Earned income means wages, salaries, tips, other taxable employee compensation, and self-employment income. The refundable earned income tax credit (EITC) equals the applicable percentage of an eligible taxpayer’s earned income. Eligible taxpayers can claim a refundable child tax credit (CTC) equal to 15% of earned income in excess of $2,500. You can collect so-called refundable tax credits even if you have no federal income tax liability. Liberalized rule for calculating 2020 refundable child credit and earned income tax credit New law: The CAA extends this break through 2021. The deduction is phased out for higher-income individuals. ![]() You can treat premiums for qualified mortgage insurance on debt to acquire, construct, or improve a first or second residence as deductible qualified residence interest. Mortgage insurance premium write-off extended However, the maximum amount of forgiven debt that can be treated as tax-free for those years is reduced to only $750,000 ($375,000 for married individuals who file separately). New law: The CAA extends this break to cover principal residence mortgage debt that’s forgiven in 2021-2025. ![]() Under the exception, up to $2 million of COD income from principal residence acquisition debt that was cancelled in 2007-2020 qualified as a federal-income tax-free item ($1 million for married individuals who filed separately for those years). ![]() However, an exception applies to COD income from cancelled mortgage debt that was used to acquire a principal residence. Tax-free treatment for forgiven principal residence mortgage debt extended with lower limitsįor federal income tax purposes, a forgiven debt generally counts as taxable cancellation of debt (COD) income. New law: The CAA makes the 7.5%-of-AGI threshold permanent for 2021 and beyond. The threshold was scheduled to increase to a daunting 10% of AGI for 2021 and beyond. The Tax Cuts and Jobs Act (TCJA) set the threshold for itemized medical expense deductions at 7.5% of adjusted gross income (AGI). Lower itemized medical expense deduction threshold made permanent After this change, both education tax credits are phased out for 2021 and beyond between a modified adjusted gross income (MAGI) of $80,001 and $90,000 for unmarried individuals and between MAGI of $160,001 and $180,000 for married joint-filing couples. In effect, the new law trades the old-law write-off for the more favorable new-law Lifetime Learning Credit income phase-out rule. In turn, the CAA repeals the college tuition write-off for 2021 and beyond. For 2021 and beyond, the new law aligns the phase-out rule for the Lifetime Learning Credit with the more favorable phase-out rule for the American Opportunity Credit, which can be worth up to $2,500 per student. New law: Before the CAA, an unfavorable income phase-out rule applied to the Lifetime Learning Credit, which can be worth up to $2,000 annually. ![]() If your 2020 income allows you to be eligible for the deduction, you can claim it whether you itemize or not. See also: The latest pandemic relief bill created new tax breaks for businesses - and extended many others College tuition deduction replaced by liberalized Lifetime Learning creditįor 2020, this deduction could be up to $4,000 at lower income levels or up to $2,000 at middle income levels.
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