The following is a summary of the latest tax law changes (The Tax Increase Prevention Act of 2014 “Tax Act of 2014“) passed by Congress this past December 16, 2014 for returns to be filed on or before this April 15, 2015. Many or most of these provisions existed for tax year 2013, but were set to expire on December 31, 2014, until passage of this new law.
INDIVIDUALS
Mortgage Insurance Premium Deduction
Part of the cost of owning a first or second home is the mortgage insurance premium. Until passage of the act, this deduction was set to expire. Now these premiums can be deducted as qualified residence interest, subject to certain limitations, such as the debt must have been used to purchase, improve or build the home.
General Individual Deductions
Qualified Tuition Deduction
The deduction which ranges, depending on income from $2000-$4000 were restored.
Option to Deduct State and Local Sales Taxes
“The Tax Act of 2014” restores the ability for those taxpayers who live in states without high state or local taxes can instead choose to deduct the state sales taxes.
IRA Qualified Charitable Contributions
Taxpayers, age 70 ½ and older can once again make charitable contributions of up to $100,000 from their IRA’s to a qualified charitable organization. These contributions can take the place of required mandatory minimum distributions.
Home/Real Estate Deduction
Tax Free Treatment for Forgiven Principal Residence Mortgage Debt. – Normally, when a debt is forgiven or cancelled by a bank it is considered income. For example if a mortgage for $100,000 is forgiven, the taxpayer would be taxed on this amount. (This usually occurs in foreclosure situations when the bank cancels a loan) However, under the “Tax Act of 2014″, up to $2 million of this forgiven debit, if used to acquire a principal residence, was cancelled in 2014, is considered tax-free.
$500 Energy-Efficient Home Improvement Credit
The Tax Act reinstates a Tax Credit for energy savings and improvements made to principal residences. This is calculated by taking 10% of eligible costs for energy efficient insulation, windows, doors, and roof, plus 100% of eligible costs for energy efficient heating and cooling equipment. This is a limited to a $500 amount.
$250 Deduction for K-12 Educators.
Teachers and other eligible “Educators”, can once again claim up to $250 for expenses paid personally for school expenses. This deduction can be taken even if the taxpayer is not itemizing.
Qualified Conservation Contribution Breaks
Taxpayers who charitably donate real estate or real estate interests (such as a agreement, or an easement, to restrict development) again, enjoy the favorable tax treatment. The tax law in this area had allowed generous deductions by loosening rules that increase the maximum allowed to be donated. Previously this was set up to expire at the end of 2013, but has again been restored for 2014.
100% Gain Exclusion for Qualified Small Business Corporation Stock (QSBC)
For small business owners, this rule allows the owners of Small Business Stock, if purchased or acquired in 2014 to exclude 100% of the gain, subject to certain limitations, and also the again enjoy the exception from alternative minimum tax preference. In order for this rule to apply, the owner of the stock, must hold the stock for a minium of 5 years. This means if someone receives a qualified stock in 2014, it must be held until 2019.
This is just a summary list to provide taxpayers with an overview of these changes. If you would like to learn or discuss any of these changes further, please contact our office at (212)387-7880
