Republican presidential hopefuls have talked often this year about overhauling the tax code by lowering rates and closing loopholes. Many of those loopholes have become the subject of an annual game in which Congress waits until the last minute — or longer — to reinstate the supposedly temporary provisions after they’ve expired.
The full package of 52 tax breaks, also known as tax extenders, mostly affect business and industry, but quite a few also allow everyday Americans to reduce how much they owe Uncle Sam each year. “These are popular tax provisions that Americans like to claim,” said Jackie Perlman, senior tax research analyst with the Tax Institute at H&R Block. “They are expired or need to be renewed. And it’s dependent on Congress to do that.”
This year, six tax benefits have expired and won’t be available to taxpayers preparing their 2015 returns unless lawmakers choose to extend them again:
1. Qualified charitable rollovers
At age 70.5 years, Americas are required to take a minimum distribution from their IRA or Roth IRA funds. Since 2006, if they roll over part of that distribution directly to a charity, they can reduce their adjusted gross income by that amount, up to $100,000. So, if a senior must take out $5,000 from his IRA to satisfy the minimum distribution requirement, but gives $1,000 to charity, only $4,000 of that distribution is taxed, says Perlman.
2. State and local sales tax deduction
Since 2002, taxpayers who itemized their deductions had the option to claim state and local sales taxes or state and local income taxes on their federal return. They cannot deduct both. If they claimed sales taxes, they would either have to save their receipts throughout the year or tabulate the total they paid in sales taxes using a worksheet or calculator provided by the IRS.
The provision was especially helpful for residents in Florida, Nevada, Texas, Washington, Wyoming and South Dakota, where there is no income tax. Last year, this deduction was used on 9.75 million tax returns worth $16.14 billion (or $1,655 per return), according to estimates from H&R Block’s Tax Institute using historical IRS data.
3. Mortgage premium insurance deduction
This deduction allowed taxpayers to subtract their annual payments for private mortgage insurance. Homeowners are required to pay for such insurance if they put less than 20 percent down toward their home purchase. The insurance protects the lender from default on the home loan.
The deduction was created by the Tax Relief and Health Care Act of 2006 and was supposed to expire in 2007. But lawmakers have extended it each year through 2014 to help the housing market recover. Last year, this deduction was taken on 4 million tax returns worth a total of $5.83 billion (or $1,465 per return), according to the Tax Institute.
4. Mortgage debt relief
Typically, the amount of debt that has been canceled or forgiven is taxable. But since 2007, homeowners who had their mortgage restructured or debt forgiven from a foreclosure or short sale were exempt from this taxation up to $2 million under the Mortgage Debt Relief Act. Last year, this deduction was taken on 336,501 tax returns worth $29.42 billion (or $87,422 per return), according to the Tax Institute.
5. Tuition and fees deduction
Taxpayers have been able to deduct higher education expenses paid during the year, up to $4,000, for themselves, their spouse or their dependents. Filers don’t have to itemize their taxes to claim this deduction. It can’t be claimed if married filing separately or if someone claims the filer as a dependent. H&R Block’s Tax Institute estimates that this deduction, which was first instituted in 2002, was taken on 1.2 million tax returns last year worth nearly $2.71 billion (or $2,290 per return), according to H&R Block’s Tax Institute.
6. Educator expense deduction
Educators have been able to deduct up to $250 a year in out-of-pocket expenses for books, supplies, computer equipment or other equipment used in class. This deduction applies to K-12 teachers, counselors, principals or aides who worked 900 hours a school year. Last year, this deduction, which can be claimed without itemizing, was taken on 3.5 million tax returns worth $869.6 million (or $250 per return), according to H&R Block’s Tax Institute.