transportation in a commuter
highway vehicle had to be applied as if it were the same as the dollar
limitation for that month for employer-provided parking ($245 for 2013).
New law. TIPA extends for
one year the parity provision, through 2014. Thus, for 2014, it increases the
monthly exclusion for employer-provided transit and vanpool benefits to
$250—the same as for the exclusion for employer-provided parking benefits.
Mortgage Insurance Premiums as Deductible
Qualified Residence Interest Extended
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 adjusted gross income (AGI). The amount allowable as a deduction is
phased out ratably by 10% for each $1,000 by which the taxpayer's adjusted
gross income exceeds $100,000 ($500 and $50,000, respectively, in the case of a
married individual filing a separate return). Thus, the deduction isn't allowed
if the taxpayer's AGI exceeds $110,000 ($55,000 in the case of married
individual filing a separate return).
Under
pre-Act law, this provision only applied to premiums paid or accrued before Jan.
1, 2014 (and not properly allocable to any period after that date).
New law. TIPA retroactively
extends this provision for one year so that a taxpayer can deduct, as qualified
residence interest, mortgage insurance premiums paid or accrued before Jan. 1,
2015 (and not properly allocable to any period after 2014.
State and Local Sales Tax Deduction Extended
Taxpayers
who itemize deductions may elect to deduct state and local general sales and
use taxes instead of state and local income taxes.
Under
pre-Act law, this choice was unavailable for tax years beginning after Dec. 31,
2013.
New law. TIPA retroactively
extends this provision for one year so that itemizers can elect to deduct state
and local sales and use taxes instead of state and local income taxes for tax
years beginning before Jan. 1, 2015.
Liberalized Rules for Qualified Conservation
Contributions Extended
A
taxpayer's aggregate qualified conservation contributions (i.e., contributions
of appreciated real property for conservation purposes) are allowed up to the
excess of 50% of the taxpayer's contribution base over the amount of all other
allowable charitable contributions (100% for qualified farmers and ranchers),
with a 15-year carryover of such contributions in excess of the applicable
limitation.
Under
pre-Act law, these rules didn't apply to any contribution made in a tax year
beginning after Dec. 31, 2013, and contributions made thereafter were to be
subject to the otherwise applicable 30% limit for capital gain property (50%
limit for qualified farmers and ranchers).
New law. TIPA retroactively
extends for one year the 50% and 100% limitations on qualified conservation contributions
of appreciated real property so that they apply to contributions made in tax
years beginning before Jan. 1, 2015.
Above-the-Line Deduction for Higher Education
Expenses Extended
Eligible
individuals can deduct higher education expenses—i.e., “qualified tuition and
related expenses” of the taxpayer, his spouse, or dependents—as an adjustment
to gross income to arrive at adjusted gross income. The maximum deduction is
$4,000 for an individual whose AGI for the tax year doesn't exceed $65,000
($130,000 in the case of a joint return), or $2,000 for individuals who don't
meet the above AGI limit, but whose adjusted gross income doesn't exceed
$80,000 ($160,000 in the case of a joint return). No deduction is allowed for
an individual whose adjusted gross income exceeds the relevant adjusted gross
income limitations, for a married individual who does not file a joint return,
or for an individual for whom a personal exemption deduction may be claimed by
another taxpayer for the tax year.
Under
pre-Act law, this deduction wasn't available for tax years beginning after Dec.
31, 2013.
New law. TIPA retroactively
extends the qualified tuition deduction for one year so that it can be claimed
for tax years beginning before Jan. 1, 2015.
Nontaxable IRA Transfers to Eligible
Charities Extended
Taxpayers
who are age 701/2 or older can make tax-free distributions to a charity from an
Individual Retirement Account (IRA) of up to $100,000 per year. These
distributions aren't subject to the charitable contribution percentage limits
since they are neither included in gross income nor claimed as a deduction on
the taxpayer's return.
Under
pre-Act law, these rules didn't apply to distributions made in tax years
beginning after Dec. 31, 2013.
New law. TIPA retroactively
extends this provision for one year so that it's available for charitable IRA
transfers made in tax years beginning before Jan. 1, 2015.
AB Tax Accounting observation: Taxpayers who
haven't yet taken their required minimum distribution (RMD) for 2014 still have
time to make the most of this retroactively extended tax break. If any amount
distributed directly from a taxpayer's IRA to an eligible charity during 2014
at least equals the amount of his RMD for the tax year, the taxpayer will not
be required to take any other 2014 distribution from the IRA.
If you
would like more details about these changes or any other aspect of the new law,
please do not hesitate to call.
Amare
Berhie, Senior Tax Accountant
(651) 621-5777, (952) 583-9108, (612) 224-2476, (763)
269-5396
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