Certified Public Accountants | Business Advisors

End of 2016 Means the End of Tax Breaks – Maybe

For a number of years, Congress created significant uncertainty by waiting until the eleventh hour to renew or extend numerous tax provisions. In response to the frustration expressed by both individual taxpayers and the business community, Congress passed the Protecting Americans from Tax Hikes (PATH) Act last year. PATH made a number of tax provisions permanent; however, more than a few were simply extended for another year – and now that year is almost up. Below are a number of provisions set to expire at the end of this year if Congress doesn’t take action.

Mortgage insurance premiums

Taxpayers can currently deduct mortgage interest subject to certain limits. Mortgage insurance premiums are deductible until the phase out for taxpayers with Adjusted Gross Income (AGI) of more than $100,000 ($50,000 if married filing separately) and becomes completely unavailable once a taxpayer’s AGI exceeds $109,000, ($54,500 if married filing separately).

Credit for energy-saving home improvements

This credit, with a lifetime limit of $500, allows taxpayers to write off 10 percent of the cost of qualified energy-efficient improvements, such as insulation, exterior windows and doors, and certain roofs. The improvements must be purchased by Dec. 31.

Tuition and fees deduction

The tuition and fees deduction gives taxpayers an alternative tax break to the commonly claimed American Opportunity Tax Credit or the Lifetime Learning Credit. Unlike these two credits, the tuition and fees deduction is not a credit, but a deduction used in calculating a taxpayer’s AGI. As a result, it is subject to different rules and restrictions than the related credits.

The tuition and fees deduction actually expired after 2014. The PATH act retroactively brought it back to life through 2015 and until the end of 2016; however, now that we are nearing 2017, its expiration looms large again. The deduction is taken in the calendar year paid, not necessarily in the year attended.

Discharge of indebtedness on principal residence

Mortgage related debt forgiveness is at a low level compared to the years following the recent financial crisis. Regardless of how much of this type of activity there is, we need to remember that the IRS considers debt that is forgiven and no longer needs to be paid back as income. The qualified principal residence indebtedness exclusion allows up to $2 million of debt forgiven to be excluded from income.

You can secure this tax break if you are in negotiations for a workout with a lender on or before Dec. 31, 2016. The transaction also needs to be completed during 2017 in order to qualify.

Conclusion

As you can see, while the PATH Act secured a number of tax breaks and created increased certainty for taxpayers. Be on the lookout for developments with these items in the news or take advantage of the strategies discussed above to secure the tax break you can. Always consult with a professional for the most up-to-date advice.

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