Congress has not finalized the tax code for 2017 yet. The items below pertain to 2016:
- Alternative Minimum Tax (AMT)
- Casualty Losses — Federally Declared Disaster Area
- Child Tax Credit
- Earned Income Credit (EIC)
- Individual Retirement Accounts (IRA)
- Kiddie Tax
- Long-term Capital Gain
- Non-business Energy Property Credit
- Private Mortgage Insurance Deduction
- Sales Tax Deduction
- Teacher’s Education
- Tuition and Fees Deduction
AMT exemption amounts expanded in 2016 to $53,900 ($83,800 for Married Filing Jointly).
A casualty is the loss of property (including damage and destruction) because of a sudden event. The event must be identifiable, unexpected, and unusual. Casualty and theft losses are limited:
- by an $100 threshold per loss event and
- an overall threshold of 10% of your adjusted gross income.
The Child Tax Credit is intended to offset the many expenses of raising children and can be worth as much as $1,000 per child for 2016. For 2016, the Child Tax Credit begins to phase out (decrease in value) at an adjusted gross income of $75,000 for Single filers and Heads-of-Household, $110,000 if Married Filing Jointly, and $55,000 if Married Filing Separately.
Depreciation is an income tax deduction that allows a taxpayer to recover the cost or other basis of certain property. It is an annual allowance for the wear and tear, deterioration, or obsolescence of the property.
Most types of tangible property (except, land), such as buildings, machinery, vehicles, furniture, and equipment are depreciable. Likewise, certain intangible property, such as patents, copyrights, and computer software is depreciable.
As an alternative method for donating to a charity, certain taxpayers may transfer funds from their IRA to an eligible charitable organization. Here are ten things taxpayers who are thinking about making such a donation will need to know.
1. The IRA owner must be age 70 ½ or older.
2. The donor must directly transfer the money tax-free to an eligible organization.
3. The maximum amount that an IRA owner may transfer annually tax-free is $100,000 to an eligible organization.
Kiddie tax now applies to children who are younger than 18, children who are 18 unless they provide more than half of their own support based on earned income, and children who are 19 to 23 and full-time students” unless they provide more than half of their own support based on earned income.
The Long-term Capital gain rate is zero percent for Single taxpayers with income less than $36,750 and married taxpayers with income less than $73,500. A rate of 15% applies to qualified dividends and the sale of most appreciated assets held over one year for single filers with taxable income up to $415,050 ($466,950 for married filing jointly). Long-term capital gains or qualified dividend income over that threshold are taxed at a rate of 20%.
Non-business Energy Property Credit
A credit of 10 percent of the cost of qualified energy-efficient improvements. Qualified improvements include adding insulation, energy-efficient exterior windows and doors, and certain roofs. The cost of installing these items is not included in the credit calculation. Additionally, a credit is available, including the costs of installation, for certain high-efficiency heating and air-conditioning systems, as well as high-efficiency water heaters and stoves that burn biomass fuel. There is a lifetime limitation of $500, of which only $200 may be used for windows. Qualifying improvements must have been placed in service in the taxpayer’s principal residence located in the United States through Dec. 31, 2016.
Taxpayers can claim Private Mortgage Insurance (PMI) on their tax returns. However, the deduction begins being phased out when the homeowner’s adjusted gross income, or AGI, is more than $100,000. This income limit applies to single, head of household or married filing jointly taxpayers. The phaseout begins at $50,000 AGI for married persons filing separate returns.
The PMI deduction is reduced by 10% for each $1,000 a filer’s income is over the AGI limit. The deduction disappears completely for most homeowners whose AGI is $109,000 or $54,500 for married filing separately taxpayers.
Sales Tax Deduction
If you file a Form 1040, and itemize deductions on Schedule A, you have the option of claiming either state and local income taxes or state and local sales taxes (you can’t claim both). If you saved your receipts throughout the year, you can add up the total amount of sales taxes you actually paid and claim that amount or you can use sales tax tables provided by the IRS.
Teachers can claim a $250 Educator Expense deduction on their tax return.
Tuition and Fees Deduction
The Tuition and Fees Deduction is set to expire at the end of 2016. It allows you to deduct up to $4,000 from your income for qualifying tuition expenses paid for you, your spouse, or your dependents. You should check with us about claiming education expenses because the American Opportunity Credit and the Lifetime Learning credit normally will bring you bigger refunds on your taxes than tuition deductions.