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All Contents © 2019The Kiplinger Washington Editors
By Kevin McCormally, Chief Content Officer
| February 15, 2018
You have to hand it to the U.S. Congress. Where else, in the middle of the night, with the government briefly shut down for lack of funds, would a group of men and women bring back to life tax incentives that died 13 months before? And, without a hint of irony, allow them to die again before the ink was dry on the law reviving them?
The big budget bill that reopened the federal government February 9 included a slew of “extenders,” tax breaks that had expired at the end of 2016. The new law brought them back to life for 2017 tax returns only, which means they had already expired again before President Trump signed the legislation. Three of them might save you money on your 2017 tax return. They are not mentioned in the printed tax instructions, of course, because they were, uh, dead, when those instructions went to press.
The IRS and tax software companies are scrambling to update forms and directions. If you qualify for one of these breaks, you’ll have to delay filing until they’re ready. If you have already filed, you’ll need to file an amended return to take advantage of these zombie tax breaks.
If you make too much to claim the American Opportunity or Lifetime Learning credit (which can be more valuable if you qualify), this write-off can save you money. On your 2017 return, you can deduct up to $4,000 of what you paid in qualifying tuition and fees for yourself, your spouse or your dependents. The $4,000 cap applies if your adjusted gross income is under $65,000 on a single return or under $130,000 if you’re married and file a joint return. For singles, the maximum write-off drops to $2,000 if your income is more than $65,000, and it disappears when income passes $80,000. For married couples, the max is $2,000 when income passes $130,000, and it’s wiped out completely if your AGI exceeds $160,000. If you qualify for this break, you can claim it whether or not you itemize deductions.
For about a decade, homeowners who had to pay private mortgage insurance on loans originated starting in 2007 were allowed to deduct the cost if they itemized deductions on Schedule A of their tax returns. (PMI is usually charged if you put less than 20% down when you buy a home.) But, that write-off expired at the end of 2016 ... until Congress brought it back to life retroactively in February 2018.
If you paid PMI in 2017, deduct the cost ... as soon as the IRS announces how you can do it. This deduction phases out if your adjusted gross income exceeds $100,000 and disappears if your AGI exceeds $109,000.
In response to the housing crisis a decade ago, Congress cut distressed homeowners a break by changing the rules for forgiveness of debt. Generally, when a debt is forgiven, the law treats the amount as income to the debtor. But, when it comes to mortgage debt forgiven as part of a foreclosure or short sale, up to $2 million of discharged debt on a principal residence is tax free.
That break expired at the end of 2016, but the budget bill brought it back to life ... for 2017 tax returns. Qualifying debt is money borrowed on a mortgage secured by your principal residence used to buy, build, or substantially improve that residence.