Feeling smug that you already filed your federal income taxes? Well, there's an odd chance that you might get an even bigger tax refund, if you qualify for some special tax breaks and take the time to file an amended return now for 2017.
The reason? We're looking at some zombie tax breaks that miraculously returned from the dead on Feb. 9 with the passage of a bipartisan budget act. The tax breaks had expired at the end of 2016. But they're only good, retroactively, for 2017 returns. And we only discovered all this a few weeks ago.
The problem? IRS systems and tax software initially weren't ready for any of these changes when the filing season began Jan. 29. After all, the breaks expired more than a year earlier. Typically, Congress moves to extend tax breaks before year end, but not this year.
"You can't make this stuff up," said Mark Steber, chief tax officer of Jackson Hewitt. "These are dollars in your pocket, so you don't want to look past them."
But you will have to figure out if any of these breaks apply to you, whether it's worth your time to file an amended return and how much money you might save. If you've not filed a tax return yet, keep these breaks in mind, as there could be some confusion about whether they're alive for 2017 or not. You can find more about what the tax crowd calls "extenders" at www.irs.gov/extenders.
The retroactive tax breaks include:
1. ANOTHER TAX BREAK
RELATING TO COLLEGE TUITION
The deduction for qualified tuition and related expenses claimed on Form 8917 can apply for the 2017 returns.
The deduction, which includes expenses for both undergraduate and graduate courses, could reduce your taxable income by up to $4,000. So if you're in a 25 percent tax bracket, that could be a $1,000 savings. This is an above-the-line deduction, meaning you do not need to itemize deductions to claim it.
But before you jump at this one, consider this: You cannot take this break with other education credits. So even if you filed earlier, you might have tapped into a better education credit.
"It's not for everyone as most taxpayers will choose the education credits," said Marshall Hunt, certified public accountant and director of tax policy for the Accounting Aid Society's tax assistance program in metro Detroit.
"The deduction can benefit some taxpayers, especially those who might not qualify for the American Opportunity Credit or benefit from the Lifetime Learning Credit," Hunt said.
The American Opportunity Credit applies to undergraduate expenses and is limited to four years of coverage.
Experts say the qualified tuition deduction can be used by families who had maxed out on four years for the American Opportunity Credit but earned too much money to later qualify for the Lifetime Learning Credit. If your modified adjusted gross income is more than $66,000 for singles or $132,000 for joint filers, you cannot claim the Lifetime Learning Credit.
But there's a little more room with the deduction for tuition. Taxpayers can deduct up to $4,000 if their income is $65,000 or less if single or $130,000 or less if married filing jointly.
Or taxpayers may be able to deduct up to $2,000 if their income is between $65,000 and $80,000 if single or between $130,000 and $160,000 if married filing jointly.
You cannot claim the deduction if your modified adjusted gross income is more than $80,000 if single or $160,000 if filing a joint return.
Confusion about tax benefits relating to higher education expenses can drive some taxpayers to pick the wrong option. So you might not necessarily want to file an amended return now that the deduction has returned. Taxpayers will need to look at their own financial situation.
Another issue: Qualified expenses being deducted must be reduced if paid with tax-free interest from Education Savings Bonds, tax-free distributions from Coverdell Education Savings Accounts, and tax-free earnings withdrawn from Qualified Tuition Plans, including savings in a 529 plan.
2. MORTGAGE INSURANCE PREMIUMS
Homeowners who pay private mortgage insurance or what' s known as PMI want to pay attention here, especially if they're living on a tight budget.
Mortgage insurance premiums can be treated on 2017 returns as qualified residence interest, generally claimed on Schedule A. See Line 13 under the category "Interest You Paid."
This tax break is generally claimed by low- and middle-income filers, according to the IRS.
You cannot take this deduction if your adjusted gross income is $54,000 or more if single or $109,000 or more if married filing jointly.
3. FORECLOSURE-RELATED
DEBT FORGIVENESS
The extension of this tax break only impacts taxpayers who foreclosed on their homes last year or possilby in earlier years. But it's a sizable tax break if you found yourself in that situation.
If you receive a 1099-C, you need to report the forgiven debt as income. But the Mortgage Forgiveness Debt Relief Act of 2007 generally allows taxpayers to exclude income from the discharge of debt on their principal residence. The provision applies to debt forgiven in calendar years 2007 through 2016 -and now it was extended to 2017.
No one who is facing financial trouble, of course, wants to add $70,000 or $100,000 of cancelled mortgage debt onto their taxable income when filing a federal return.
"If you put $100,000 in extra income on your tax return, you want to get that off pretty quick," Steber said.