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Tax Increase Prevention Act of 2014

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Tax Increase Prevention Act of 2014

Variety of expired tax provisions return for 2014, but go away again in January

December 23, 20014

by Tim Steffen

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In the waning days of the Congressional year, the House and Senate gave new life to more than 50 tax provisions that had expired at the end of 2013, giving them all a one-year extension through 2014.  Included in this extension were popular individual tax breaks, including the ability to make charitable gifts directly from an IRA, an option to deduct state sales tax rather than income tax and an above-the-line deduction for tuition costs.  The bill also created a new tax-favored savings account for those with disabilities.  This last bit of tax legislation puts a bow on the tax code for the current year, while setting up another year of speculation and uncertainty in 2015.

Over 50 expired provisions extended through 2014

This bill addresses over 50 different aspects of the tax code that were originally enacted in tax acts over the years.  Each of these were first passed as temporary items that then expired and were extended repeatedly over the last several years, and now are to set expire again after December 31, 2014.  Both Democrats and Republicans agreed that a one-year extension wasn’t ideal, but the risk of impacting the tax filing season by continuing to debate a larger bill led Congress to settle on this short-term approach.

Some of the more prominent items include:

  • Individual Tax Provisions
    • The ability to make charitable gifts directly from an IRA and exclude the IRA withdrawal from income (Qualified Charitable Distributions, or QCD).  There were no other changes to this rule, meaning the taxpayer must be at least 70½ years old at the time of the gift, the gift must go directly to the charity from the IRA trustee, the gift will count towards a taxpayer’s Required Minimum Distribution for the year of the gift and the maximum gift per taxpayer is $100,000 per year.  Taxpayers who made gifts earlier in 2014 in anticipation of this extension will be eligible for QCD treatment of those gifts as long as they followed these rules.
    • The option to deduct state and local sales taxes rather than state and local income taxes.  This provision is particularly important for those taxpayers living in the seven states that don’t currently assess an income tax.
    • The deduction of up to $250 in unreimbursed classroom expenses for teachers.
    • The above-the-line deduction for up to $4,000 in qualified tuition and related expenses for couples with modified AGI of $130,000 or less, or $2,000 for couples between $130,000 and $160,000.  For singles, the breakpoints are $65,000 and $80,000.  Those with modified AGI above the top range are not eligible for the deduction.
    • The deduction for mortgage insurance premiums.  This deduction is still subject to a phaseout for those taxpayers with AGI between $100,000 and $109,000.
    • The ability to exclude from income the forgiveness of up to $2 million in debt on a qualified principal residence.

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