“Extenders” from the Recent Tax Law Change

Here’s what’s in this article:

  • Making A Charitable Contribution From Your IRA
  • Itemized Deductions Are Not Taken Away As Adjusted Gross Income Rises!
  • The Student Loan Interest Deduction Remains Available for a Wide Range of Taxpayers.
  • Enhanced Deduction for Charitable Contributions of Real Property for Conservation Purposes is Extended
  • Child Tax Credit Enhancements Extended
  • The American Opportunity Credit (modified Hope credit) is Extended to Apply to Tax Years 2011 and 2012
  • Residential Energy Property Credit

Making A Charitable Contribution From Your IRA

If you’re taking required minimum distributions (“RMDs”) from your IRA or 401(k) you may be interested in this.  RMDs may be made directly to a charitable organization (501(c)(3)) without the amount of the distribution first considered income and then, as you contribute it,  an itemized deduction.  In past years this has been particularly helpful as it may help minimize adjusted gross income (AGI).  There are numerous deductions available to taxpayers that are lost or reduced as AGI increases.  For 2011, keep your AGI to a minimum and maximize your deductions.  Make ALL your charitable contributions from your IRA or 401(k).  You must be over 70 ½ .  And, you can distribute no more than $100,000 to charities from your IRA or 401(k).

Itemized Deductions Are Not Taken Away As Adjusted Gross Income Rises! 

It used to be that after some threshold amount of AGI, the taxpayer would begin to lose itemized deductions.  For 2011 and 2012 this rule is suspended!  In past years taxpayers could lose up to 80% of their itemized deductions.  This rule will be resurrected in 2013 if not renewed before then.

 The Student Loan Interest Deduction Remains Available for a Wide Range of Taxpayers. 

The increase in the phaseout ranges (based on Adjusted Gross Income) for eligibility for the student loan interest deduction (Code Sec. 221(b)) has been extended for two years through 2012. The 60-month limitation as to the number of months during which interest paid on a student loan is deductible and the restriction that makes voluntary payments of interest nondeductible remain repealed for two more years through 2012.  An eligible taxpayer can deduct qualified interest on a qualified loan for an eligible student’s qualified educational expenses at an eligible institution. For tax years beginning in 2010 (Rev. Proc. 2009-50, I.R.B. 2009-45, 617), the $2,500 maximum deduction for interest paid on qualified education loans is reduced when modified AGI exceeds $60,000 ($120,000 for joint returns), and is completely eliminated when modified AGI is $75,000 or more ($150,000 or more for joint returns).

 Enhanced Deduction for Charitable Contributions of Real Property for Conservation Purposes is Extended

The Code contains several rules to encourage taxpayers to donate appreciated capital gain real property to qualified charities for conservation purposes. Specific provisions also encourage both corporate and individual farmers and ranchers to make “qualified conservation contributions.” Specifically, the deduction percentage limits are significantly raised and enhanced carry forward rules apply for charitable contributions of property for conservation purposes made in tax years beginning after December 31, 2005, and before January 1, 2010.  The enhanced deduction for charitable contributions of real property for conservation purposes (“qualified conservation contributions”) has been extended for two years and applies to contributions made through December 31, 2011.

Limitations on deductions. The amount of a deduction for charitable contributions of appreciated capital gain real property is limited to a percentage of the donor’s contribution base. The limitation is generally either 20 percent or 30 percent depending on the type of charitable organization receiving the donation (Code Sec. 170(b)(1)). However, the Pension Protection Act of 2006 (P.L. 109-280) increased the deduction limitation to 50 percent for qualified conservation contributions (Code Sec. 170(b)(1)(E)(i)).

Child Tax Credit Enhancements Extended

The $1,000 child tax credit amount per qualifying child has been extended two years, through December 31, 2012.

The American Opportunity Credit (modified Hope credit) is Extended to Apply to Tax Years 2011 and 2012

This includes the $2,500 maximum credit per eligible student, the higher income phaseout ranges of $80,000 – $90,000 for single filers ($160,000 – $180,000 for joint filers), the eligibility extension to the first four years of post-secondary education, the inclusion of text books and course materials as eligible expenses, and the 40 percent refundable credit component.

Residential Energy Property Credit

The residential energy property credit is extended for one year, through 2011. The credit amount is reduced to $500 and no more than $200 of the credit amount can be attributed to exterior windows and skylights.  Effective for property placed in service after December 31, 2010, an individual is entitled to a credit against tax in an amount equal to:

  • 10 percent of the amount paid or incurred for qualified energy efficiency improvements (building envelope components) installed during the tax year, and
  • the amount of residential energy property expenditures paid or incurred during the tax year (Code Sec. 25C(a), as amended by the Tax Relief Act of 2010).

The maximum credit allowable is $500 over the lifetime of the taxpayer.

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