2015 Tax Year in Review – Individuals
Author: Robert Conner
Taxpayers beginning their year-end tax planning are focused on what Congress will do with the temporary tax breaks that expired December 31, 2014. While the fate of tax extenders is unclear, individual taxpayers shouldn’t overlook several recent tax law changes and clarifications that could significantly impact their situation.
Tax Extender Legislation
Tax legislation that retroactively extends some of the tax provisions that expired in 2014 may be enacted before year-end. Keep an eye on extender legislation if you’re contemplating a 2015 transaction that could be altered based on an expired provision. Here are some of the provisions that expired in 2014:
- Itemized deduction for state sales taxes in lieu of a deduction for state income taxes
- Above-the-line tuition and fees deduction for up to $4,000 of eligible higher education expenses
- Above-the-line $250 tax deduction for elementary and secondary school teachers for classroom supplies
- Exclusion of up to $1 million ($2 million for joint filers) of income from discharge of qualified principal residence indebtedness
- Exclusion from income of up to $100,000 of qualified charitable IRA distributions made from an individual retirement account by an individual who is 70½ or older
- Treatment of mortgage insurance premiums as qualified residence interest
- Increase to 100 percent (from 50 percent) the exclusion for gain on eligible small business stock
- Credit for energy-efficient improvements to existing homes
Supreme Court Upholds ACA Subsidies
On June 25, 2015, the Supreme Court upheld one of the main tenets of the Patient Protection and Affordable Care Act (ACA). In its ruling in King v. Burwell, the court said Americans are entitled to keep the health insurance tax subsidies issued by the IRS on behalf of states that used the federal health insurance exchange in lieu of setting up their own exchanges.
This ruling is the second case in which the justices have decided in favor of the ACA, signaling that the ACA is here to stay for the foreseeable future.
Maryland Individual Tax Regime Results in Double Taxation
On May 18, 2015, the Supreme Court ruled in Comptroller of the Treasury of Maryland v. Wynne et ux., affirming the Maryland Court of Appeals decision that Maryland’s personal income tax regime unconstitutionally discriminated against interstate commerce. Specifically, the court said Maryland residents are eligible to claim a credit against both state and county tax for taxes paid in other jurisdictions.
In addition to providing Maryland resident taxpayers with a basis for filing refund claims for tax paid in other states against the county tax, the Supreme Court decision provides resident taxpayers in other localities that don’t allow a credit for county and other local income taxes paid (such as Kansas, North Carolina, Ohio, Pennsylvania and New York City) with a basis for filing refund claims for such credit.
Supreme Court Decision Upholds Same-Sex Marriage
The Supreme Court ruled on June 26, 2015, in Obergefell v. Hodges that same-sex couples have the legal right to marry in all U.S. jurisdictions and that states must recognize same-sex marriages performed in other jurisdictions. While same-sex married couples have been treated the same as opposite-sex married couples under federal law since the 2013 decision in United States v. Windsor, Obergefell now requires all states to provide same-sex married couples with the same rights and tax treatment under state law as opposite-sex married couples.
The Obergefell decision provides married same-sex couples the option to amend their prior state returns to take advantage of tax savings using married filing jointly or married filing separately status. Going forward, same-sex married couples must file as married filing jointly or married filing separately on both their state and federal tax returns.
Highway Funding Fix Includes Tax Provisions
On July 31, 2015, the president signed the Surface Transportation and Veterans Health Care Choice Improvement Act of 2015, providing a three-month fix to prevent a funding lapse for the federal Highway Trust Fund. Congress modified several individual tax provisions to help offset the costs resulting from the passage of this act, including the following:
Mortgage Reporting Requirements – Beginning in 2017, lenders must provide the IRS and borrowers with additional information regarding mortgages, including:
- Outstanding principal at the beginning of the year
- Date of mortgage origination
- Address of property securing the mortgage
Basis Reporting by Estates – Effective July 31, 2015, taxable estates must report the value of the estate’s property to the IRS upon the owner’s death; the reporting is due 30 days after the estate return due date. However, Notice 2015-57 delays this basis reporting to February 29, 2016, for estate returns due between July 31, 2015, and January 31, 2016. This provision ensures the person inheriting the property doesn’t overstate the basis when selling the property in the future, decreasing his or her tax liability.
Statute of Limitations on Overstatement of Basis – Effective July 31, 2015, the IRS may assess additional tax for up to six years after the filing of a return if it finds a taxpayer substantially distorted the cost basis of property sold leading to a lower tax liability.
These are just some of the issues that could affect individual taxpayers. Your BKD advisor can help you determine which issues could affect your specific situation.