Even though many tax breaks were extended or made permanent in 2012, there are a number of tax deductions set to expire 12/31/2013. Here is a list of many of provisions that expire at the end of 2013:
- Educator’s expense deduction: Grades K–12 teachers, instructors, counselors, principals and aides can currently deduct up to $250 of out-of-pocket costs above the line.
- Cancellation of Debt Exclusion: Individuals can currently exclude up to $2 million ($1 million for married filing separately) of COD income from qualified principal residence indebtedness that is canceled because of their financial condition or decline in value of the residence. This ends at the end of 2103.
- Mortgage Insurance Premiums Deduction: Taxpayers with AGI no greater than $109,000 can treat qualified mortgage insurance premiums as home mortgage interest.
- 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.
- State and Local Sales Taxes Deduction: Individuals can elect to deduct state and local general sales taxes instead of state and local income taxes.
- Tuition and Fees Deduction: Individuals can claim an above-the-line deduction for tuition and fees for qualified higher education expenses.
- 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.
- 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. In 2014, all improvements will be written off over a 39 year period.
- 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. After 2013, 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.
- 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). In 2014,qualified real property is not eligible for Section 179 expensing.
- 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.) In 2014, special depreciation is only available for long production-period property and certain aircraft.
Steve Trojan, CPA is owner of SMT & Associates, Inc. (www.smt-associates.com), a Crystal Lake IL based tax and accounting firm. He can be reached at 815-788-5114.