Good News from Congress prior to Year End? Not Yet but Hopefully!
Many tax “breaks” are renewed yearly but lately they have been renewed later and later in the year for the year that they are applicable. For 2014 planning, Congress is JUST NOW reviewing a bill that would extend certain tax breaks for 2014. This delay often creates planning difficulties. This bill is called the EXPIRE (Expiring Provisions Improvement Reform and Efficiency) Act (the “EXPIRE Act”). Why Congress does not make certain provisions permanent is unknown to me although passage does make our Congressmen and Congresswomen look good to their constituents. The House passed the EXPIRE Act in early December. The EXPIRE Act will be forwarded to the Senate and, if approved, to President Obama for his signature.
Some items that may be applicable to you are as follows:
1. For many of you, when the real estate market tumbled, you had a mortgage in excess of the value of the house you owned. Many homes were foreclosed or sold in a short sale. Normally, any “forgiveness” of indebtedness by a bank is income to the person whose debt has been forgiven. Obviously, this income tax bill is a great shock and detriment to the homeowner who already could not pay their mortgage. The EXPIRE Act extends the EXCLUSION of such forgiveness of indebtedness on a principal residence up to 2 million dollars. Thus, a homeowner would NOT have to include such forgiveness of indebtedness interest on the 2014 income tax return.
2. Many teachers pay monies out of their own pocket for certain educational expenses. The EXPIRE Act provides for an above the line deduction for such expenses of $250.00. An above the line deduction is more favorable because most people use the “standard deduction” and can not itemize on their tax return. Even if you can itemize deductions on your tax return, there are limitations on the amount that you can deduct based on your adjusted gross income.
3. Many of us deduct sales taxes that we pay to the State of Florida. This provision would be extended.
4. For many of us who want to make charitable contributions we would choose IRA distributions because the charity would not be taxed on distributions from the IRA. Unfortunately, if you want to make a contribution from your IRA, the distribution from the IRA is income taxable to you and then the contribution to the charity is tax deductible. However, because income tax charitable deductions have limitations, the income and deduction may not be a “wash”. The EXPIRE Act would continue the law that an IRA distribution (limited to $100,000) by a person 70 1/2 or older which is distributed directly to a charity would NOT be taxable income to such person and would not have to be reported on such person’s tax return.
ADVICE: REMEMBER, THIS IS NOT THE LAW YET. Discuss with your accountant as soon as possible to see how you can take advantage of these extenders if and when the EXPIRE Act is passed and don’t forget to take advantage of them in filing your 2014 income tax return. Charitable advisers should remind their donors of the IRA provision of the EXPIRE Act.
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