Some tax breaks still in limbo

Just a month before the April 15 tax deadline, the future of some key tax breaks that might trigger a bigger federal income tax refund for 2018 remains in limbo.

Do you have a kid in college and think you could qualify for a tuition and fees deduction? Did you go through a foreclosure?

Did you spend money for a qualified energy improvement, such as adding home insulation or energy efficient windows? Did you pay private mortgage insurance – or what’s known as PMI?

Well, there’s a shot that Congress could take action in the coming days or weeks regarding some tax breaks that could help many people but officially expired at the end of 2017.

Efforts are underway in Washington to extend those tax breaks retroactively to 2018 tax returns – including a bill called the Tax Extenders and Disaster Relief Act of 2019.

James O’Rilley, tax director for Doeren Mayhew & Co. in Troy, Michigan, said people who might benefit, if any of the extenders are put back into place, have only a few choices.

Either wait as long as you can to file – “or file now and amend later if extenders pass,” he said.

O’Rilley said he’s been explaining the situation to clients who could benefit with an extension. Many are inclined to wait to file the return until there’s more clarity.

“Most are holding out hope that the extenders will pass soon,” O’Rilley said.

But if you’re expecting a large tax refund anyway, you might not want to hold up getting that money on the hopes of a maybe-someday tax break.

What’s unsettling is that tax filers are waiting so long to know the score. Last year, some of the zombie tax breaks returned from the dead as of Feb. 9 with the passage of a bipartisan budget act.

Now we’re in mid-March and we still don’t have a clue. A good deal of uncertainty remains about when – or if – some of these tax breaks will be extended.

It is possible to amend that return – if the tax breaks that expired at the end of 2017 are extended into 2018.

H&R Block said it will not charge its clients an extra fee to amend a return if the 1040X is needed to tap into one of the extenders, such as the deduction for private mortgage insurance premiums.

Here’s a look at some tax breaks that remain up in the air for 2018:

Deduction for college tuition, fees

If you have children in college, it may be possible to reduce the amount of your income subject to tax by up to $4,000.

Again, this deduction would need to be extended by Congress to cover 2018 expenses. The deduction is reported on Form 8917, but that form wasn’t revised earlier in the tax season because the tax break had expired in 2017 and had not been extended yet.

What’s key here is you do not need to itemize to claim this deduction. The new rules under the Tax Cuts and Jobs Act of 2018 mean that many people will no longer be itemizing.

Married couples filing jointly are looking at a standard deduction of $24,000 on their 2018 federal income tax returns – that’s up $11,300 from the old amount of $12,700 on the 2017 tax returns.

Single filers are looking at a standard deduction of $12,000 – up by $5,650 from the old amount of $6,350 on 2017 returns.

An additional standard deduction can apply for those who are 65 or older, or blind.

Under the old rules, a tuition and fees deduction was available for incomes of $65,000 to $80,000 for single filers or head of household. The income phaseout limit was $130,000 to $160,000 for those who are married filing joint returns. The tax break did not apply for those who are married filing separately.

The phase-out limits were higher than the Lifetime Learning Credit, said Lynn Ebel, director of the Tax Institute at H&R Block.

But you cannot claim the tuition and fees deduction as well as an education credit, such as an American Opportunity Tax Credit or the Lifetime Learning Credit for the same expense.

See www.irs.gov/extenders for more information going forward.

Tax break tied to foreclosures

In many cases, you’re on the hook when debt is canceled by a lender and then you’re required to report that debt forgiveness as income. But some leeway was put in place after the financial crisis for those who went through a home foreclosure on their principal residence.

Unless Congress extends such a break, though, you’re going to have to report debt cancellation related to a foreclosure or a short sale. Pay attention to Form 1099-C for Cancellation of Debt, which is sent by lenders.

The PMI tax deduction

Homeowners who made a small down payment may be required to pay private mortgage insurance – or what’s known as PMI.

To get this tax break – if it’s extended – you do need to itemize your deductions. So if you take the higher standard deduction on your 2018 tax return, the extension of this break wouldn’t help you anyway.

About four million tax filers claimed this deduction on Schedule A of their 2015 returns, the last data available, according to the IRS. The deduction added up to about $6.3 billion in tax breaks.

For tax year 2018, the PMI deduction won’t be available unless the extender provisions tax law changes.

Energy tax credits

Homeowners lost a key tax break relating to energy-efficient improvements, such as purchases of windows and insulation.

The tax credits relating to residential energy-efficiency expired at the end of 2017.

Again, if those tax breaks are extended, it may be possible to reduce your tax bill – or boost your tax refund.

Purchases of appliances, such as an energy-efficient clothes dryer or dishwasher, weren’t covered. But there was a combined limit of up to $500 in tax breaks for other purchases, including energy-efficient central air conditioning systems.

“Most are holding out hope that the extenders will pass soon.” James O’Rilley, tax director for Doeren Mayhew & Co.