Just like another year has come and gone, there is a handful of tax laws that will come and go starting on January 1, 2014. Some of the changes are due to expiring laws that were enacted in an attempt to spur economic growth during the most recent recession – others were caused by new legislation, namely the Affordable Care Act, or otherwise known as Obama Care.
The first and by far the most widely discussed tax law change is related to the new health care law. The main component of the law that will effect taxpayers is the individual mandate requiring individuals to purchase health insurance or receive a penalty. First and foremost, you will not be penalized for not carrying insurance until you file your 2014 tax return in early 2015, this goes for all laws that take effect starting in 2014.
But if you do not carrying qualified minimum coverage by March 31, 2014 you will start to incur a penalty that can amount to either $95 dollars per adult + 47.50 per dependent in your household, or 1% of total household income, whichever is greater. The cap of the penalty is annual cost of a bronze rated insurance plan for you or your family. As mentioned earlier, this penalty would be collected when you file your 2014 return in early 2015 – via a refund reduction or an adjusted balance increase if no refund was due.
One common tax deduction that is going away will have an adverse affect on some teachers, this will cause a likely tax increase during 2014 because Congress is not extending the tax deduction that allowed teachers to write off up to $250 dollars of their classroom expenses. Up until now, this deduction was considered above the line, or taking a deduction without itemizing. Since nearly 75% of taxpayers do not have enough deductions to itemize – this could have an impact on a number of teachers nationwide.
Another deduction that is going away is the PMI deduction. Since 2010, homeowners who pay mortgage insurance premiums have been able to deduct them along with the interest they pay on their home loans. This will be no more starting January 1. Homeowners who put down less than 20% during the home purchase process were required to carry this type of mortgage insurance. That being said, mortgage interest and real estate taxes are still deductible in 2014 as an itemized deduction – resulting in homeowners being able to deduct much more than if they rented their home or apartment.
One exemption that is going away but is not getting much attention right now is the primary residence cancellation of debt exclusion. Homeowner’s in recent years, who had mortgage debt forgiven by a lender via short sale have been exempted from paying tax on the forgiven debt. This provision was passed to improve liquidity and stabilization in the housing market a few years back, but wasn’t extended through to 2014. Going forward, distressed homeowners may possibly have to include forgiven debt as income in that given tax year. This could have a huge impact on the number of distressed properties that change hands nationwide – and will dramatically increase the tax liability of homeowners who have all, or a portion of their debt forgiven.