The following 7 tax deductions/credits are currently set to expire at the end of this year. This means that unless Congress extends these deductions, our 2013 tax returns (which we file early next year), will be the last time we can take these deductions/credits on our taxes.
1. Teachers’ classroom expense deduction. Eligible educators who work in a school providing primary or secondary instruction can deduct up to $250 worth of unreimbursed classroom expenses. This is an above-the-line deduction, which means teachers can take this deduction before adjusted gross income is calculated and regardless of whether they itemize other deductions or take the standard deduction.
__________
2. Exclusion of cancellation of indebtedness on principal residence. The U.S. tax code treats forgiven debts as taxable income. However, if your principle residence is foreclosed or sold in a short sale before the end of the year, this provision allows you to exclude up to $2 million of forgiven debt from your taxable income. If your home is on the verge of a foreclosure or short sale, you may want to nudge along the process before the end of the year to ensure you’re eligible for this tax break.
__________
3. Mortgage insurance premiums. Homeowners who purchase a home with less than 20 percent as a down payment typically pay for mortgage insurance (also known as PMI). These premiums were deductible in 2012 and 2013, but this provision is scheduled to expire at the end of this year.
__________
4. IRA distributions to charity. People older than age 70½ are required to take minimum distributions from their individual retirement accounts, so this provision allows them to contribute that money to charity without counting those distributions as income.
__________
5. State and local sales tax. If you pay state or local income tax, you can deduct that amount from your federal taxes if you itemize. This provision allows you to deduct state sales tax if your state doesn’t have an income tax or if the amount you paid in sales tax was higher than income tax. You can estimate your sales tax total based on your income and the state you live in to calculate what would be a normal sales tax deduction, and then you can add to that certain big-ticket items like a car or major home appliance.
__________
6. Electric vehicles. Consumers who buy a qualified electric plug-in vehicle may be eligible for a tax credit of up to $7,500 depending on the size of the car’s battery pack. For instance, owners of the Chevy Volt and Nissan Leaf may be eligible for a $7,500 credit, while owners of the Ford Fusion Energi and C-MAX Energi are eligible for a $3,750 credit. Some lessees may be eligible for this credit as well.
__________
7. Remodeling your home for energy efficiency. Homeowners who remodel for energy-efficiency can take a credit of up to $500 over their lifetime. This provision has existed since 2006, so many taxpayers have already used the credit. There is a separate $500 credit available for energy-efficient appliances. If you haven’t used the credit yet, there’s still two months left to install new windows or buy an energy-efficient air conditioner.
–Written on December 2, 2013.