Tax planning help may be needed for taxpayers who, through a combination of tax credits, usually receive a tax refund as opposed to owing, which may be just the opposite in the next couple of years as many common tax deductions for individuals are set to expire.
The following will be expired tax credits, set to expire Dec. 31st, 2013:
1. Educator deduction- $250 of out-of-pocket classroom expenses
2. Cancellation of debt (Mortgage debt)- Individuals can exclude up to $2 million of COD income from qualified principle residence indebtedness that is canceled because of their financial condition or decline in value of the residence.
3. Mortgage Insurance Premiums Deduction- Taxpayers with AGI no greater than $109,000 can treat qualified mortgage insurance premiums (MIPs) as home mortgage interest.
4. Personal Energy Property Credit- A credit (subject to a $500 lifetime cap) is available for qualified energy efficiency improvements and expenditures to a taxpayer’s principal residence.
5. Qualified Conservation Contributions- The deduction limit for qualified conservation contributions by individuals is increased from 30% of AGI to 50% of AGI (100% of AGI for qualified farmers and ranchers) and the carry-forward period for qualified contributions in excess of the AGI limit is 15 years. For TY 2014 there are no special rules yet for qualified conservation contributions, so they are subject to the 30%-of-AGI with a 5 year carry forward period.
6. Qualified Small Business Stock Gain Exclusion- QSBS acquired Sept. 28, 2010–Dec. 31, 2013 qualifies for 100% gain exclusion (if the holding period is met). For stock acquired during that period, the following rules also apply: 1. None of the 60% gain exclusion rules for QSBS issued by a QBE apply. 2. No portion of the excluded gain is added back to determine alternative minimum taxable income. For TY 2014, gains on QSBS acquired after Dec. 31, 2013, qualify for a 50% gain exclusion [60% for QSBS issued by a qualified business entity (QBE)]. Also, a percentage of the excluded gain is an AMT preference item.
7. State and Local Sales Taxes Deduction- Individuals can elect to deduct state and local general sales taxes instead of state and local income taxes.
8. Tuition and Fees Deduction- Individuals can claim an above-the-line deduction for tuition and fees for qualified higher education expenses.
9. Qualified Charitable Distributions- Taxpayers over age 70-1/2 can make tax-free transfers from an IRA directly to a charity. Any amounts so transferred count toward the individual’s required minimum distribution, but are not deductible as charitable contributions.
10. Qualified Leasehold, Restaurant and Retail Improvement Property- Qualified leasehold improvements, qualified restaurant property and qualified retail improvements are assigned a 15-year (straight-line) recovery period. For TY2014, all assets go back to a 39 year SL recovery period.
11. Section 179 — Deduction Limit- The Section 179 deduction and qualifying property limits are $500,000 and $2,000,000, respectively. In addition, off-the shelf computer software qualifies for Section 179 expensing and taxpayers can amend or irrevocably revoke a Section 179 election. For TY 2014, the deduction and qualifying property limits are $25,000 and $200,000, respectively. Off-the-shelf software does not qualify for Section 179 expensing and the election generally is irrevocable with IRS consent.
12. Section 179—Qualified Real Property- Taxpayers can claim the Section 179 deduction on up to $250,000 of qualified real property (qualified leasehold improvements, qualified restaurant property and qualified retail improvement property). For 2012, qualified real property is not eligible for Section 179 expensing.
13. Special (Bonus) Depreciation- 50% special depreciation is allowed for qualified property additions placed in service in 2013. (Note: For 2013, the Section 280F limit on depreciation for passenger autos is also increased by $8,000 for qualified property and no AMT adjustment applies to property for which the special depreciation allowance is claimed.) For TY2014, special deprecation only available for long production-period property and certain aircraft.
Other Expiring Provisions:
• The Differential Wage Payment Credit
• The tax credit for new energy-efficient homes
• The tax credit for 2- and 3-wheeled plug-in electric vehicles
• The research credit for the cost of increasing research activity
• The domestic producer deduction for Puerto Rican activities
Other Changing Provisions:
The tax credit for alternative fuel vehicle refueling property
• The Sec. 170(e)(3) donation of food inventory deduction
• The monthly exclusion for transit passes and vanpooling
• The Sec. 374(d)(7) S corp built-in gains provision
• The Sec. 1367(a)(2) S corp shareholder basis adjustment for charitable contributions provision