Tax Breaks You Need To Know About

Congress’s most recent COVID-19 relief bill doesn’t just extend critical programs like unemployment benefits; it also renews a host of valuable tax breaks set to end on December 31, 2020.

According to CNBC, the 33 deductions and credits, or “tax extenders,” are provisions for racehorses and even two-wheeled electric vehicles. Several measures are permanent, while the deadline for others has been postponed to 2025 when Donald Trump’s 2017 Tax Cuts and Jobs Act will lapse.

“We won’t have to do that waffling back and forth with several of these extenders, and another 11 of them got a five-year extension,” Erica York, Tax Foundation’s Center for Federal Tax Policy economist, told CNBC. “I think taxpayers are going to have a lot more certainty.”

What does this mean for you? Below, CNBC breaks down what you should know about these extenders.

Medical Bills

When the Tax Cuts and Jobs Act was implemented in 2018, taxpayers who itemized their deductions on their federal taxes would write off eligible medical bills that surpassed their adjusted gross income by 7.5%.

This measure was initially scheduled to end on December 31, 2018, which would have increased the percentage to 10%. Congress extended the expiration date for the 7.5% threshold through 2020, but the measure is permanent under the most recent relief package. 

This benefit is only available if you itemize your deductions. For 2020, the standard deduction is $12,400 for single-filers and $24,800 for married couples filing jointly.

Lifetime Learning Credit And Tuition Deductions

The eligible tuition tax break allowed parents of university students to take as much as $4,000 in college expenses as an above-the-line-write-off. This measure was eligible for an extension on December 31, 2020, but lawmakers rescinded it in the latest bill. 

Rather, they broaden the lifeline learning credit, which offers up to $2,000 in tax breaks for each return to ease the burden of undergraduate, graduate, and Ph.D. costs. Lawmakers also extended this benefit to higher-income earners. The lifeline learning credit decreases for single filers with a modified adjusted gross income of $80,000 and $160,000 for couples filing jointly. 

York explained that the change makes it easier for taxpayers to decide between lowering their taxable income with deductions or reducing their tax liability through credits. “A $4,000 deduction sounds better than a $2,000 credit, but some people would choose the deduction even if it wasn’t the best choice for them. They’d leave money on the table.”

Debt Forgiveness During Foreclosure

When borrowers receive forgiveness, they still have to pay a tax, as the amount of discharged debt is classified as income. A tax extender for homeowners who received mortgage forgiveness as a result of a short sale or foreclosure would alleviate this costly burden.

Originally, the benefit was only applicable to debt forgiven before this year. Congress renewed it in the relief bill, though it will only lower the amount of canceled debt you can omit from your gross income. Under the new rule, single filers can exclude up to $350,000, with $750,000 for couples. Initially, the amounts were $1 million and $2 million for respective taxpayers. 

Mortgage Insurance Premiums

If you paid less than 20% of your home’s sale price during the initial down payment, you paid extra monthly fees, or private mortgage insurance premiums. But from now until the end of 2021, you can write-off these premiums if you itemize your federal tax deductions.

Eligible taxpayers can write off as much as $750,000 on their home loans by deducting mortgagee interest payments or home equity lines of credit. To qualify, homeowners must use the borrowed funds to cover the cost of purchasing, building, or significantly upgrading a house.

Employer Payments For Student Loan Debt

Under the CARES Act, employers could pay up to $5,250 toward workers’ student loan debt each year. Employees would not have to pay income taxes on this money. This tax extender was scheduled to end last year, but lawmakers extended it through 2025 in the recent bill.

Green Tax Breaks

Congress also included several environmentally-friendly tax benefits for the duration of 2021. The ones that are most relevant to you include:

 

 

 

 

 

Source
  • Mercado, Darla. “The Covid Relief Bill Will Keep These Tax Breaks around Even Longer.” CNBC, CNBC, 4 Jan. 2021, www.cnbc.com/2021/01/04/the-covid-relief-bill-will-keep-these-tax-breaks-around-even-longer.html.

 

Ian Schindler