Given the timing (right in the midst of the holiday season), you might have missed hearing about some favorable last-minute tax legislation (also known as the Protecting Americans from Tax Hikes Act of 2015), that will benefit your wallet. There is a little something for everyone and best of all, it makes some of the long-favored tax breaks permanent or extended beyond one year.
Tax Breaks for Seniors
IRA Qualified Charitable Deductions (QCDs)
For 2006-2014, IRA owners age 70 1/2 and over could make tax-free charitable contributions up to $100,000 directly out of their IRAs. These deductions counted as Required Minimum Distributions (RMDs). Charitably minded seniors, who could afford to forgo the RMD cash, could cut their income tax bills by making tax-free QCD’s in place of taxable RMDs. The new tax legislation makes this break permanent and available for QCDs in tax years 2015 and beyond.
Tax Breaks for Parents and Students
American Opportunity Tax Credit (AOTC)
The AOTC is a partially refundable credit of $2500 for tuition and related fees for undergraduate education. It phases out for AGI starting at $80,000 (if single) and $160,000 (if married filing jointly). This break was set to expire in 2017 and is now permanent.
Qualified Tuition Deduction
This write-off, which can be as much as $4000 or $2000 for higher-income taxpayers, expired at the end of 2014. It is now retroactively extended through 2016.
Additional Uses For Tax-Preferred Distributions From 529 Accounts
In addition to the previously allowed expenses of tuition and fees, qualified room and board, and textbooks, 529 accounts can now be tapped for computer equipment, software and even internet access costs.
Tax Breaks for Teachers
$250.00 Deduction for K-12 Educators
With this deduction, teachers could deduct from income up to $250 worth of school-related expenses whether they itemized or not. The break expired in 2014, but the new legislation makes this deduction not only permanent but retroactive to 2015.
Tax Breaks for People with Little or No State tax (or really big spenders)
Deduction of State and Local General Sales Taxes
For the last few years people who paid little or no state income taxes had the option of claiming an alternative itemized deduction for state and local sales taxes. This option expired at the end of 2014 but is permanent starting with the tax year 2015.
Tax Breaks for the Environmentally Conscious
Credits for Qualified Solar Electric and Water Heating Property
Extended through 2021: The 30% credit for qualified solar water heating property and solar electric property expenditures was scheduled to expire for property placed in service after 2016. Now this credit is extended and phased down through 2021.
$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 for energy-efficient insulation, windows, doors, and roof, plus 100% of eligible costs for energy-efficient heating and cooling equipment up to a $500 lifetime cap. This break expired at the end of 2014 but now is retroactively extended through 2017.
Tax Breaks for Commuters
Parity for Employer-provided Transit and Parking Benefits
The Act retroactively restores and makes permanent the parity provision that required the tax exclusion for transit benefits to be the same as the exclusion for parking benefits. Thus, for 2015, employees can receive tax-free transit benefits of up to $250 a month – the same as for tax-free parking benefits.
Tax Breaks for Short-Sellers
Tax-Free Treatment for Forgiven Principal Residence Mortgage Debt
The Feds count a forgiven debt as taxable Cancellation of Debt (COD) income. However, a temporary exception applied to up to $2 million of COD income from mortgage debt used to acquire a principal residence and cancelled between 2007 and 2014. The Act retroactively extends this break to cover eligible debt cancellations that occur before 2017 (or are under a written agreement entered into before 2017).
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