Nine tax breaks you're probably missing
The U.S. tax code clocked in at more than 73,000 pages last year. Here's what's hiding inside.
NEW YORK (MainStreet) — The tug of war over what credits and deductions the U.S. government allows and what taxpayers take is a grim and calculated struggle, and one that repeats itself every year.
Lately, it looks more like a one-sided struggle.
Taxpayers lose leverage by not paying close attention to the tax breaks scattered through the U.S. tax code — which clocked in at more than 73,000 pages last year, compared with only 400 pages almost exactly 100 years ago.
One advocate for taxpayers is looking to level the playing field, offering up some fresh tax deductions and some tried-and-true deductions that often go overlooked by Americans.
That advocate is Rebecca Pavese, a certified public accountant and director of the tax practice at Palisades Hudson Financial Group, a Scarsdale, N.Y., wealth management firm.
Pointing to recent changes from Congress, Pavese offers up these brand-new tax breaks for Americans (she defines these deductions as “created, extended or made permanent” by recent changes to the U.S. tax code by Congress):
- Student-loan interest. Voluntary interest payments are now deductible. You can deduct the full amount, up to $2,500 yearly (subject to income phase-out limitations), even if you paid more than required, Pavese says. In addition, you can now deduct interest as long as you have the loan, not just for the first 60 months, as was the case. The new law makes that change permanent.
- Cancellation of mortgage debt on a principal residence. If a lender forgave you mortgage debt through 2013, you don’t have to report that amount as income. That’s a big relief to homeowners who got a price break via home loan modifications.
- Donating land for conservation. Pavese says taxpayers who donated capital-gain real property for conservation purposes in 2012 can deduct the contribution up to 50 percent of their adjusted gross income. The old limit was 30 percent.
- Private mortgage insurance premiums. PMI premiums are now treated just like qualified residential mortgage interest and are deductible. “This deduction is commonly missed because PMI premiums have only recently been deductible,” Pavese says. The law made the old temporary rule permanent.
- Child tax credit. The new law permanently extends the credit. You can get a $1,000 credit for each dependent child under 17. The catch: The credit starts to phase out for married couples with $110,000 of modified adjusted gross income, or $75,000 for single taxpayers. The credit is reduced by $50 for each $1,000 of income above the threshold amount.
Pavese offers some overlooked deductions many taxpayers miss. She includes:
- Moving expenses. Look into deducting qualified moving expenses if you moved because of a change in your job location or because you started a job.
- Adoption expenses. Money spent pursuing an adoption may be deductible too. In 2012, the tax credit maxes out at $12,650 per child.
- Residential energy credits. You can save on taxes through installing energy-saving windows, doors, insulation and solar panels.
- Don’t give up on IRA contributions. Pavese says some IRA contributions can be made after April 15. If you’re eligible, you can make deductible contributions to a standard IRA until April 15. But you can contribute to a Simple IRA, SEP IRA or Keogh plan up until you file your return. If you apply for an automatic extension, you can file as late as Oct. 15.
Taking what’s available to you is fair play for taxpayers. Putting Pavese’s tips to good use should keep Uncle Sam from taking what’s rightfully yours this tax season.