6 Tax Changes That Benefit Taxpayers for 2012

Thanks to the passage of the American Taxpayer Relief Act of 2012 (ATRA), many tax provisions that expired in 2011 were retroactively extended (or made permanent) that are of benefit to taxpayers filing 2012 returns this year. Here are six of them:

1. Education-Related Tax Deductions

ATRA extended, through 2017 and retroactive to 2012, two popular and widely used education-related tax benefits that expired in 2011: the deduction for qualified tuition and related expenses and the deduction for certain expenses of elementary and secondary school teachers. Both are above-the-line deductions, which means that they can be taken before calculating adjusted gross income (AGI).

2. Limited Non-Business Energy Property Credits

Non-business energy credits expired in 2011, but were extended (retroactive to 2102) through 2013 by ATRA. For 2102 (as in 2011), this credit generally equals 10 percent of what a homeowner spends on eligible energy-saving improvements, up to a maximum tax credit of $500 (down significantly from the $1,500 combined limit that applied for 2009 and 2010).

Because of the way the credit is figured however, in many cases, it may only be helpful to people who make energy-saving home improvements for the first time in 2012. That's because homeowners must first subtract any non-business energy property credits claimed on their 2006, 2007, 2009, 2010, and 2011 returns before claiming this credit for 2012. In other words, if a taxpayer claimed a credit of $450 in 2011, the maximum credit that can be claimed in 2012 is $50 (for an aggregate of $500).

The cost of certain high-efficiency heating and air conditioning systems, water heaters and stoves that burn biomass all qualify, along with labor costs for installing these items. In addition, the cost of energy-efficient windows and skylights, energy-efficient doors, qualifying insulation and certain roofs also qualify for the credit, though the cost of installing these items do not.

3. Mortgage Insurance Deductible as Qualified Interest

ATRA extended, through 2013 (and retroactive to 2102), a tax provision that expired in 2011 that allows taxpayers to deduct mortgage insurance premiums as qualified residence interest. As such, taxpayers can deduct, as qualified residence interest, mortgage insurance premiums paid or accrued before Jan. 1, 2014, subject to a phase-out based on the taxpayer's AGI.

4. AMT "Patch" Made Permanent

The AMT 'patch" was made permanent by ATRA; however, exemption amounts for 2012 and beyond are higher than in years' past and are now indexed to inflation. For tax-year 2012, the alternative minimum tax exemption amounts increase to the following levels:

  • $78,750 for a married couple filing a joint return and qualifying widows and widowers, up from $74,450 in 2011.
  • $39,375 for a married person filing separately, up from $37,225 in 2011.
  • $50,600 for singles and heads of household, up from $48,450 in 2011.

5. Transportation "Fringe Benefits"

Parity for transportation fringe benefits provided by employers for the benefit of their employees expired at the end of 2011; however, ATRA reinstated this parity retroactive to 2012. As such, the monthly limit for qualified parking is $240 and the benefit for transportation in a commuter highway vehicle or a transit pass is $245 for tax year 2012.

6. State and Local Sales Taxes

Retroactive to 2012, ATRA extended (through 2013) the tax provision that allows taxpayers who itemize deductions the option to deduct state and local general sales and use taxes instead of state and local income taxes.

If you have questions about these or other tax changes, please call us. We'd be happy to assist you.