It is time to play “Disappearing Tax Deductions”. The annual game of guessing which tax deductions or credits will disappear or be substantially changed come January 1st. All of the following are considered “in play” and Congress will have to act in order for them not to expire on December 31st, 2013:
- Educator Expense. Currently teachers for grades K-12, as well as instructors, counselors, principals, and aides could each deduct up to $250 of out-of-pocket expenses, as an adjustment to taxable income.
- Cancellation of Debt (COD). Individuals have been able to exclude up to $2 million ($1 million for married filing separately) of COD income from qualified principal residence indebtedness that is canceled because of their financial condition or decline in value of the residence.
- Mortgage Insurance Premiums. Taxpayers with adjusted gross incomes not exceeding $109,000, have been able to deduct qualified mortgage insurance premiums as mortgage interest.
- State and Local SalesTtax Deduction. Individuals could elect to deduct state and local general sales taxes instead of state and local income taxes.
- Personal Energy Property Credit. This credit could be claimed by taxpayers who spent money (subject to a $500 lifetime cap) for qualified energy efficiency improvements.
- Tuition and Fees. Individuals have been able to claim an above-the-line deduction for tuition and fees for qualified higher education expenses.
- IRAs for those age 70 ½ and up. Taxpayers could make tax-free transfers from an IRA directly to a charity. The transfers would count toward the required minimum distribution, but are not counted as charitable contributions.
- Section 179 Qualified Real Property. Taxpayers could claim the Section 179 deduction on up to $250,000 of qualified real property.
The following deductions and credits will not expire but will change substantially without Congressional action to intervene:
- Qualified Leasehold, Restaurant and Retail Improvement Property. Qualified leasehold improvements, qualified restaurant property and qualified retail improvements are currently assigned a 15-year (straight-line) recovery period. Beginning in 2014, these assets will be assigned a 39 year (straight-line) recovery period. Ouch, it will take more than twice as long reap a deduction from these expenses.
- Section 179 Deduction Limit. The Section 179 deduction and qualifying property limits are currently $500,000 and $2,000,000, respectively. Next year these limits will be reduced to $25,000 and $200,000, respectively. Not to mention that off-the shelf computer software will no longer qualify for Section 179 expensing next year, and taxpayers will no longer be able to amend or irrevocably revoke a Section 179 election.
- Special Bonus Depreciation. The 50% special bonus depreciation for qualified property additions placed in service in 2013 will only be allowed for long production-period property and certain aircraft in 2014.
Sadly, this is not a comprehensive list. Tax planning has been made very difficult in the last several years by the last minute decision making in Congress. I hope at least some of the above will be renewed and will certainly keep you posted on any new developments.