Tax return form. (Photo: GetUpStudio/Getty Images/iStockphoto)
Lawmakers are taking steps to renew a package of tax breaks, potentially making a slew of expired deductions available once again.
The so-called tax extenders are a series of temporary provisions in the code that have expired and must be cleared by Congress retroactively each year in order for filers to claim them.
Those breaks cover a variety of measures, including a deduction for qualified tuition expenses and credits for two-wheeled electric vehicles.
On Tuesday, Rep. Mike Thompson, D-Calif., proposed the Taxpayer Certainty and Disaster Relief Act, which would extend a number of expired provisions through 2020.
The bill will be marked up by the House Ways and Means Committee on Thursday.
Elected officials hit an impasse over the federal shutdown and other battles this spring, so the extenders weren’t approved in time for the 2018 tax filing deadline of April 15.
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That meant that people who would have otherwise been eligible for these deductions and credits couldn’t claim them.
If Congress were to pass a measure allowing the extenders, taxpayers would have to file an amended return for 2018 to take those breaks, said Nicole Kaeding, director of federal projects at the Tax Foundation.
Expect a continued fight in Congress.
“We’ll see what happens in the House, but in the Senate, there’s no chance of it being enacted as written,” said Mark Mazur, director of the Urban-Brookings Tax Policy Center.
Here are four tax breaks you might get back if Congress reinstates the extenders.
Under the Tax Cuts and Jobs Act, taxpayers were able to deduct qualifying medical expenses that exceed 7.5% of their 2018 adjusted gross income.
That provision was supposed to expire at the end of last year, resulting in the threshold rising to 10% of AGI.
This package of extenders would keep the medical cost threshold at 7.5% of AGI through the end of 2020.
Debt forgiveness on foreclosure
Let’s say your home was foreclosed or you got rid of your dwelling in a short sale (where your lender accepts less than you owe.)
If your lender canceled or forgave the loan on your principal residence, there’s a tax extender that allows you to exclude up to $2 million (if married) from your gross income for discharge of the debt.
Normally, the canceled debt is treated as income and subject to taxes, but this break offers some relief.
The proposal extends this break, applying it to debt discharges occurring before Jan. 1, 2021.
Tuition and fees
If you have a child in college, you might be able to deduct up to $4,000 a year in higher-education tuition costs and other expenses.
This is an above-the-line deduction, so you don’t have to itemize to get it.
The Ways and Means bill proposes extending the break to the end of 2020.
For the 2018 tax year, homeowners who itemized deductions on their tax return could 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 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.
The extenders would allow this break to apply to amounts paid up until Dec. 31, 2020.
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