Learn more about a deduction for mortgage insurance premiums.
Find out how the exclusion of principal residence indebtedness forgiveness income could help you.
Discover the benefits of the residential energy property tax credit.
Find out how to qualify for an above-the-line deduction for tuition and related expenses.
Learn about the favorable kiddie tax computation changes.
Learn about the credit limitations of the alternative fuel vehicle refueling property tax credit.
Discover how a qualified fuel cell motor vehicle can provide a tax credit.
Learn more about the 2-wheeled (motorcycle) vehicle tax credit.
Find out how to qualify for a tax credit for building new energy-efficient homes.
You may be one of the many taxpayers eligible for a tax refund from their 2018 tax return. Last December, tacked on to an Appropriations Act, Congress passed the long-awaited extenders bill. This bill lingered in Congress for about 2 years and extended several beneficial tax provisions that had expired after 2017. As a result, Congress retroactively extended these provisions to 2018 and most will continue through 2020. This opens the door to amending your 2018 return. You could receive a tax refund if any of the following provisions apply to you. Fiducial has the details on these retroactive tax benefits!
Mortgage Insurance Premiums
Lenders generally require mortgage insurance if a borrower makes a down payment of less than 20 percent of the cost on the purchase of their home. Although the borrower pays the premiums, insurance protects the lender from losses if the borrower defaults on the loan.
For FHA loans, borrowers must pay a mortgage insurance premium. These premiums are generally deductible as home mortgage interest when a homeowner itemizes deductions. To qualify as deductible, the insurance premiums must apply to an insurance contract issued after December 31, 2006, insuring loans for the purchase of a first or second home or for the refinance of those loans. However, the deductibility of these premiums begins to phase out for higher-income taxpayers when their AGI (adjusted gross income) exceeds $100,000 ($50,000 for married taxpayers filing separately) and fully phases out if the AGI exceeds $109,000 ($54,500 for married taxpayers filing separately).
Does the Discharge of Qualified Principal Residence Indebtedness Exclusion Mean a Tax Refund for You?
When an individual loses their home to foreclosure, abandonment, or short sale or has a portion of their loan forgiven under the HAMP mortgage reduction plan, they generally end up with cancellation of debt (COD) income that is taxable unless the taxpayer can exclude it based on specific provisions of the tax code. For example, a taxpayer can exclude their COD income to the extent they were insolvent immediately before the event occurred by using the insolvency exclusion.
After the housing market crash more than 10 years ago, Congress added the qualified principal residence COD exclusion. This exclusion allowed taxpayers to exclude up to $2 million ($1 million if married and filing separately) of COD income to the extent it qualified as discharged debt used to purchase the home (not equity debt).
Temporarily added in 2007, this COD exclusion expired at the end of 2017. Luckily, those who received home purchase debt forgiveness and paid taxes on that forgiven debt in 2018 may perhaps amend their 2018 returns to exclude that COD income and get a tax refund of the taxes paid on the COD income.
Residential Energy Property Credit
The residential energy property credit provides for a 10% non-refundable credit for eligible property costs (does not include installation costs) with a lifetime credit of $500. Energy savings property includes certain energy-efficient insulation materials, asphalt roofing with appropriate cooling granules, metal roofing with appropriate pigmented coatings, exterior windows, skylights, storm doors, air circulation fans, air conditioning, furnaces and hot water heaters.
However, there are also per-item lifetime credit limits on qualified windows and skylights ($200), qualified advanced main air circulating fan ($50), qualified hot water boiler ($150), and qualified energy-efficient equipment ($300).
Example: You installed an energy efficient furnace in 2018. The cost of the furnace itself without the installation costs is $4,000. The credit is the lesser of $400 (10% of $4,000) or $300; but if you’d installed other energy-efficient equipment in any prior year since this credit first became available in 2006 and claimed a $200 credit at that time, you would have only $100 remaining of the lifetime credit allowance, and your credit for 2018 would be limited to $100.
Could Above-the-line Tuition & Related Expenses Deduction Equal a Tax Refund?
A deduction from your income for tuition and related higher education expenses (if not used for education credits) is allowed, even if you don’t itemize your deductions. The maximum deduction is $2,000 or $4,000 depending upon your AGI. This deduction totally phases out for taxpayers with an AGI of more than $80,000 ($160,000 for married taxpayers filing jointly). For example, if you are in the 12% tax bracket, a $4,000 deduction would net you a $480 refund.
Kiddie Tax
Tax reform changed how the income of dependent children is taxed, causing a child’s unearned income to be taxed at fiduciary rates that very quickly reach the maximum tax rate of 37%. That change created an unintentional tax increase for survivors of service members and first responders who died in the line of duty (because the death-related payments their children receive qualify as unearned income). Because of this, Congress retroactively changed the kiddie tax computation back to its previous form before the tax reform change.
This allows a child’s return for 2018 to be amended to use the old method of taxation if it provides a better outcome, which will usually be the case if the child received survivor’s benefits in 2018 and can provide a substantial tax refund. In the case of other children subject to the kiddie tax, both methods will need to be figured to determine whether amending the child’s return is appropriate.
Alternative Fuel Vehicle Refueling Property Credit
The credit equals 30% of the cost of the refueling property divided between business and personal use. The following are the credit limitations:
o Personal use limit: $1,000 per home as a non-refundable personal credit allowed against the regular tax and the AMT (alternative minimum tax).
o Business use limit: $30,000 as a general business credit reported on Form 3800. Any amount of the credit not used in 2018 will carry back to 2017 and then forward to 2019.
This will provide a substantial tax credit for those who installed refueling property in 2018.
Qualified Fuel Cell Motor Vehicle Credit
Although rare, the purchase of a qualifying fuel cell vehicle in 2018 can provide a considerable tax credit. A qualifying fuel cell vehicle combines oxygen and hydrogen to generate electricity and propel the vehicle. Not limited to passenger vehicles, this credit also applies to big rigs used in business. The credit is based upon the gross vehicle weight rating (GVWR) of the vehicle:
o $4,000 – GVWR not more than 8,500#
o $10,000 – GVWR > 8,500# but < 14,000#
o $20,000 – GVWR > 14,000# but < 26,000#
o $40,000 – GVWR > 26,000#
2-Wheeled (Motorcycle) Vehicle Credit
Although most bikers are not looking for a quiet ride, an electric vehicle credit equal to 10% of the cost (maximum credit $2,500 per vehicle) of electric-drive purchased motorcycles with a battery capacity of at least 2.5 kilowatt hours, weight less than 14,000 pounds, and highway capability of 45 mph exists. Did you purchase an electric motorcycle in 2018 that meets these requirements? Then you can amend your return for a tax credit of up to $2,500.
Credit for Building New Energy Efficient Homes
This provides a building contractor with a credit of $2,000 for site-built homes and $1,000 or $2,000 for manufactured homes that meet certain energy savings requirements (energy savings 30-50% for manufactured homes and 50% for site-built homes).
Think you’re eligible for a tax refund?
Do any of the situations above apply to you for 2018? Contact Fiducial for an amended return to claim your tax refund. Call us at 1-866-FIDUCIAL or make an appointment at one of our office locations. Ready to book an appointment now? Click here. Know someone who might need our services? We love referrals!
For more small business COVID-19 resources, visit Fiducial’s Coronavirus Update Center to find information on SBA loans, tax updates, the Paycheck Protection Program, paid sick and family leave, and more.