Review of Tax Breaks Extended for 2014 Returns

More than 50 tax breaks that expired at the end of 2013 were extended for 2014 and can be used on 2014 tax returns. Many of our readers have expressed confusion about which breaks have been extended, so here’s a roundup (adapted from the Supplement to J.K. Lasser’s Your Income Tax 2015) of some of the key provisions you may be able to use if you have not already filed your 2014 return:

• Deduction for state and local sales taxes. Taxpayers who itemize deductions on Schedule A for 2014 may elect to claim state and local general sales taxes in lieu of state and local income taxes.
• Above-the-line deduction for educator expenses. The deduction for elementary and secondary school teachers is capped at $250.
• Above-the-line deduction for tuition and related fees. The deduction for tuition and related expenses is limited to $4,000 for taxpayers with adjusted gross income (AGI) up to $65,000, or $130,000 on joint returns. For those with AGI up to $80,000, or $160,000 for joint filers, the maximum deduction is $2,000.
• Exclusion for discharge of qualified principal residence indebtedness. The maximum exclusion from gross income for the cancellation of mortgage debt is $2 million ($1 million if married filing separately).
• Mortgage insurance premiums. Eligible mortgage insurance premiums on loans secured by a first or second home may be included as home mortgage interest if deductions are itemized. The deduction starts to phase out when AGI exceeds $100,000 ($50,000 if married filing separately) and the phase-out is complete if AGI is over $109,000 ($54,500 if married filing separately).
• Tax-free IRA transfers to charity. Taxpayers age 70½ or older can exclude from income up to $100,000 of traditional IRA distributions that were transferred directly from the IRA to a charity before the end of the year. Such qualified charitable distributions (QCDs) offset the required minimum distribution that would otherwise have to be received and reported as income. However, there is no transition relief for taxpayers who were waiting for Congress to pass the extension legislation before they made a QCD; those who did not make a transfer before the end of 2014 do not qualify for this break.
• Higher charitable deduction limits for conservation contributions. Donations of real estate for conservation purposes are deductible up to 50% of AGI (instead of the regular 30% or 20% limit for capital gain property). For qualifying farmers and ranchers, the limit is 100% of AGI.
• Parity for employer-provided mass transit benefits with parking. The monthly exclusion for 2014 employer-provided transit passes and van/bus transportation has been retroactively increased from $130 to $250 per month, the same as for parking benefits.
• Home energy credit. The nonbusiness energy tax credit for insulation, storm windows, furnaces, boilers, heaters, and central air conditioners installed in a principal residence is allowed for 2014. However, the overall credit limit of $500 is a lifetime limit, so taxpayers who claimed the credit for home energy improvements in recent years may only claim a 2014 credit (on Form 5695) to the extent the $500 limit was not already used up.
• Exclusion for gain on small business stock. The 100% exclusion that applies to gain on the sale of qualified small business stock held more than five years will apply to stock acquired in 2014. Such stock sold in 2014 qualified for a 50% or 75% exclusion, depending on the date that the stock was acquired.

Conclusion

These tax breaks were extended only for 2014 (i.e., they expired on December 31, 2014). It remains for Congress to decide whether they will be extended for 2015 and possibly beyond.