Did the income conversion limits on Roth IRA conversions expire with the Bush tax cuts at the end of this year?

There are no income limits to do a conversion to a Roth IRA. The prior income limit of $100,000 was permanently repealed beginning in 2010. Therefore, there is no income limit for a Roth IRA conversion in 2013.

I converted $64,000 over my Roth IRA in 2010 to take advantage of paying tax over a two-year period.  What I wasn't expecting was for the account balance to drop to $10,000.  I have read one of your responses on the web that there is pretty much nothing that I can do to recharacterize, BUT I believe that I once read that if you take a major loss within an IRA, you can withdrawal the money and claim the loss on your taxes.  Yes, I know, it doesn't make much sense, but I am reaching as far as I can. 

I've been laid off since 2010 so I'm doing everything possible to relieve our tax burden this April because of my conversion in 2010.  

Unfortunately, the deadline to recharacterize your 2010 conversion (and eliminate the taxes owed) was October 15, 2011. The only way you can claim a loss is if you withdraw all the funds in all your Roth IRAs and the withdrawn amounts are less than the unrecovered basis (contribution and conversion funds). Then you have to itemize your deductions. Your itemized deductions must exceed 2% of your income before you can actually take a deduction. If you are subject to AMT, your deduction will be disallowed. If you are under age 59 ½, you could incur the 10% early distribution penalty on converted amounts. 

Let's say you have a $10,000 qualified education expense for graduate school for 2013.  Can you take a distribution from your traditional IRA and place the funds into your state’s qualified 529 plan so that you can get a state tax deduction for that $10,000 of additional income that you will recognize for 2013?  

Once you take a distribution from your IRA, you can use those funds for any purpose you want. State tax laws vary, so we cannot answer your question on a state tax deduction. You should consult a tax preparer for help on that part of your question.