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Also see: Free CPA Client Letter: Regarding 2014 TIPA For BUSINESSES.
             In-Depth: Tax Extenders Bill Passes Congress, President Expected to Sign into Law.

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CPA CLIENT LETTER: Regarding 2014 TIPA For Individuals
(Parker Tax Publishing: December 17 2014)

Dear [client name]:

On December 16, Congress passed the Tax Increase Prevention Act of 2014 (TIPA), which the President is expected to sign into law. TIPA retroactively extends many business tax breaks through the end of the 2014 tax year.

As a result of TIPA, your taxes may be lower for 2014 than what they would otherwise have been without the new law, because the law extended several deductions and credits that had expired in 2013. The new law may even create an opportunity to lower your taxes further if you take advantage of these tax breaks between now and year-end.

The following are some of the more significant tax breaks to be extended.

State and Local General Sales Taxes Deduction

The election to deduct state and local general sales taxes (instead of state and local income taxes) as an itemized deduction had expired for tax years beginning after December 31, 2013. TIPA extends the availability of that election to tax years beginning before January 1, 2015.

Above-the-Line Deduction for Qualified Tuition and Related Expenses

For years before 2014, taxpayers with modified adjusted gross income below certain thresholds could deduct up to $4,000 of qualified education expenses paid during the year for themselves, their spouses, or their dependents. The maximum deduction was $4,000 for an individual whose adjusted gross income for the tax year did not exceed $65,000 ($130,000 in the case of a joint return), or $2,000 for other individuals whose adjusted gross income did not exceed $80,000 ($160,000 in the case of a joint return). For those with incomes above the maximum threshold, no deduction is allowed. TIPA extends the availability of the deduction to tax years beginning before January 1, 2015.

Credit for Energy-Efficient Existing Homes

A taxpayer is allowed a 10-percent nonbusiness energy property credit for the purchase of qualified energy efficiency improvements to existing homes. Additionally, a taxpayer can claim specified credits for the purchase of specific energy efficient property originally placed in service by the taxpayer during the tax year. There is a lifetime limitation of $500 on the total amount of nonbusiness energy property credit that may be claimed. There are also dollar limitations on the amount of the credit that may be claimed for specific types of qualified energy efficiency improvements and residential energy property. This credit expired for any property placed in service after December 31, 2013. TIPA extends the availability of the credit to property placed in service before January 1, 2015.

Mortgage Insurance Premiums Treated as Qualified Residence Interest

A taxpayers’ ability to treat qualified mortgage insurance as qualified residence interest expired for amounts paid or accrued after December 31, 2013, or for amounts properly allocable to any period after that date. TIPA extends this treatment to amounts paid or accrued before January 1, 2015.

Deduction for Expenses of Elementary and Secondary School Teachers

The rule that allowed elementary and secondary school teachers to deduct from gross income up to $250 of qualified expenses they paid during the year ($500 on a joint return if both spouses were eligible educators) expired for tax years beginning after 2013. TIPA extends the deduction through tax years beginning before 2015.

Exclusion for Discharge of Qualified Principal Residence Indebtedness

For certain tax years before 2014, taxpayers could exclude from income the discharge of qualified principal residence debt. This provision was scheduled to expire for debt discharged after December 31, 2013. TIPA extends the exclusion to debt that is discharged before January 1, 2015.

Tax-Free Distributions from IRAs for Charitable Purposes

A qualified charitable distribution from an Individual Retirement Account (IRA) by individuals at least 70 1/2 years of age (up to $100,000 per taxpayer per year) may be excluded from income. TIPA extends the exclusion for qualifying distributions made before January 1, 2015.

Contributions of Capital Gain Real Property Made for Conservation Purposes

An individual taxpayer's deduction for qualified conservation contributions is generally limited to 50 percent of the taxpayer's adjusted gross income (AGI), minus the taxpayer's deduction for all other charitable contributions. An enhanced 100 percent deduction is available for certain individual and corporate farmers and ranchers for contributions of property used in agriculture or livestock production. A qualified conservation contribution is a contribution of a real property interest to a qualified organization, exclusively for conservation purposes. TIPA extends these deductions for qualifying contributions made before January 1, 2015.

Exclusion for Employer-Provided Transportation Benefits

The value of the qualified transportation benefits provided by an employer to an employee is excludable from the employee's gross income to the extent the value does not exceed certain dollar limitations. TIPA extends through 2014 the maximum monthly exclusion amount for transit passes and van pool benefits so that these transportation benefits match the exclusion for qualified parking benefits.

As you can see, the provisions in the Tax Increase Prevention Act of 2014 are quite extensive. Please call me at your earliest convenience so we can discuss how the tax breaks extended by TIPA may benefit your tax situation.

Sincerely,

[Your Name, Your Firm]

Also see: Free CPA Client Letter: Regarding 2014 TIPA For Businesses.

Disclaimer: This publication does not, and is not intended to, provide legal, tax or accounting advice, and readers should consult their tax advisors concerning the application of tax laws to their particular situations. This analysis is not tax advice and is not intended or written to be used, and cannot be used, for purposes of avoiding tax penalties that may be imposed on any taxpayer. The information contained herein is general in nature and based on authorities that are subject to change. Parker Tax Publishing guarantees neither the accuracy nor completeness of any information and is not responsible for any errors or omissions, or for results obtained by others as a result of reliance upon such information. Parker Tax Publishing assumes no obligation to inform the reader of any changes in tax laws or other factors that could affect information contained herein.

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