It wouldn’t have been a proper New Year’s Eve in the United States without Congress doing something ridiculous. As the nation tripped into 2013, it was the fiscal cliff, which was a particularly unsavory combination of expiring tax cuts and new spending cuts that threatened to tip the economy back into recession. Dancing to the tune of the 11-hour waltz at the New Year’s Eve party, Uncle Sam managed to pass legislation addressing the tax half of the equation but failed to avoid the spending chopping block.
This year, saddled with sequestration and with a modest budget plan in hand, a beleaguered and divided Congress let expire 55 out of more than 80 so-called “extender” tax breaks. The breaks are known as extenders because, kind of like the stopgap appropriations authority granted by continuing resolutions, they must be renewed each year.
Like much of fiscal policy, the extenders are a double-edged sword. Tax breaks help the individuals and businesses that receive them but also negatively impact government revenues. The Center on Budget Policy and Priorities, a sometimes left-of-center think tank, pointed out in December that these tax breaks were largely unpaid for, and that “paying for those extenders that Congress continues would have a significant impact on long-term deficits.”
The Tax Foundation, a conservative-leaning think tank, calculates that letting the 55 extenders expire — meaning the government will no longer have to pay for them — will shave $33.86 billion off the deficit in 2014. In theory, Congress can retroactively extend the tax breaks through 2014, but in practice such a thing seems dubious because of the bitter partisan divide over the budget.
Here are some of the top tax breaks that expired for individuals.
1. Deductions for expenses incurred by teachers
Title II of the Taxpayer Relief Act of 2012 deals with many of the individual extenders in question, and Section 201 deals with deductions for certain expenses incurred by elementary and secondary school teachers. Under the provision, full-time educators would be able to deduct up to $500 in expenses. The 2012 act extended this deduction through 2013, but without an extension, it expired this New Year’s Eve, reducing the maximum deduction to $250.
Rep. Sam Graves (R-Mont.) introduced legislation — H.R. 3148, the Teacher Tax Deduction Act of 2011 — seeking to formalize this deduction, but the bill was referred to the House Committee on Ways and Means and has sat there ever since, apparently collecting dust.
2. Tax relief for those underwater on their homes
Under the tax code, if you hold debt that is cancelled or forgiven, the amount you borrowed will be treated by the government as income, which can then be taxed.
There are a number of exceptions to this rule, and one of the provisions in the tax code (sub-paragraph E of section 108.a.1) allows people who have had housing debt cancelled or forgiven (such as a mortgage) to not count the write-down as income and therefore avoid paying taxes on it.
This was effectively a tax break for people who were underwater on their homes and was established to help mitigate some of the damage wreaked by the crisis.
This provision initially was set to end January 1, 2013, but was extended by the Taxpayer Relief Act to end January 1, 2014. However, it has not been extended gain for the coming year.
3. Commuter tax benefit
In certain cases — if you’re lucky — your employer may cover some of your commuting costs. Some expenses eligible for tax deductions include transportation via bus, costs for transit passes, parking passes, and even certain bicycle commuting costs. Under the law (paragraph 2 of section 132.f), employers could deduct up to $100 for qualified transportation expenses and $175 for parking expenses per month.
These deductions were increased to $245 for those who commute via train or bus and to $250 for parking through January 1 as amended by the Taxpayer Relief Act. This extender was not extended, though. Parking benefits will remain unchanged, but allowable deductions for train and bus commute will fall to $130 per month.
4. Deductions for tuition
Under Section 222, the current tax code provides some breaks for those seeking a college education. Individuals with an income of less than $65,000 (or $130,000 if married) can deduct up to $4,000 from their taxable income. Those who earn more than $65,000 but less than $80,000 ($160,000 for married filers) can deduct up to $2,000, and those who earn more than $80,000 get to deduct nothing.
The Taxpayer Relief Act extended this benefit through December 31, 2013, but it was not extended for 2014.
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