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Tax Deductions That May Not Be Available in 2014

IJ Zemelman

 

There are at least 9 tax deductions that may no longer be available to US Taxpayers in 2014

US Expats and stateside citizens alike take advantage of a variety of tax deductions each year. What many fail to realize is that these deductions aren't guaranteed to stay. Every year, they are scheduled to expire in January following the tax year in which they were offered. Sometimes Congress renews them before the new tax year begins, but they are always at risk of being done away with.

Here are some of the most widely used tax breaks of which taxpayers may not be able to take advantage in tax year 2014.

Taxpayers may no longer be able to deduct local sales taxes.

Taxpayers are generally able to keep track of the local state sales taxes they paid throughout the year and deduct them from their federal income tax return. Unless Congress decides to renew this deduction, it will no longer be an option.

Mortgage premiums may no longer be deductible.

Up until now, homeowners with an AGI (Adjusted Gross Income) below $109K have been able to deduct qualified mortgage insurance premiums as mortgage interest. This, too, is scheduled to expire at the end of 2013.

$500 Energy-Efficient Credits may become a deduction of the past.

As efficient and renewable energy has become more commonplace, the IRS has been urging taxpayers to invest in energy efficient appliances and take on projects that harness the power of renewable energy in exchange for a tax credit with a $500 lifetime limit. Unless Congress steps in to keep this credit alive, it will also expire this year.

Section 179 limits may decrease from $500K and $2M to $25K and $200K.

Currently, the depreciation and qualifying property limits for Section 179 deductions are set to $500K and $2M. Without Congressional intervention, they will return to a mere $25K and $200K and off-the-shelf software will no longer be included.

Change to commercial improvement credits from 15 year straight-line period of recovery to 39 year straight-line period of recovery.

Commercial enterprises tend to rely on depreciation credits to offset the cost of their expenditures. Until now, depreciation has been calculated on a 15 year straight-line recovery period. In 2014, qualified business owners must begin calculating depreciation on a 39 year straight-line recovery period.

Education professionals may no longer be able to reduce their taxable income by applying the Educator Expenses Credit.

Historically, educators (includes teachers, principals, counselors, and aides) for grades K-12 have been able to deduct up to $250 of expenses paid out of their own pockets and use that amount to adjust their taxable income. Like all other credits and deductions listed here, this credit has an expiration date of December 31, 2013.

College students and parents paying their children's' college tuition and fees may no longer qualify for the tuition and fees deduction.

In order to help support and encourage the seeking of higher education, the IRS has allowed students (or individuals paying a student's college tuition and fees) to deduct certain qualified tuition and fees expenses from his/her taxable income reported on a federal income tax return. This is another deduction that is not guaranteed to be around next year.

US Persons may no longer be able to take a COD (Cancellation of Debt) deduction due to financial hardship or decrease in value of a primary residence.

It's not uncommon for a married couple or an individual to purchase a primary residence and either have it drastically decrease in value or experience an unforeseen financial hardship. In these situations, debt may be cancelled. Under normal circumstances, this would count as income to the taxpayer(s), but because of a provision in the tax code outlining COD, married couples may deduct up to $2M in COD income and individual taxpayers may deduct $1M. This provision has a 'shelf life' which comes to an end with the 2013 tax year.

Taxpayers age 70 ½ or older may no longer be able to meet minimum IRA withdrawal requirements and escape tax liability by transferring IRA distributions directly to a qualifying charity.

Taxpayers who own an IRA and are above the age of 70 ½ are required to receive a minimum amount of distributions. These distributions are taxed as income unless the IRA owner decides to take advantage of a free transfer to a qualifying charity. The option to avoid taxation by transferring minimum distribution requirement to a charity may not be available in 2014.

Talk to a tax professional to learn what you can do to take advantage of deductions and credits that currently exist.

The 2013 tax year is in its final quarter and the window of opportunity for taking advantage of current deductions is quickly closing. It's possible that Congress will revive some of these deductions just before the clock runs out, but it's not a guarantee. Talk with your tax professional as soon as possible to see what you can do to make sure you get the most out of these tax breaks before they're gone.

Zemelman
Ines Zemelman, EA is the founder of Taxes for Expats
She may be reached at: +1-646-397-2887