4 Tax Breaks That Are Set to Disappear This Year
While most provisions of the tax code are permanent until specifically repealed, others come with an annual expiration date and must be renewed each year, or else they disappear forever. The majority of these "tax extenders" were made permanent with the PATH Act of 2015. Now it seems likely that Congress -- faced with an already challenging budget -- will not renew the remaining tax extenders for the 2017 tax year, meaning that taxpayers who previously claimed one or more of the following deductions and creditswill face a substantially increased tax burden this year.
Mortgage premium insurance deduction
Homeowners can continue to deduct the interest they pay on their mortgages along with any real estate taxes paid during the tax year, but they will no longer be able to deduct their private mortgage insurance (PMI) premiums -- a deduction claimed by 4.2 million homeowners in 2014 alone. PMI is required for any mortgage for which the borrower paid less than 20% down. This insurance protects the mortgage lender should the borrower default on his payments. Homeowners do have the option of having the lender cancel PMI coverage once they have at least 20% equity in the home, and once this tax break disappears, that would be an even higher priority.
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Tuition and fees deduction
The tuition and fees deduction allows taxpayers to deduct up to $4,000 of educational expenses for themselves, their spouses, and their dependents. Thanks to this tax break, tuition and related expenses required for higher education could be deducted before calculating AGI, meaning that it could make taxpayers eligible for other breaks that require income limits. This deduction, in concert with tax credits such as the American Opportunity Credit and the Lifetime Learning Credit, makes higher education a great deal more affordable. Sadly, it too is set to vanish this year unless Congress intervenes.
Energy-efficient home improvement credit
This tax credit allows taxpayers to claim back 10% of the cost of certain energy-efficient home improvements, including qualified window and door replacements. The idea behind this credit was to make it easier for homeowners to afford improvements that have high upfront costs, but result in reduced utility bills over time. With a lifetime limit of $500, this isn't one of the more impressive tax credits, but many homeowners would certainly argue it has been nice to have. Note that if you purchased and installed qualified improvements before January 1, 2017, you can continue to claim them -- but unless the credit is extended, any updates installed in 2017 or later will no longer be eligible for the credit.
Mortgage debt relief exclusion
The IRS considers debt cancellation to be income: In other words, if you borrow $10,000, and your lender forgives $5,000 of the debt, you have to pay taxes on that canceled $5,000 of debt as though it was part of your income. However, theMortgageForgivenessDebt Relief Actof 2007excludes mortgage cancellation or forgiveness from this rule, meaning homeowners who had part or all of their mortgage debt forgiven by the lender don't have to pay taxes on it. Unfortunately, it looks like this will no longer be the case in 2017.
What are the odds?
While Congress has so far kept these tax extenders going each year, the situation has recently changed significantly. President Trump's planned tax reform package, combined with the current challenging federal budget situation, make it unlikely that Congress will renew these tax breaks. It seems probable that lawmakers will wait to see what form the new tax package takes before deciding whether or not to include these tax breaks in it.
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