Popular Tax Breaks Expiring At The End of 2016
Last year many popular tax breaks were made permanent thanks to the PATH (Protecting Americans from Tax Hikes) Act.
PATH addressed many critical extenders, such as Section 179 expensing and the research tax credit. With those necessary provisions handled, the stakes this year are much lower. It’s unlikely that the House and Senate will take any action before they adjourn for several weeks leading up to the November elections.
The Joint Committee on Taxation published a comprehensive list of expiring tax provisions for 2016 and coming years. Here are a few that are commonly taken by individual taxpayers.
Mortgage insurance premiums deduction expiring at end of 2016
Currently, taxpayers can treat amounts paid for qualified mortgage insurance as deductible home mortgage interest. The deduction starts phasing out for taxpayers with Adjusted Gross Income (AGI) of more than $100,000 ($50,000 if married filing separately) and is unavailable for taxpayers with AGIs greater than $109,000 ($54,500 if married filing separately).
Medical expense deduction expiring at end of 2016
When the Affordable Care Act was enacted in 2010, one of the ways Congress planned to pay for it was by increasing the threshold for claiming itemized medical expenses from 7.5% of AGI to 10% of AGI. Taxpayers age 65 and older were allowed to keep using the lower 7.5% of AGI threshold through the end of 2016.
A bill passed by the House this month (H.R. 3590) would permanently undo the increase to the threshold for all taxpayers. If enacted, the bill would prevent the increase that is scheduled to tax place in 2017 for seniors and roll back the increase for non-seniors that has been in effect for three years. The bill now goes to the Senate for consideration. Govtrack.us gives it a 29% chance of being enacted.
Tuition and fees deduction expiring at end of 2016
This tax break for higher education officially expired after 2014 but was retroactively extended by the PATH Act through the end of 2016. Taxpayers can claim this “above the line” deduction in lieu of taking one of the two higher education tax credits: the American Opportunity Tax Credit or the Lifetime Learning Credit. The rules and phase-outs for the deduction and the two credits are different, so taxpayers need to compare and contrast these tax breaks to see which one makes the most sense for their particular situation.
It’s possible that Congress will extend the tuition and fees deduction in a lame-duck session after the November elections, but there are no guarantees. To be on the safe side, students and parents might consider paying tuition for the spring semester in December of 2016 rather than waiting until January.
Discharge of indebtedness on principal residence deduction expiring at end of 2016
We’ve seen fewer short sales and mortgage modifications since the height of the foreclosure crisis, but this important provision has helped many struggling homeowners avoid being taxed on the amount of home mortgage debt forgiven. The qualified principal residence indebtedness exclusion allows taxpayers to exclude up to $2 million of forgiven debt.
Anyone currently negotiating a workout with a lender has some breathing room, even if Congress doesn’t pass an extension. The exclusion applies to home mortgage debt discharged in 2017 if the discharge is made under a binding written agreement entered into in 2016.
With Congress focused on continuing to fund government operations into the new fiscal year starting October 1st and providing emergency funding to fight the spread of Zika, it looks like we’ll have to wait until after the November election to see if these provisions will be given new life.
Originally posted on Forbes.
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