As if tensions weren’t running high enough in Washington, D.C., Congress has another battle on its hands: renewing a package of breaks for the 2018 tax year.
Say hello to the “tax extenders,” a series of temporary provisions in the code that have expired and must be reauthorized by elected officials retroactively each year in order for taxpayers to use them.
These extenders run the gamut: Previously, they have included write-offs on racehorses and motorsports complexes, as well as credits to people who buy green vehicles.
“At this moment, I would expect that an agreement is reached on the tax extenders package,” said Nicole Kaeding, director of federal projects at the Tax Foundation.
“There seems to be interest in both chambers and relevant committees to get this done, but now the question is one of timing,” she said.
Kaeding expects Congress to address the extenders in an upcoming government funding bill.
Taxpayers could be in for a headache if Congress doesn’t renew the tax breaks.
“You can’t claim the extenders if they aren’t passed,” said Kathy Pickering, executive director of The Tax Institute at H&R Block. Sure enough, the 2018 individual income tax return — Form 1040 — doesn’t have any line items for the extenders.
If Congress were to pass a measure allowing the breaks for 2018, the IRS would have to revise the 1040 and tax prep software providers will have to update their programs to reflect it, said Kaeding.
What do you do if you’re trying to rush your return out the door and you need certainty?
“You could either do nothing, and if the law changes, file an amended return,” said Tim Steffen, CPA and director of advanced planning at Robert W. Baird & Co. “Or you can wait a month or two and see if something changes.”
Here are three big extenders that are still undecided for 2018.
For the 2018 tax year, homeowners who itemize deductions on their tax return can deduct the interest on their mortgage and home equity loan or line of credit — up to $750,000 in total qualified residence loans.
The debt must go toward buying, building or substantially improving your dwelling in order to qualify for the interest deduction.
The private mortgage insurance tax extender allows you to deduct your mortgage insurance premiums as well.
Mortgage insurance premiums are an additional cost you pay each month if your original down payment generally is less than 20 percent of the sales price.
Maybe your home was foreclosed in 2018 or you got rid of your dwelling in a so-called short-sale.
If your lender canceled or forgave the loan on your principal residence as a result, there’s a tax extender that allows you to exclude up to $2 million (if married) from your gross income for the discharge of the debt.
Normally, the cancelled debt is treated as income and subject to taxes, but this break offers some relief.
Have a child in college?
Higher-education tuition costs and other related expenses of up to $4,000 a year can be deducted. What’s more, this is an above-the-line deduction, meaning you don’t have to itemize on your taxes to get it.
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