Many tax provisions were made permanent with the passage of the PATH Act in late 2015, but more than 36 others expired at the end of 2016. Here are the five that are most likely to affect taxpayers like you.
1. Mortgage Insurance Premiums
Mortgage insurance premiums (PMI) are paid by homeowners with less than 20 percent equity in their homes. These premiums were deductible in tax years 2013, 2014, 2015, and once again in 2016. Mortgage interest deductions for taxpayers who itemize are not affected.
2. Exclusion of Discharge of Principal Residence Indebtedness
Typically, forgiven debt is considered taxable income in the eyes of the IRS; however, this tax provision was extended through 2016, allowing homeowners whose homes have been foreclosed on or subjected to short sale to exclude up to $2 million of canceled mortgage debt. Also included are taxpayers seeking debt modification on their home.
3. Energy Efficient Improvements
This tax break has been around for a while, but if you made your home more energy efficient in 2016, now is your last chance to take advantage of this tax credit on your tax return. The credit reduces your taxes as opposed to a deduction that reduces your taxable income and is 10 percent of the cost of building materials for items such as insulation, new water heaters, geothermal heat pumps, or a wood pellet stove.
Note: This tax is cumulative, so if you've taken the credit in any tax year since 2006, you will not be able to take the full $500 tax credit this year. If, for example, you took a credit of $300 in 2015, the maximum credit you could take this year is $200.
4. Qualified Tuition and Expenses
The deduction for qualified tuition and fees, extended through 2016, is an above-the-line tax deduction, which means that you don't have to itemize your deductions to claim the expense. Taxpayers with income of up to $130,000 (joint) or $65,000 (single) can claim a deduction for up to $4,000 in expenses. Taxpayers with income over $130,000 but under $160,000 (joint) and over $65,000 but under $80,000 (single) can take a deduction up to $2,000; however, taxpayers with income over those amounts are not eligible for the deduction.
Qualified education expenses are defined as tuition and related expenses required for enrollment or attendance at an eligible educational institution. Related expenses include student-activity fees and expenses for books, supplies, and equipment as required by the institution.
5. Exemption from Increase in Medical Expense Threshold Amounts
Starting in 2013, threshold amounts for medical expense deductions increased from 7.5 percent to 10 percent of AGI. Seniors (age 65 during or before the tax year) were temporarily exempt from the 10 percent threshold of adjusted gross income (AGI), which applied to tax years starting after December 31, 2012 and and ending before January 1, 2017.
Don't miss out on the tax breaks you are entitled to.
If you're wondering whether you should be taking advantage of these and other tax credits and deductions, please call today.