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Extension of 2013 Tax Provisions Could Save You Money in 2014

December 31, 2014

With the turning of each new year, it is important for taxpayers to know whether tax provisions have changed or have expired as they prepare to file their tax returns for the past year. Certain provisions expired on December 31, 2013 but were reinstated by Congress just for 2014, absent any further extensions by Congress. Of the provisions extended, the following are five that may benefit individuals and businesses alike.

Discharge of indebtedness debt income from qualified principal residence debt (up to $2 million dollar limit; $1 million dollar limit for married individuals filing separately) may generally be excluded from gross income.

Mortgage lenders sometimes require buyers to get private mortgage insurance (PMI) if the buyers cannot pay for at least 20% of the purchase price of the house. You, as a homeowner, can take a tax deduction for your PMI premium payments.

For those of you with children in college, the above-the-line tax deduction for tuition and fees has been extended. (Above-the-line deductions are items that the taxpayer does not have to itemize on his or her return to claim the deduction). This deduction allows taxpayers to claim up to $4,000 in certain education expenses so long as certain income criteria are met. Qualified education expenses are tuition and related expenses required for enrollment at a college, university, vocational school, or other post-secondary educational institution eligible to participate in a student aid program administered by the U.S. Department of Education.

An Individual Retirement Arrangement (IRA) owner age 70 ½ or older may exclude up to $100,000 per year from gross income if IRA funds were paid directly to certain public charities; however the charitable distribution may not be taken as a charitable contribution. Without the extension of this provision, IRA owners would have to pay income tax on the funds withdrawn, and take a charitable contribution deduction- which is subject to certain limitations.

Another extension restored the maximum $500,000 bonus depreciation allowing business owners to immediately deduct the amount of equipment purchased instead of taking deductions of the cost of the equipment over time according to a depreciation schedule.

Towards the end of this year Congress will again have to make the decision whether to extend these and other provisions that expired on December 31, 2014.

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