Individual Tax Incentives Extended for 2015 & Beyond

Just in time for Christmas, Congress and President Obama delivered taxpayers a last minute gift.

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Once again this year, the government approved last minute legislation that extends many popular tax provisions which will have an immediate impact on many individual taxpayers. What makes this news even sweeter is that many of the incentives have been extended permanently or for long periods of time (two and five years). Although the end of year is right around the corner there are steps to take now, which will ensure relevant benefits are realized. To help our clients, prospects and others understand the extended incentives, Hanson & Co., has provided a summary of the tax extenders that apply to individual taxpayers below:

Permanently Extended Tax Provisions

Several important tax cuts were made permanent, including:

  • Child Tax Credit – In addition to a $1,000 reduction dollar-for-dollar on taxes per qualifying child, since 2009, parents have also been entitled to a refundable credit equal to 15% of earned income in excess of $3,000 (meaning you still get a tax refund even if you don't have any tax bill for it to erase). Beginning in 2017, this threshold would have reverted to $10,000. While not indexed for inflation, the $3,000 threshold has been made permanent to help millions of lower-income Americans. New safeguards were also written into the bill to protect the integrity of the program from fraudulent claims or abuse of the rules.

  • American Opportunity Tax Credit (AOTC) – Taxpayers with kids in (or nearing) college may have been worried about the slated AOTC reduction in 2017. Instead of returning to an $1,800 annual maximum with lower phase-out thresholds, individuals can now permanently claim a $2,500 credit for qualifying costs during the first four years of college. Income phase-outs begin at $80,000 (if single) and $160,000 (if married filing jointly).

  • Earned Income Tax Credit (EITC) – The part of this credit that provides larger refundable incentives for low-income families with three or more children is now permanent. Legislation also increased the phase-out range for married couples filing jointly, effectively easing the “marriage penalty.” Because of the propensity for fraud, special rules disallowing taxpayers to file amended returns claiming the EITC for a year when they did not have a valid social security number were added to the bill as well.

  • School Teachers’ Supply Deduction – K-12 teachers and administrators can now count on an above-the-line deduction for out-of-pocket expenses spent on classroom supplies each year – up to $250 and indexed for inflation.

  • Charitable IRA Rollover - Taxpayers who are 70-½ or older can make donations directly from their Individual Retirement Accounts (IRAs) tax-free up to $100,000, which essentially enables non-itemizers to give more to charity.

  • Conservation Donations – The new bill permanently extends provisions that encourage the contribution of real property, with a special rule for contributions made for conservation purposes, enabling more modest-income landowners to affect the pace of land conservation. Qualified conservation contributions can be deducted in an amount up to 50% of a taxpayer’s contribution base (100% for qualified farmers and ranchers).

  • Mass Transit and Parking Benefits – Previously, if your employer offered a transit plan as an employee benefit, you could put away $250 per month pre-tax to use for parking expenses but only $130 per month pre-tax for mass transit use (i.e. bus, rail, subway, or van pools). The “parity provision” makes things right, permanently putting transit commuters’ transportation benefits on par with their parking colleagues.

Two-Year Extensions

Some provisions were only extended through 2016, including:

  • Higher Education Deduction – An above-the-line deduction of up to $4,000 for tuition and fees for some college expenses has helped college and grad school students or their parents cut their tax bill significantly. There is still a chance to claim this benefit on the next two tax returns. Whatever expenses you pay by year-end for a term starting on or before March 31 of the following year will count for the deduction in the year paid.

  • Mortgage Debt Exclusion – Prior to 2007, any forgiven debt from a renegotiated mortgage on your principal residence, foreclosure, or short sale was treated as income – and therefore taxable. This provision allows taxpayers to exclude up to $2 million of COD (or “cancellation of indebtedness”) income – but only through the 2016 tax year.

  • Mortgage Insurance Premium Deduction – The ability to claim private mortgage insurance, or PMI, as tax-deductible mortgage loan interest (subject to adjusted gross income phase-outs) is soon coming to an end.

  • Energy-Efficient Home Improvements Credit – Certain energy-efficient home improvement costs, such as new windows or upgraded heating or cooling equipment, qualify for a 10% tax credit or the actual cost of the equipment up to $500 - a dollar-for-dollar reduction in your tax liability. Unfortunately for some homeowners, the $500 maximum applies to cumulative claims dating back to 2006.

Contact Us

These tax incentives provide an opportunity for individual taxpayers to make moves to reduce their 2015 income tax. The good news is that not only are several of these incentives available for the 2015, but 2016 and beyond. Interested in learning how you can leverage these opportunities? Hanson & Co. wants to help. For additional information please contact us at (303) 388-1010, or click here to contact us. We look forward to speaking with you soon.

TaxMarc Bradac