- Los Angeles Is the Latest City to Consider a Minimum Wage Hike
- Corporate Taxes Are 10 Percent of Federal Revenue, Down from 30 Percent
- Spare Tires Are Disappearing From New Cars
- Ask Stacy: How Am I Supposed to Live on Social Security?
- What If You Can’t Pay Your Medical Bills?
- IPhone 6 Is Expected to Include a Mobile Wallet
- SAT Tutor Caters to the Kids of the Very Wealthy
- Report: Students Should Beware of Campus Debit Cards
When Congress wants to encourage a certain behavior – fuel conservation, for example – it can approve a tax credit or deduction to make that behavior more attractive. And when times are financially tight, Congress often creates or extends tax breaks.
With the economy improving, Congress is feeling less generous. These eight tax breaks are set to expire, so grab them while you can. Unless Congress acts – it’s happened plenty of times before – these tax breaks will be history after Dec. 31.
1. Beefed-up home energy efficiency
You can get a federal tax credit of up to $500 for the purchase of certain energy-efficient home upgrades and appliances. The Nonbusiness Energy Property Credit allows you a tax credit of 10 percent of the cost of materials, up to $5,000.
Eligible products include certain roofs, energy-efficient exterior windows and doors, and insulation installed at your primary home. You can include installation costs when you buy eligible biomass fuel stoves, water heaters and high-efficiency heating and air conditioning systems.
The credit has limits for some products, like windows ($200), central air conditioners ($300), heat pumps ($300), furnaces ($150) and corn-fueled stoves ($300), says Forbes.
Not all energy-efficient improvements qualify, so be sure you have the manufacturer’s credit certification statement. It is usually available on the manufacturer’s website or with the product’s packaging.
You can use up to $500 in credit in your lifetime. EnergyStar.gov tells more about the credits.
States have incentives, too. Find them at the Database of State Incentives for Renewables and Efficiency.
2. Electric vehicles
Tax credits for electric vehicles also are due to sunset at year’s end. All-electric vehicles that qualify for a tax credit of up to $7,500 include: the 2013 Fiat 500e, a 2012–14 Ford Focus EV, the 2014 Chevrolet Spark, the 2011–13 Leaf, 2012–14 RAV4 EV and others. Here’s the full list.
Also on the way out: a 10 percent tax credit of up to $2,500 for buying a two- or three-wheeled electric vehicle (like electric motorcycles and enclosed three-wheelers) that has batteries with a stored energy capacity of at least 2.5 kilowatt-hours, says EV World.com. Larger, four-wheeled neighborhood electric cars with a battery capacity of at least 4 kwh also qualify.
In the new year, you can still get a tax incentive of up to $7,500, though, for “plug-in” hybrid vehicles like the 2012-2014 Ford Focus Electric, the 2013 Ford Fusion Energi, the 2013 Ford C-MAX Energi, and Toyota’s 2012–14 Prius plug-in hybrids. Here’s the whole list. These credits will gradually “phase out for a given manufacturer once that manufacturer has sold 200,000 qualifying vehicles in the United States,” says the Alliance to Save Energy.
3. Classroom supplies
If you’re a teacher, you might have been taking advantage of the $250 deduction for your unreimbursed purchases of classroom books, computer equipment and supplies. Stock up now because this deduction (here’s the IRS description) is set to expire.
4. Conservation easements
A tax deduction for a tool that has helped preserve greenbelts, farmland and wildlife habitat is on the way out. A conservation easement is a legal agreement between a property owner and a land trust or government. The owner gives up some rights to use the land in exchange for claiming a tax-deductible charitable donation. FindLaw has details.
“For example, you might give up the right to build additional structures, while retaining the right to grow crops,” says the Land Trust Alliance. The restrictions stay with the land if it’s sold. Easements also help families pass undeveloped land to future generations. By removing the property’s development potential, its value is reduced, lowering the potential estate tax, the alliance says.
5. State and local sales tax
You can deduct the state and local sales tax you paid during the year, but only if you itemize, says Forbes.
And you must choose: The IRS guidance says you can deduct either state and local sales tax or state income tax but not both.
A tax roundup by information services company Wolters Kluwer is optimistic that Congress may extend this tax break. But just to be sure, make any big purchases you have in mind before the end of the year if you want to deduct the sales tax.
6. Forgiven mortgage debt
In effect, you’ve earned money when the bank lets you off the hook for a part of your mortgage balance. After the tsunami of foreclosures brought pleas from homeowners, lenders sometimes forgive a portion of a borrower’s mortgage debt in a foreclosure, short sale or mortgage modification. The IRS considered this taxable income until Congress passed the Mortgage Forgiveness Debt Relief Act in 2007. It lets taxpayers exclude from taxes up to $2 million in mortgage debt forgiveness on their principal residence. The IRS explains it.
That break is set to disappear. (Those using the Home Affordable Modification Program’s Principal Reduction Alternative should read this article.)
7. Tax parity for commuters
Workers who drive to work can defer $245 a month of pretax salary in 2013 to help pay for parking. Those costs are excluded from your gross income for tax purposes, says the IRS.
The transit parity tax leveled the playing field, giving the same benefits to commuters who use public transit or van pools. But the tax break for those using public transit will shrink to $130 a month in 2014, while increasing to $250 for drivers who pay for parking. Hang onto your receipts next year anyway, in case Congress extends the break retroactively. For more, see National Public Radio’s recent coverage.
8. Charitable contributions from IRAs
If you’re 70½ or older, you can transfer up to $100,000 out of your individual retirement account to charity. This alternative to using an itemized deduction is about to sunset, too.