Tough about a tough subject! There actually are some helpful things that emerged from the midnight-hour law signed by President Obama on January 2. Here’s our pick of the top 5.
AMT “Patch” Made Permanent
The AMT (Alternative Minimum Tax) “patch” was made permanent; however, exemption amounts for 2012 and beyond are higher than in years past and are now indexed to inflation. For tax-year 2012, the tax exemption amounts increase to the following levels:
- $78,750 for a married couple filing a joint return and qualifying widows and widowers, up from $74,450 in 2011.
- $39,375 for a married person filing separately, up from $37,225 in 2011.
- $50,600 for singles and heads of household, up from $48,450 in 2011.
State and Local Sales Taxes
Retroactive to 2012, the law extended, for 2013, the tax provision that allows taxpayers who itemize deductions the option to deduct state and local general sales and use taxes instead of state and local income taxes. In you live in a state without an income tax, this should help boost your deductions.
Mortgage Insurance Deductible as Qualified Interest
Although it had expired, the new law extended, through 2013 (and retroactive to 2012), a tax provision that allows taxpayers to deduct mortgage insurance premiums as qualified residence interest. As such, taxpayers can deduct mortgage insurance premiums paid or accrued before Jan. 1, 2014, subject to a phase-out based on your AGI.
Residential Energy Property Credits
Non-business energy credits expired in 2011, but were extended (retroactive to 2012) through 2013. For 2012 (as in 2011), this credit generally equals 10 percent of what a homeowner spends on eligible energy-saving improvements, up to a maximum tax credit of $500 (down significantly from the $1,500 combined limit that applied for 2009 and 2010).
Because of the way the credit is figured. however, in many cases it may only be helpful to people who make energy-saving home improvements for the first time in 2012. That’s because homeowners must first subtract any non-business energy property credits claimed on their 2006, 2007, 2009, 2010, and 2011 returns before claiming this credit for 2012. In other words, if a taxpayer claimed a credit of $450 in 2011, the maximum credit that can be claimed in 2012 is $50 (for an aggregate of $500).
The cost of certain high-efficiency heating and air conditioning systems, water heaters and stoves that burn biomass all qualify, along with labor costs for installing these items. In addition, the cost of energy-efficient windows and skylights, energy-efficient doors, qualifying insulation and certain roofs also qualify for the credit, though the cost of installing these items does not.
Education-Related Tax Deductions
Now extended, through 2017 and retroactive to 2012, two popular and widely used education-related tax benefits that expired in 2011: The deduction for qualified tuition and related expenses, and the deduction for certain expenses of elementary and secondary school teachers. Both are above-the-line deductions, which means that they can be taken even if you don’t itemize.
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