Lost somewhere in the news cycle, probably due to the fact that there wasn’t the typical accompanying government shutdown apocalyptic threats (anyone remember the “fiscal cliff”?), Congress actually came to a rather quiet agreement on a budget spending and tax deal that included extending a number of popular tax breaks. The “extenders” legislation was then signed into law by President Obama.
Oddly, nobody is reporting the full extent of the tax breaks that were extended and for how long as part of the tax deal. Considering that most of us pay taxes, I thought I’d do us the favor of breaking it down in simple terms here.
The extenders tax breaks, in full, can be found in Senate Bill 1946, aka the “Tax Relief Extension Act of 2015“, documentation. Many of the tax breaks are directed towards businesses, so I’ll just focus on the high visibility ones that individual taxpayers might find of interest.
Short-Term Tax Break Extensions:
The following tax breaks were retroactively extended for 2015. Fortunately, they were actually extended forward through 2016, so you don’t have to wait until the end of the year to know whether you’ll get a credit, like you have the last few years. This allows a lot better planning for everyone and no reason to hold back on making a purchase in the case of home energy efficiency improvements.
Deduction for mortgage insurance premiums: for those who itemize their deductions. Deduction amount is subject to income limitations – if your adjusted gross income is $100,000 or less ($50,000 or less if married filing singly), you can write off all your mortgage insurance premium payments. Above $100,000 (or $50,000), the amounts you can deduct phase down and zero out when your income exceeds $109,000 ($54,900). Mortgage tax deductions are never worth buying a home as some advocate – just something to keep in mind. 😉
Home Energy Tax Credits: for improved energy efficiency around the home with added insulation, upgrades to efficient windows, doors, water heaters, furnaces, etc. were also extended through 2016. With them, you may be eligible for a 10% tax credit on their cost up to a maximum credit of $500. There are some limitations, so check out my updated Energy Tax Credits post for more specifics.
Long-Term Tax Break Extensions:
Solar Investment Tax Credit (ITC): the 30% solar investment tax credit was set to expire at the end of 2016, but was extended fully through 2019, and then will gradually reduce through 2021. Additional energy investment tax extensions in wind, fuel cells, and geothermal were also granted.
Permanent Tax Break Extensions:
As part of the tax deal, a number of tax credits received rare ‘permanent’ extensions status. This means that they are not subject to the annual back and forth negotiations and you can plan on these continuing for the foreseeable future.
Child Tax Credit: the maximum $1,000 Child Tax Credit’s refundability through the Additional Child Tax Credit was made permanent (refundable credits can result in actual cash back versus the less attractive non-refundable credit, which can only be deducted from tax liability). With the Child Tax Credit, the amount that may be refunded is equal to 15% of earned income above $3,000. The $3,000 threshold had been set to expire in 2017 and reset to $10,000, which would have reduced the refundable amount of the credit available. The $3,000 threshold was permanently extended as well.
Tuition Tax Credits and Deductions: the American Opportunity Tax Credit (AOTC), the most popular education tax credit, was permanently extended (it was set to expire in 2017). The AOTC permits up to a $2,500 college tuition tax credit. Additionally, an extension of up to $4,000 can be deducted for education expenses for those not eligible for the AOTC.
State and Local Sales Tax Deduction: a number of states do not have income taxes and instead focus on sales taxes. Being able to deduct State and local sales tax in these states with no income taxes has been extended permanently.
Earned Income Tax Credit (EITC): is a tax credit for low-income working families that recently had more generous but temporary EITC provisions for parents with children and married couples. The more generous provisions were set to expire in 2017, but were made permanent. Married workers will have a higher income threshold above which the credit would start to be reduced. And the maximum credit for families with 3+ children was raised to 45% of household earnings (up from 40% previously).
There are plenty more, but in general, almost every major credit and deduction was extended at least through 2015 and 2016.
May the crediting and deducting be with you.