Now that holiday festivities are in full swing, it's no surprise that taxes are likely the last thing on your mind. But yesterday, the much-anticipated tax law called the Tax Increase Prevention Act of 2014 was passed by Congress, temporarily and retroactively extending more than 50 tax breaks that expired on December 31, 2013, meaning you and other taxpayers out there may receive a little extra holiday cheer this season.
So what exactly are tax extenders, anyway? Tax extenders are a broad set of temporary tax breaks that can impact how you're taxed on everything from your mortgage and tuition to your business. Whether you're a teacher spending your own money on craft supplies for your class, a student buried in tuition and book costs, a homeowner who sprang for energy efficient improvements to your home or splurged on an expensive purchase, yesterday's vote could mean more money in your pocket come tax-filing time.
Let's dig into some of the tax breaks that passed that may help you keep more money in your pocket.
The Educator Expense Deduction - As a teacher you likely spend hundreds of dollars of your own money in order to improve your classroom and create the best learning environment for your students. This could end up being a big burden on your wallet, but with the Educator Expense Deduction, you can claim up to $250 of classroom expenses for supplies, materials, books and software.
Tuition and Fees Deduction - Any student (or parent!) knows that college costs a pretty penny. With the Tuition and Fees Deduction, you can once again deduct expenses related to education, including tuition, books and other supplies, up to $4,000. Pro tip: Don't procrastinate on paying next quarter's tuition. If you pay before December 31st you may be able to get a valuable education tax deduction or credit.
Mortgage Debt Relief - Without the mortgage debt relief tax break, taxpayers who have mortgage debt canceled or forgiven on their principal residence would normally be required to pay taxes on the forgiven debt. Under the extended tax law, up to $2 million dollars of forgiven debt on your principal residence is eligible to be excluded from your income in 2014.
Mortgage Insurance Premiums - Did you buy your dream home this year? If your lender required you to buy mortgage insurance when you purchased your home, now you may be able to deduct the amount you paid for the insurance.
Energy Tax Breaks - You went "green" and made energy efficient improvements to your home. The environment thanks you, and now so does your wallet. Homeowners who made energy efficient improvements to their homes in 2014 will still be able to claim the Residential Energy Property Credit. This credit could mean as much as $500.
State and Local General Sales Taxes - If you happen to live in a state like Florida or Texas that doesn't collect state income tax, or if you happened to make some large purchases and paid substantial local sales tax, you may be in luck. Under this law, you still have the option to choose between deducting state and local income tax or state and local general sales tax.
Qualified Charitable Distributions - Individuals at least 70-1/2 years of age can continue to exclude from income, qualified charitable distributions made from an IRA directly to a qualified charity. This tax law can be a huge tax savings for those very established taxpayers who no longer have bigger tax deductions like home mortgage interest since their homes are paid off.
Achieving a Better Life Experience Act - This new tax law creates tax-favored savings accounts for individuals with disabilities along with tax-related offsets.