By Wayne Curtis
The new year is just days away! This is the time of year when most of us try to anticipate the future and plan accordingly. As you consider 2017, keep in mind there are potential changes in the tax code that could affect some readers, especially homeowners and would-be homeowners.
Unless Congress extends them, four important tax breaks are scheduled to expire at the end of 2016. Based on President-elect Trump’s promises during the campaign, it seems unlikely that Congress will act. A sweeping overhaul of the tax code will probably occur next year. Most people agree tax reform is long overdue.
If you are in the market for a new home and plan to finance it, you could lose the mortgage-premium deduction. The deduction applies to individuals who purchase a home with less than a 20 percent down payment. In such circumstances, the lender requires the homeowner to purchase private mortgage insurance (PMI) that is intended to protect the lender in the event of default. Currently, homeowners can treat the amounts paid for PMI as deductible home mortgage interest.
Another tax break set to expire is the credit for energy-saving home improvements. It allows taxpayers to write off 10 percent of the cost of qualified energy-efficient improvements such as insulation, certain types of roofs, and exterior windows and doors. There is, however, a $500 lifetime limit on the credit.
A final homeowner-related tax item pertains to discharge of indebtedness on a principal residence. This applies to debt that has been canceled or forgiven. While the amount canceled or forgiven is usually taxable, the Mortgage Debt Relief Act, passed in 2007, exempted homeowners who had debt forgiven because of foreclosure or a short sale. The act was passed to provide relief for homeowners caught up in the massive housing crisis that led to large-scale foreclosures.
The fourth tax break that may disappear is the deduction for tuition and fees related to higher education. Through the end of the year, individuals may deduct from taxable income up to $4,000 for education expenses for themselves, their spouses, or dependents.
At this point, it seems that tax reform changes will eliminate or cap these tax breaks. But as you plan for 2017, consult with your accountant or other tax professional to determine the status of these items.
Meanwhile, I wish each of you a happy and healthy 2017!
Wayne Curtis, former superintendent of Alabama banks, is a retired Troy University business school dean. Email him at firstname.lastname@example.org.