Expiring Federal Income Tax Benefits

At the start of each tax year, there are a variety of tax law changes in the Internal Revenue Code.  These changes include both new tax laws going into effect as well as the expiration of certain income tax benefits.

The start of 2014 is no different, as there are several tax benefits that taxpayers will no longer be able to take advantage of come the new year.  While it is still possible Congress will take steps to extend any or all of these tax benefits, following the most common of the expiring income tax benefits that  taxpayers can still take advantage of one final time before the end of 2013.

Deduction for Tuition and Fees

Currently, parents who pay tuition and other fees for their children can deduct up to $4,000 from their federal income tax.  This deduction goes away beginning January 1, 2014.

Therefore, for parents who have not already hit the $4,000 deduction limit, they should pay any upcoming tuition and fees for spring 2014 now, so that those expenses are deductible as part of their 2013 federal income tax returns.

Credit for Energy Efficiency Improvements

Since 2006, taxpayers have been able to receive a one-time credit of up to $500 for certain energy efficiency-related improvements they make to their home.  This credit will no longer be available after the end of 2013.

Deduction for Mass Transit Expenses

In 2013, taxpayers could deduct up to $2,940 annually for mass transit expenses, including the costs of using subways, buses, and trains.  Beginning in 2014, the amount taxpayers can deduct for mass transit expenses falls to $1,560.

Deduction of Charitable IRA Donations for Certain Retirees

Taxpayers who are at least 70 and a half years old have historically been able to make a tax-free contribution from their IRA to a charity of up to $100,000 each year.  Beginning in 2014, this benefit disappears entirely, which means taxpayers must withdraw the IRA distribution as taxable income before then giving it to the charity.

Deduction for Sales Tax

In states without a state income tax, for 2013, taxpayers can deduct the amount they pain in state and local sales tax from their federal income tax.  Beginning in 2014, this deduction will no longer be available to taxpayers.

Therefore, taxpayers in these states who know they need to make a large purchase in coming months should make that purchase before the end of 2013, so they can take the sales tax deduction.

Forgiveness of Mortgage Debt

Since 2007, taxpayers who were forgiven mortgage debt because their bank modified their loan or allowed them to perform a short sale did not have to report the forgiven debt as taxable income on their tax returns.  Beginning in 2014, this benefit expires.

Therefore, taxpayers who are forgiven mortgage debt after January 1 will have to report the amount forgiven as income on their 2014 federal income tax return.

Deduction of Mortgage Interest Premiums

Many homeowners who were not able to put at least 20 percent down when they purchased their homes were required to obtain mortgage insurance.  Historically the amounts paid by taxpayers for mortgage insurance were deductible as a part of interest.  However, beginning in 2014, this deduction will no longer be available.

Deduction of Teacher Expenses

Through 2013, teachers could deduct up to $250 in out-of-pocket expenses on classroom supplies, even when they do not itemize their deductions.  However, this benefits expires at the end of the year.

Therefore, teachers who have no already reached this deduction limit for 2013 but know they will need additional supplies next year should make those purchases before December 31.

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by Mark Johnston

Mark has been a contributor to legal web sites related to bankruptcy, tax, and criminal law since 2011. He has an Accounting degree from Texas A&M University.