Would You Like Some Extenders With That Budget?
Well, that didn't take very long. President Trump signed the Tax Cuts and Jobs Act (TCJA) into law on December 22, delivering on his promise to radically change the tax code. We didn't make it two full months before Congress and the President tweaked the tax code again.
Some tax provisions that were previously allowed to expire or eliminated as a result of the Tax Cuts and Jobs Act have risen from the fiscal grave once again, thanks to the two-year budget deal that President Trump signed last Friday.
The broken Congressional funding process leads to annual tax uncertainty through the use of tax extenders – provisions that alter the expiration dates or applications of specific taxes. Tax breaks are passed with sunset dates, and then continuously reauthorized at the last minute – or even reauthorized past the last minute and applied retroactively.
Whether you look at this as a return to normalcy, a broken promise, or usual DC dysfunction, you may have an opportunity to apply unexpected tax breaks to tax year 2017. If you haven't filed your taxes yet, consider the following changes courtesy of the budget bill.
Breaks for Homeowners and Students
While many of the revived tax breaks apply to businesses, several apply to individual taxpayers and families.
Students can once again claim the deduction for tuition and related educational expenses – up to $4,000 as long as your adjusted gross income (AGI) is below $65,000 (twice that for married filing jointly) or up to $2,000 with an AGI below $80,000 single, $160,000 married filing jointly. Since this deduction is above the line, it subtracts directly from your AGI and you don't have to itemize to claim it.
The TCJA raised the standard deduction to provide less incentive to itemize for the 2018 tax year, but homeowners who still plan to itemize may now also deduct mortgage insurance premiums as well as their mortgage interest. The deduction phases out over the AGI of $100,000 to $110,000.
Did you acquire mortgage debt relief through discharge of some or all of the debt? Typically, the discharged amount is considered taxable income, just as if you had received that income from another source in order to pay off the debt. A provision in the budget bill allows the discharged amount to be excluded from gross income (making it non-taxable income). The provision also applies to debt that will be discharged as part of a binding written agreement that was entered into during the 2017 tax year.
Environmentally conscious homeowners may have several revived tax credits – even more valuable since credits subtract directly from your tax bill. The tax credit for energy-efficient home improvements is back with a credit of 10% of the expense (up to $500 total) for items like qualified energy-saving appliances or insulating windows that were installed in 2017. Other credits include breaks for home wind and geothermal installations, and up to a $2,500 tax credit for an electric 2-wheeled vehicle purchase.
If you are paying your tax bill in monthly installments using an IRS-approved plan, a provision in the new bill may help you. The IRS can't increase user fees associated with the installment plan and must waive the fees as long as the taxpayer's income is below 250% of the Federal Poverty Level (FPL) and payments are made electronically through a debit account.
There's a larger list of renewed tax breaks that are not likely to apply to you, but check the full list anyway – because you never know when you may find a hidden tax gem.
It's Not Too Late
What if you've taken our relentless advice and filed your taxes early? No problem. You can file an amended return using IRS Form 1040X. Simply note the changes and send the amended return in by mail (unfortunately, you can't submit an amended form electronically). Do NOT use a new 1040 form for amended returns.
If you aren't sure about your eligibility for any of these breaks in the 2017 tax year, consult with a tax professional. They will have access to the latest information in case there are any more surprises in the offing.
When it comes to tax breaks, the Congress regularly taketh and the Congress regularly giveth back. The last-minute return of the tax breaks shows how important it is to keep up with the latest news coming out of Washington – regardless of how painful it may be on certain days.
Review the list of tax breaks that are incorporated into this budget deal and see how many of them apply to you. Take advantage of any of the applicable extended tax breaks now, before the Congress taketh away again. One of these days, they will take tax breaks away and actually mean it.
This article was provided by our partners at moneytips.com.
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