Part of the recently passed Tax Relief, Unemployment Insurance Reauthorization and Job Creation Act of 2010 has extended many popular deductions and credits for individual taxpayers through 2012. Many of these are part of the list of tax “extenders” that Congress has temporarily extended (usually at the last minute) for the last several years. These provisions benefit taxpayers at various income levels.
Itemized Deduction Limitation and Personal Exemption Phase-out Postponed
The “Pease” limitation (named for the Congressman who originally introduced the concept) reduces the availability of itemized deductions for taxpayers making more than $169,550. A personal exemption phase-out (the deduction you get for claiming someone on your tax return) was also in place for taxpayers making more than this amount. This meant high income tax payers would only receive a partial tax benefit for their real estate taxes, home mortgage interest, personal exemptions, and other itemized expenses. These limitations were fully repealed in 2010, but were set to return in 2011. The new law extends the full repeal through 2012.
Energy Efficient Home Improvements
The new law extends through 2011 the credit for energy efficient insulation and other building envelope components, water heater, and furnace expenditures, but the credit has a lifetime maximum credit of $500 and is subject to a number of other restrictions. These expenses were allowed in the 2009 and 2010 tax years without many of the restrictions and were capped at a total of $1,500. (If you got a credit of more than $500 in 2009 or 2010, you appear to have exhausted your credit.)
Child Tax Credit Enhancements extended
The $1,000 version of the credit, which is refundable and can offset AMT liabilities, has been extended through 2012.
Earned Income Tax Credit
The following enhancements, which were scheduled to expire on December 31, 2010, have been extended through 2012: increased beginning and end income eligibility points, increased credit for three or more children, simplified earned income definition, elimination of reduction in credit if you had an AMT liability, modified relationship and tie-breaking tests, and IRS math error authority.
The following credits have also been renewed through 2012:
- American Opportunity Tax Credit (the revised Hope educational credit);
- Educational assistance exclusion (the annual exclusion of up to $5,250 in employer-provided educational assistance);
- Student loan interest deduction;
- Above the line tuition deduction;
- Above the line teacher’s expense deduction;
- Mortgage insurance premiums itemized deduction;
- State and local sales tax itemized deduction;
- Tax free rollovers of IRAs to charity;
- Adoption credit; and
- Dependent child care credit
Your accounting professional can assist you in determining which deductions and credits will be most beneficial to your situation.