Federal budget legislation enacted in late December did a lot more than fund the government for another year.
It also extends several tax breaks for individuals that had expired already or were about to expire, making them available for your tax return that’s due in April (and the one after that).
So, with the tax filing season now officially underway, let’s take a look at some of the tax breaks that the recent budget law has revived.
1. Medical expense deduction
Taxpayers who itemize their federal income taxes, as opposed to taking the flat standard deduction, might be eligible for the medical expense deduction. This tax break allows you to write off some of various types of medical and dental costs.
To qualify for this deduction, however, your eligible medical expenses must exceed a certain percentage of your income, which is referred to as a “floor.” And that floor has been in flux since the passage of the Affordable Care Act of 2010, as we detailed in “3 Bold Ways Retirees Can Cut Health Care Costs.”
The latest change is that a medical expense deduction floor of 7.5% has been extended through tax year 2020. That is to say, the floor will not revert to 10%, as was set to happen for tax year 2019.
This change makes it easier to qualify for the medical expense deduction and makes the deduction more valuable for those who qualify for it.
Specifically, this change means that folks whose eligible medical expenses exceeded 7.5% of their adjusted gross income (found on your tax return) can deduct the amount of those expenses that exceeds 7.5% of that income, assuming they otherwise qualify for the deduction.
For help determining whether you’re eligible for the medical expense deduction, try out the IRS website’s interactive tool “Can I Deduct My Medical and Dental Expenses?”
2. Mortgage insurance premium deduction
This tax break treats mortgage insurance premiums like mortgage interest, which is an itemized deduction.
So, the extension of this tax break means that folks who paid mortgage insurance premiums in 2019 can deduct that cost on their next tax return if they itemize their deductions, rather than taking the standard deduction, and if they otherwise qualify for the mortgage insurance premium deduction.
For help determining whether you’re eligible for this break, try out the IRS’ interactive tool “Can I Deduct My Mortgage-Related Expenses?”
3. Tuition and fees deduction
Thanks to an extension of this tax break, you still can deduct qualifying higher-education expenses, assuming you are otherwise eligible for the deduction.
Education expenses that qualify for this deduction generally can include tuition and required fees, such as amounts for books, supplies or equipment used in a course of study.
Note that unlike the prior two deductions, the tuition and fees deduction is not an itemized deduction.
So, if you are eligible for this deduction, you can take advantage of it regardless of whether you opt to itemize your deductions or take the flat standard deduction on your next tax return. (That’s good news, as taking the standard deduction has become more common since it was increased by the federal tax reform law of 2017.)
4. Exclusion for canceled mortgage debt
If you borrow money from a commercial lender that ends up canceling or forgiving your debt, the amount of the canceled debt could count as income for tax purposes.
With the passage of the Mortgage Forgiveness Debt Relief Act of 2007, however, taxpayers generally could exclude canceled mortgage debt from their taxable income, but only for set tax years. Now, the tax years to which this exclusion applies have been extended.
What’s your take on this news? Sound off by commenting below or on the Money Talks News Facebook page.
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