Popular tax breaks dead. What happens now?


A whopping 77 tax deductions, tax credits and other tax-saving laws expired Dec. 31, 2011, according to a tally by the congressional Joint Committee on Taxation.

This hodgepodge of individual and business tax breaks -- some of which apply to large groups of taxpayers, others that are much more specific -- have been on the books for years.

But technically these laws are temporary.

Each has a specific end date, typically the conclusion of a tax year. For the most part, Congress has extended them year after year. That's why the collective bunch is referred to as "extenders."

Individual filers have seen extenders for years on the various tax forms they file at tax time. They range from a few hundred dollars in tax savings for teachers to thousands added to Internal Revenue Service bills because of the alternative minimum tax system.

Popular individual tax breaks that expired Dec. 31, 2011
Tax benefitType of tax break
State and local sales taxesDeduction
Private mortgage insurance premiumsDeduction
Educators' out-of-pocket expensesDeduction
Higher education tuition and feesDeduction
Residential home energy improvementsCredit
Rollover of IRA distribution to a charityIncome exemption
Employee mass transit fees/parking costsIncome exemption
Alternative minimum taxIncreased income exemption amount; allowance of certain tax credits

Companies, too, are bemoaning the loss of several business tax breaks at the end of 2011. They include the 100 percent bonus depreciation option, a larger Section 179 write-off for some equipment, larger deductions for certain business charitable donations, research and development tax credits, and work opportunity tax credits.

Why only temporary?

A key reason behind the temporary nature of these persistent tax breaks is how they are accounted for in the federal budget. Rather than factoring in the many tax provisions' long-term costs, lawmakers opt to deal with the legislative continuances on a short-term, and therefore relatively less-expensive, basis.

Individually, many of the extenders are not that large of a cost in the overall federal budget scheme, but members of Congress regularly cite some of the more arcane tax breaks as examples of government waste.

And this election year, with the added attention on the federal deficit, the costs of each tax break could be in for more scrutiny than ever before.

Retroactive laws tricky for tax planning

Then there is Congress' penchant for procrastination.

The House and Senate tend to let legislation pile up, often running out of time at the end of a session to complete it. In those cases, Congress can reauthorize the tax deductions and credits with a retroactive effective date.

That means that while a law might not be approved until the end of a tax year, once it is finally enacted it's as if the tax break had been in effect for the full 12 months.

On one hand, that's good. At least the tax benefit eventually is available.

However, when it comes to making effective year-round tax plans, such late laws cause headaches for taxpayers and tax professionals.

"Congress has extended them as a group and likely will do so again," says Janet Moore, CPA, co-manager of the tax department at the Tuscaloosa, Ala., accounting firm JamisonMoneyFarmer PC."We have to plan assuming that those items will be extended. That means we watch very closely as the legislative process proceeds to determine what will happen."

2012 timing

The big question posed by Moore and other Capitol Hill watchers regarding eventual enactment of the lapsed tax extenders is: "When?"

There had been hope among taxpayers and the tax professionals they hire that Congress would deal with the extenders this fall. The Senate approved its version of the bill, but no similar measure made it beyond a Ways and Means Committee hearing in the House.

And now, with Congress recessed until after the November election, finalization of all tax legislation is being pushed back, too.

"I'm not very optimistic that anything will happen (with extenders' renewal) until after the election, and then probably not until the end of December," says Moore.

That means the only thing taxpayers and tax professionals can plan on in 2012 is continued tax uncertainty.

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