Notably, given that sales taxes apply only to goods that are an income tax, and the state sales tax deduction is usually only claimed by those who live in states without an income tax (i.e., Florida, Texas, Nevada, South Dakota, Alaska, Washington, and Wyoming).
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Thus, for instance, in scenarios where a taxpayer engaged in the short sale of an “underwater” residence (e.g., where the $300,000 mortgage exceeds the $250,000 value of the property), the “excess” debt that is discharged in the transaction would be taxable income (the taxpayer would have to report the $50,000 difference in income at the end of the year! To provide some relief for this situation as the real estate market started to decline (accelerated by the financial crisis), the Mortgage Debt Relief Act of 2007 changed these “cancellation-of-indebtedness income” rules to stipulate that up to $2,000,000 of cancelled debt associated with the mortgage of a primary residence could be discharged without tax consequences.
However, this provision had expired at the end of 2014 (after having been reinstated for that year)., and also provides that debt discharged in 2017 will qualify as long as it occurs pursuant to a written agreement entered into in 2016.
However, not tax extenders provisions were made permanent; a few, such as 50% bonus depreciation for businesses and the work opportunity tax credit, are only extended a few years.
The legislation also includes a few new “tweaks”, from a slight expansion of how qualified distributions from section 529 plans can be used, to the elimination of in-state-plan requirement for the coming new 529-ABLE plans for disabled beneficiaries.
For those who engaged in the short sale of a home this year, the new provision will be a welcome (retroactive) relief.
Anyone who is still facing an underwater mortgage and considering a sale of the primary residence in the future may still wish to consider whether to complete the sale in 2016 (or at least, enter into a contract to sell in 2016) to avoid potentially unfavorable tax consequences in 2017.And the QCD counts towards the taxpayer’s Required Minimum Distribution (RMD) obligations, which For those who as I suggested had completed a QCD earlier this year in anticipation that the rules would be reinstated, this outcome ensures that they will receive favorable treatment.Any taxpayers who have already taken their Required Minimum Distribution for 2015, though, will not be able to “undo” their RMD to complete a QCD at this time, as it is not permitted to do an IRA rollover of an RMD to put it “back” in the IRA, and simply taking the proceeds of an RMD and contributing it to a charity does not qualify as a QCD (the distribution must have been done from the IRA to a charity); instead, the taxpayer will simply receive a normal charitable deduction that will hopefully at least mostly offset the tax impact of the RMD.Stay tuned and check back for further updates as this is still not fully enacted “final” legislation.)In its final form, H. 2029 – also known as the Protecting Americans from Tax Hikes (PATH) Act of 2015 – retroactively reinstates and extends a wide range of individual and small business tax planning provisions that had previously expired at the end of 2014.An early projection from the Committee for a Responsible Federal Budget, based on prior scoring from the Joint Committee on Taxation, estimates the financial impact of the legislation at approximately 0B over the next 10 years (plus another 0B of interest on that debt).Notably, though, from a tax perspective it is still better to donate appreciated securities instead of doing a QCD for charitable giving in most cases; those who still want to donate appreciated securities this late in the year may wish to establish a donor-advised fund to facilitate the process given limited time.state sales taxes paid (and validated by receipts), or the IRS provides a sales tax deduction calculator that provides an “estimate” that can be claimed as sales taxes paid based on the taxpayer’s income and zip code.