Child Tax Credit
The American Recovery Plan Act makes the Child Tax Credit fully refundable for 2021. It also makes 17-year-olds eligible as qualifying children. The tax credit is also raised to $3,000 (or $3,600 for children under six). This credit does include a phaseout for taxpayers with incomes over $150,000 if married filing jointly, $112,500 for heads of household, and $75,000 for others.
According to the Act, the IRS would be directed to estimate taxpayers' child tax credit (CTC) amounts and pay monthly in advance one-twelfth of the annual estimated amount. Taxpayers would receive payments from July through December 2021.
Families earning less in 2020 than they did in 2019 may use their 2019 income to calculate their CTCs if their 2019 earnings are higher than 2020.
2020 Recovery Rebate Credit
Most eligible individuals received all three of their Economic Impact Payments, better known as stimulus checks, before the end of the 2021 tax season. However, some taxpayers may not have received one or more of their stimulus checks or didn’t receive the full amount.
In order to reconcile the difference with the IRS, these taxpayers will need to claim the Recovery Rebate Credit on their 2020 or 2021 federal income tax returns (depending on which stimulus they’re still missing).
Individuals who have received all of their Economic Impact Payments in 2020 or 2021 do not need to complete any information about the Recovery Rebate Credit on their tax return(s).
College Tuition deductions via Lifetime Learning Credit
For 2021 and beyond, the phaseout rule for the Lifetime Learning Credit (LLC) has changed to resemble the phaseout for the American Opportunity Credit, which expands how much of the credit an individual may qualify for, in addition to increasing the maximum credit from $2,000 per year to $2,500 per year.
This change replaces the lower-valued deduction with a slightly higher-valued credit and a more favorable phase-out. The credit will phase out for individuals earning a modified adjusted gross income (MAGI) of $80,001 to $90,000 and married joint-filing couples with a MAGI of $160,001 to $180,000.
Lower Itemized Medical Expense Deduction Threshold
The Tax Cuts and Jobs Act (TCJA) reduced the amount of medical expenses that may be deducted to 7.5% of Adjusted Gross Income through 2020. The threshold was expected to rise to 10% of AGI in 2021, but the Consolidated Appropriations Act (CAA sets the threshold at 7.5% of AGI for 2021 and beyond.
Principal residence mortgage debt
Cancelled debt, called Cancellation of Debt income or “COD,” typically counts as taxable income. If your cancelled debt was from a primary residence mortgage and was cancelled between 2021 and 2025, it will be tax-free up to $750,000. For COD income in 2007-2020, the tax-free limit was up to $2M for couples filing jointly or $1M for couples filing separately and individuals.
Mortgage insurance premium write off
Premiums for qualified mortgage insurance stemming from mortgages for acquiring, constructing, or improving a first or second home count as deductible interest. However, to qualify you must have an AGI of less than $109,000 ($54,500 if married filing separately) for the year.
Charitable deductions for non-itemizers
If you don’t itemize deductions, you can still claim a federal income tax deduction for charitable donations of up to $300 if filing single or married filing separately, or $600 if married filing jointly.