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Tax credits, deductions await congressional approval

| Nov 20, 2014 | Tax Breaks, Tax Planning

This article originally appeared as a column for the Cleveland Jewish News.

The calendar year is swiftly coming to a close. Along with the lake effect snow and icy weather comes the annual last-minute push for Congress to renew expired tax breaks before the year ends and tax season gets into full swing. And, while there is always a push to make such provisions more permanent, if recent history is any indication, Congress will likely, at most, renew them only through 2014 or 2015.

A group of more than 50 unrelated “tax extenders” that expired at the beginning of 2014 are the subject of a bill stalled in the United States Senate.

Here is a sampling of some of the more common and popular credits you may miss out on if an extension isn’t pushed through:

Mortgage debt forgiveness – mortgage debt written off or forgiven, such as through a short sale, foreclosure, or loan modification, historically was treated as taxable income. The Mortgage Forgiveness Debt Relief Act of 2007 changed that. The act’s provisions have been extended in prior years. However, some experts believe that, since housing prices are rebounding, this provision might not be renewed for 2014 and beyond.

Energy efficiency credit – this credit has historically been provided to homeowners who have made home improvements to help their home’s energy efficiency rating, such as through the addition of insulation, energy-efficient exterior windows and energy-efficient heating and cooling systems. Credits have also historically been given for the purchase of electric vehicles.

Educator expense deduction – in prior years teachers, principals and counselors of grades kindergarten through 12 could take a deduction of up to $250 for certain classroom expenses paid from their own pockets. This provision has been regularly renewed ever since its initial expiration date in 2005 and, while $250 may not sound like much, it has been used by educators to save millions of dollars over its lifespan.

Above the line education deduction – through 2013, up to $4,000 in expenses related to higher education could be taken as an above the line deduction, subject to limitations based on filing status and adjusted gross income.

IRA charitable rollover provision – through 2013, persons older than 70½ could make tax-free IRA distributions directly to charitable organizations in an amount of up to $100,000.

First year 50 percent bonus depreciation – in an effort to jump-start a flailing economy, for the past few years small business owners have been able to depreciate 50 percent of the cost of certain assets for that asset’s first year in service. This provision is considered likely to be extended into the 2014 tax year.

R&D tax credit – this is a general business tax credit for companies incurring research and development costs. It has been extended at least 14 times since its inception in the early 1980s, and is widely expected to be extended again.

The New Markets tax credit – established as part of the Community Renewal Tax Relief Act of 2000, this was intended to encourage revitalization efforts in impoverished and low-income neighborhoods, and it provides tax credit incentives to investors in certified Community Development Entities that invest in such neighborhoods.

Congress will hopefully consider all of these tax breaks and many, many others in the next few weeks. John Koskinen, IRS commissioner, has already warned Congress that if uncertainly about these issues continues into December the start of the 2015 tax season will likely be delayed – and this delay will almost certainly mean delayed refunds.

*Andrew Zashin writes about law for the Cleveland Jewish News. He is a co-managing partner with Zashin & Rich, with offices in Cleveland and Columbus.