Congress took action in late December and passed a tax extender bill formally known as the Protecting Americans from Tax Hikes Act of 2015 (PATH), which was then signed into law. Retroactive to January 1, 2015, many tax provisions were made permanent while others were extended through 2016 or 2019. Let’s take a look at some of the provisions most likely to affect individuals filing their 2015 tax returns.

1. Teachers’ Deduction for Classroom Expenses

Primary and secondary school teachers buying school supplies out-of-pocket may be able to take an above-the-line deduction of up to $250 for unreimbursed expenses. An above the line deduction means that it reduces adjusted gross income. This deduction was made permanent. Starting in 2016, professional development expenses will also qualify, and the maximum deduction will be indexed for inflation.

2. State and Local Sales Taxes 

The deduction for state and local sales taxes was made permanent by PATH. Taxpayers that pay state and local sales tax can deduct the amounts paid on their federal tax returns (instead of state and local income taxes)–as long as they itemize.

3. 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, and now, once again, in 2015, subject to a limitation based on adjusted gross income. This deduction was extended through 2016.

4. Exclusion of Discharge of Principal Residence Indebtedness

Typically, forgiven debt is considered taxable income in the eyes of the IRS; however, this tax provision has been 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 included are taxpayers seeking debt modification on their home.

5. Distributions from IRAs for Charitable Contributions

Taxpayers who are age 70 1/2 or older can donate up to $100,000 in distributions from their IRA to charity. Some people may not want to take the mandatory minimum distributions (which are counted as income) upon reaching this age and instead can have it paid directly to a charity, using it as a strategy to lower income enough to take advantage of other tax provisions with phaseout limits. This deduction was made permanent by PATH.

6. Parity for Mass Transit Fringe Benefits

This tax extender allows commuters who used mass transit in 2015 to exclude from income (up to $250 per month), transit benefits paid by their employers such as monthly rail or subway passes, making it on par with parking benefits (also up to $250 pre-tax). Like many other tax extenders, this provision was made permanent and will be indexed for inflation starting in 2016.

7. Energy-Efficient Equipment and Residential Improvements

This tax break has been around for a while. But if you made your home more energy efficient in 2015, now is the time to take advantage of this credit on your 2015 tax return. The credit reduces your taxes dollar for dollar (as opposed to a deduction that reduces your taxable income) and can be up to 10 percent of the cost of energy-efficient improvements such as insulation and exterior windows or the entire cost of equipment like a new water heater or a biomass stove.

There is a cumulative lifetime cap on this credit. So, if you’ve taken it in any tax year since 2006, you will not be able to take the full $500 tax credit this year. If, for example, you took a credit of $300 in 2013, the maximum credit you could take this year is $200. In addition, there are lower annual caps on various types of items. For instance, the maximum credit that can be taken in one year for an air circulating fan is $50.

8. 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. However, taxpayers with income over those amounts 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 student-activity fees and expenses for books, supplies, and equipment as required by the institution as a condition for enrollment or attendance.

9. Donation of Conservation Property

Also made permanent was a tax provision that allows taxpayers to donate property or easements to a local land trust or other conservation organization and receive a tax break in return. Under this tax provision, deductions of qualified conservation contributions up to 50 percent of a taxpayer’s contribution base (100 percent for qualified farmers and ranchers) are allowed.

10. Small Business Stock

If you sold an investment in a small-business such as a start-up C-corporation in 2015, consider taking advantage of this tax provision on your 2015 tax return. If you held onto this stock for five years, you may be able to exclude 100 percent of the capital gains–in other words, you won’t be paying any capital gains tax. This exclusion was made permanent by PATH.

If you’re wondering whether you should be taking advantage of these and other tax credits and deductions, please call us today.

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