A new spending measure signed on Feb. 9 (the Bipartisan Budget Act of 2018) did more than avoid a government shutdown. It also extended about 30 tax breaks that had expired after 2016. Most of the extensions are retroactive to 2017, but last just one year, including these four:
- Tuition and fees deduction:This deduction for tuition and related fees is claimed above the line in lieu of a higher education credit. The deduction is capped at $4,000 for single filers with adjusted gross income (AGI) of $65,000 or less ($130,000 or less for married joint filers) and at $2,000 for single filers with AGI of $80,000 or less ($160,000 or less for married joint filers).
Here’s what to know: There are two credits that may be more valuable than the tuition and fees deduction: the American Opportunity Tax Credit (AOTC) and the Lifetime Learning Credit (LLC). The maximum annual AOTC is $2,500 per student and the maximum LLC is $2,000 per tax return. Credits are generally more valuable than deductions because they directly reduce your taxes, rather than just lowering your taxable income.
- Mortgage forgiveness deduction: Usually, debt forgiveness creates taxable income, but the act reinstates a special exclusion for the cancellation of qualified mortgage debts of up to $2 million.
Here’s what to know: This exclusion only applies to debt on a principal residence. It isn’t available for a second home.
- Mortgage insurance deduction: Homeowners can now deduct mortgage insurance premiums paid or accrued in 2017, subject to a phaseout above $100,000 AGI.
Here’s what to know: Unlike mortgage debt forgiveness, this tax break can be claimed on one other home besides your principal residence.
- Residential energy credit: This tax credit, which expired and has been revived many times in the past, is equal to 10 percent of the cost of energy-saving improvements installed in a home, such as a new furnace or central air conditioning.
Here’s what to know: There’s a lifetime credit cap of $500 (plus limits of $200 for windows and skylights). The $500 cap is reduced by credits claimed in prior years.
These tax breaks may be claimed on your 2017 tax return if you haven’t filed it yet. If you’ve already filed, you’ll need to file an amended return to benefit from them. Give us a call if you have questions.