Many tax provisions were made permanent with the passage of the PATH Act in late 2015, but more than 36 others expired at the end of 2016. Here are the five that are most likely to affect taxpayers like you.
- Mortgage Insurance Premiums
Mortgage insurance premiums (PMI) are paid by homeowners with less than 20 percent equity in their homes. These premiums were deductible in tax years 2013, 2014, 2015, and once again in 2016. Mortgage interest deductions for taxpayers who itemize are not affected. - Exclusion of Discharge of Principal Residence Indebtedness
Typically, forgiven debt is considered taxable income in the eyes of the IRS; however, this tax provision was extended through 2016, allowing homeowners whose homes have been foreclosed on or subjected to short sale to exclude up to $2 million of canceled mortgage debt. Also affected are taxpayers seeking debt modification on their home. - Energy Efficient Improvements
This tax break has been around for a while, but your 2016 tax return is your last chance to take advantage of this credit, if you made your home more energy efficient last year. The credit reduces your taxes as opposed to a deduction that reduces your taxable income and is 10 percent of the cost of building materials for items such as insulation, new water heaters, geothermal heat pumps or a wood pellet stove.
Note: The limitations on this tax credit are cumulative, so if you’ve taken the credit in any tax year since 2006, you will not be able to take the full $500 tax credit in 2016. If, for example, you took a credit of $300 in 2015, the maximum credit you could take in 2016 is $200.
- Qualified Tuition and Expenses
The deduction for qualified tuition and fees, extended through 2016, is an above-the-line tax deduction, which means that you don’t have to itemize your deductions to claim the expense. Taxpayers with income of up to $130,000 (joint) or $65,000 (single) can claim a deduction for up to $4,000 in expenses. Taxpayers with income over $130,000 but under $160,000 (joint) and over $65,000 but under $80,000 (single) can take a deduction up to $2,000. Taxpayers with income over those maximums are not eligible for the deduction. Qualified education expenses are defined as tuition and related expenses required for enrollment or attendance at an eligible educational institution. Related expenses include expenses for books, supplies and equipment as required by the institution. Student-activity fees are included if they must be paid for the student’s enrollment at the institution. - Exemption from Increase in Medical Expense Threshold Amounts
Starting in 2013, threshold amounts for medical expense deductions increased from 7.5 percent to 10 percent of AGI. Seniors (age 65 during or before the tax year) were temporarily exempt from the 10 percent threshold of adjusted gross income (AGI), which applied to tax years starting after December 31, 2012, and ending before January 1, 2017.
Don’t miss out on the tax breaks you have coming to you.
If you’re wondering whether you should be taking advantage of these and other tax credits and deductions on your 2016 tax return, please call our office today. Even if you have already filed, you may be able to amend your return and get a refund.