Restored Tax Breaks

The tax breaks listed below expired at the end of 2011, but the fiscal cliff legislation retroactively restored them for 2012 tax returns (filed in 2013):

  • Deduction for Higher Education Tuition – This write-off can be as much as $4,000 or $2,000 for higher-income folks
  • Option to Deduct State and Local Sales Taxes – If you paid little or no state income tax in 2012, you have the option of instead claiming an itemized deduction for general state and local sales taxes. The deduction is claimed on Schedule A of Form 1040.
  • Charitable Donations from IRAs – For 2012, IRA owners who were age 70 1/2 or older as of December 31, 2012 were allowed to make tax-free charitable donations of up to $100,000 directly out of their IRAs. These donations counted as 2012 IRA required minimum distributions. This break expired at the end of 2011, but the fiscal cliff legislation retroactively restored it for 2012. To take advantage of the retroactive deal, you can donate IRA distributions taken in December of last year to qualified charities and treat them as 2012 donations from your IRA. There is a January 31, 2013 deadline for this option. Consult with your tax adviser for details.
  • Deduction for K-12 Educator Expenses – The deduction to cover up to $250 of school-related expenses paid by teachers and other K-12 educators out of their own pockets is claimed on Line 23 of Form 1040.
  • Deduction for Mortgage Insurance – Premiums for qualified mortgage insurance on debt to acquire, construct, or improve a first or second residence can potentially be treated as deductible home mortgage interest. The fiscal cliff legislation restored the break for premiums paid in 2012. However the deduction is only available for premiums for qualifying policies issued after December 31, 2006 and premium amounts allocable to periods before 2013, and it is phased out for higher-income taxpayers. If you qualify, claim the deduction on Schedule A of Form 1040.
  • Credit for Energy-Efficient Home Improvements – If you made qualifying 2012 expenditures for certain energy-saving improvements to your principal residence, you may be able to claim a credit of up to $500 on Form 5695.