Tax Changes Affecting Individuals & Households
While the IRS made tax changes related to the Health Care Reform and to Businesses, these changes are also affecting Individuals and Households. The main changes concern mortgages, fees and tuitions, educator expense, the standard mileage rate among others.
12) Two major mortgage-related tax breaks are gone.
Underwater homeowners could face major tax burdens if they sell.
The twice-extended Mortgage Forgiveness Debt Relief Act of 2007 expired at the end of 2013. It gave struggling homeowners the chance to exclude up to $2 million of forgiven home loan debt from their taxable incomes – a tax break that isn’t normally available for cancelled debts.
Mortgage debts incurred after Jan. 1, 2007 and not after Dec. 31, 2012 were eligible as long as they were secured by the taxpayer’s principal residence. Debt reduced because of mortgage restructuring qualified along with forgiven debt from foreclosures and short sales. It was a great tax break, and many are calling for the MFDRA to be restored. 10, 13
Another housing tax break disappeared in 2014. In 2013, homeowners paying for private mortgage insurance (PMI) who chose to itemize their deductions could write off the cost of PMI premiums plus related interest and taxes. That isn’t possible now. 10
13) No more above-the-line tuition & fees deduction.
Students & families lose a prime tax break.
For 2013, an eligible taxpayer could take an above-the-line deduction for qualified educational expenses paid during the tax year. That deduction ranged from $2,000-$4,000. The opportunity is gone in 2014, though the American Opportunity Credit and the Lifetime Learning Credit remain. 10, 14
14) No more educator expense deduction.
Classroom teachers will miss this one.
Last year, educators employed by eligible primary or secondary institutions could take an above-the-line tax deduction of up to $250 for unreimbursed expenses for school and classroom-related supplies. (The deduction limit was $500 for married taxpayers filing jointly.) In 2014, it is no longer around. 10, 14
15) Tax-free IRA distributions to 501(c)(3)s are no longer permitted.
Wealthy IRA owners, hospitals, universities & charities are already missing this one.
The IRA charitable rollover was initially set to disappear at the end of 2011, but it was brought back by Congress in both 2012 and 2013. Some legislators called for making it permanent. This year, it is absent. The move allowed IRA owners aged 70½ or older to avoid taxation on as much as $100,000 of their Required Minimum Distributions (RMDs) if the money was transferred directly from the IRA custodian to a qualified non-profit organization. 10, 14
16) Two major energy-efficient home improvement credits are gone.
One was designed for homeowners, another for contractors & builders.
In 2013, taxpayers who made certain energy-saving improvements to their residences could claim a tax credit of as much as $500 to offset the cost of the upgrades. Contractors could also claim a credit for building energy-efficient homes for their clients (up to $2,000 per home). Neither perk is around for 2014. 10, 14
17) The electric vehicle credit is now absent.
Will this dent electric & hybrid vehicle sales?
If you bought or leased a plug-in electric car in 2013, you likely knew about the tax credit of up to $7,500 for such vehicles. (The size of the credit depended on make, model and battery pack size.) Taxpayers won’t have this option in 2014. 10
18) A big tax break on donated real estate has expired.
The Enhanced Easement Tax Incentive was a boon to conservationist groups.
During the years 2006-13, individual taxpayers that donated real capital gain property or property easements to a qualified conservationist organization could take a resulting deduction as large as 50% of their adjusted gross incomes. (Qualifying farmers and ranchers could deduct up to 100% of their incomes, and S-corps and C-corps could take advantage of the tax break as well.) In addition, donors of such real estate could keep taking the deduction for an additional 15 years, up to the fair market value of the property.
In 2014, the incentive to make such real property donations is less compelling: the deduction a donor can take reverts to 30% of their AGI in the year of the donation, and the carry-forward period reverts to 5 years in addition to the year of donation. 10, 15
19) Less favorable rules for small business stock gains.
The basic exclusion shrinks.
As a result of the American Taxpayer Relief Act of 2012, any taxpayer besides a corporation could exclude 100% of the gain from the sale or exchange of qualified small business stock acquired between September 27, 2010 and January 1, 2014 and held for more than 5 years. In 2014, the basic exclusion reverts back to 50%; it is 60% in empowerment zones. The gain that is eligible to be taken into account for purposes of this exclusion is limited to the greater of $10,000,000 or 10 times the taxpayer’s basis in the stock (see IRS Sec. 1202(b)(1)). The limitation is computed on a per-issuer basis, with lower limits ($5,000,000) applying to married individuals filing separately. 16, 22
20) Depreciation caps on “executive” vehicles have diminished.
Businesses with fleets are looking at less of a tax break.
In 2013, a business that put a car, truck or SUV into service could claim $11,160 in depreciation. But, as bonus depreciation is no longer allowed in 2014, the first-year depreciation cap allowed by IRC Section § 280F is now back to $3,160. 17, 18
21) The standard mileage rate has fallen to $0.56.
The decline is minimal, however.
In 2014, the optional mileage allowance for business use of owned or leased vehicles is $0.56 per mile, down half a cent from 2013. 9
Questions about Tax Changes related to Individuals and Households? Contact ABIP today! One of our tax experts will answer any concern you may have.
This Special Report is not intended as a guide for the preparation of tax returns. The information contained herein is general in nature and is not intended to be, and should not be construed as, legal, accounting or tax advice or opinion. No information herein was intended or written to be used by readers for the purpose of avoiding penalties that may be imposed under the Internal Revenue Code or applicable state or local tax law provisions. Readers are cautioned that this material may not be applicable to, or suitable for, their specific circumstances or needs, and may require consideration of non-tax and other tax factors if any action is to be contemplated. Readers are encouraged to consult with professional advisors for advice concerning specific matters before making any decision. Both ABIP and MarketingLibrary.Net, Inc. disclaims any responsibility for positions taken by taxpayers in their individual cases or for any misunderstanding on the part of readers. Neither ABIP nor MarketingLibrary.Net, Inc. assume any obligation to inform readers of any changes in tax laws or other factors that could affect the information contained herein.
9. Lipton, Richard. “Reviewing 2014 Tax Changes”
10. Cussen, Mark. “Major Tax Credits Expiring In 2013”
11. Aaron, Kumasi. “Restaurants changing tip procedure due to new tax law”
13. Singletary, Michelle. “Restore tax break on debt”
14. “As year ends, Congress again lets 55 tax breaks expire”
15. “Frequently Asked Questions About the Enhanced Easement Incentive”
16. “Update on Qualified Small Business Stock: New Federal Legislation and Status of California Rules”
17. “Changes for 2013/2014 Tax Year”
18. “Depreciation Limits for Vehicles Placed in Service in 2014 Projected”
19. “IRS Announces 2014 Tax Brackets, Standard Deduction Amounts And More”
20. Bell, Kay. “Estate tax and gift tax amounts”
22. “Preview of 2014 EITC Income Limits, Maximum Credit Amounts and Tax Law Updates”