On December 19, 2014, the Tax Increase Prevention Act of 2014 (the Act) was signed into law. The Act retroactively extends many expiring tax provisions.
Extended Tax Provisions for Individuals
Qualified Tuition Deduction: This write-off, which can be as much as $4,000 or $2,000 for higher income taxpayers, expired at the end of 2013. The Act retroactively restores it for 2014.
Tax-free Treatment for Forgiven Principal Residence Mortgage Debt: For federal income tax purposes, a forgiven debt generally counts as taxable Cancellation of Debt (COD) income. However, a temporary exception applied to COD income from cancelled mortgage debt that was used to acquire a principal residence. Under the temporary rule, up to $2 million of COD income from principal residence acquisition debt that was cancelled in 2007-2013 was treated as a tax-free item. The Act retroactively extends this break to cover eligible debt cancellations that occur in 2014.
$500 Energy-efficient Home Improvement Credit: In past years, taxpayers could claim a tax credit of up to $500 for certain energy-saving improvements to a principal residence. The credit equals 10% of eligible costs for energy-efficient insulation, windows, doors, and roof, plus 100% of eligible costs for energy- efficient heating and cooling equipment, subject to a $500 lifetime cap. This break expired at the end of 2013, but the Act retroactively restores it for 2014.
Mortgage Insurance Premium Deduction: Premiums for qualified mortgage insurance on debt to acquire, construct, or improve a first or second residence can potentially be treated as deductible qualified residence interest. The deduction is phased out for higher-income taxpayers. Before the Act, this break wasn't available for premiums paid after 2013. The Act retroactively restores the break for premiums paid in 2014.
Option to Deduct State and Local Sales Taxes: In past years, individuals, who paid little or no state income taxes, had the option of claiming an itemized deduction for state and local general sales taxes. The option expired at the end of 2013, but the Act retroactively restores it for 2014.
IRA Qualified Charitable Contributions: For 2006-2013, IRA owners who had reached age 70 1/2 were allowed to make tax-free charitable contributions of up to $100,000 directly out of their IRAs. These contributions counted as IRA Required Minimum Distributions (RMDs). Thus, charitably inclined seniors with more IRA money than they needed could reduce their income tax by arranging for tax-free QCDs to take the place of taxable RMDs. This break expired at the end of 2013, but the Act retroactively restores it for 2014, so that it's available for qualifying distributions made before 2015.
$250 Deduction for K-12 Educators: For the last few years, teachers and other eligible personnel at K12 schools could deduct up to $250 of school-related expenses paid out of their own pockets whether they itemized or not. This break expired at the end of 2013. The Act retroactively restores it for 2014.
Qualified Conservation Contribution Breaks: Qualified conservation contributions are charitable donations of real property interests, including remainder interests and easements that restrict the use of real property. Liberalized deduction rules applied through 2013 that increased the maximum write-off for these contributions. The Act retroactively restores these liberalized rules for contributions made in 2014.
100% Gain Exclusion for Qualified Small Business Corporation (QSBC) Stock: The Act retroactively restores the temporary 100% gain exclusion (within limits) and the exception from alternative minimum tax preference treatment for sales of QSBC stock acquired in 2014. Note that you must hold QSBC shares for more than five years to be eligible for the 100% gain exclusion privilege.
Miller, Miller & Canby has assisted clients with estate & tax planning for over 65 years. Glenn Anderson leads the Business & Tax and Estates & Trusts practice groups at Miller, Miller & Canby. As both a CPA and a practicing attorney, he has developed a recognized expertise in taxation law.
Please feel free to contact Glenn or any of the business & tax planning attorneys at Miller, Miller & Canby with your tax planning needs. View more information about Miller, Miller & Canby's Business & Tax practice by clicking here.