2018 Tax Savings Resurrected: Tax Extenders Approved
On December 20, 2019, President Trump signed into law, two pieces of legislation that extended government funding and dealt with several of the tax extender provisions. These tax extender provisions were largely ignored and left on the shelf when the President signed the Tax Cuts and Jobs Act in 2017. However, with the passing of this 2019 legislation, these provisions were “re-activiated” effective January of 2019 (through 2020) with the ability for these provisions to be carried back to 2018. This essentially means that this legislation has resurrected a bunch of previously expired federal income tax breaks that can now be claimed for 2018. If you qualify for any of the below “resurrected” tax breaks, you may need to consider amending your 2018 tax return to take advantage of these savings.
Exclusion from gross income of discharge of qualified principal residence indebtedness
Under prior law, discharge of indebtedness income from qualified principal residence debt, up to a $2 million limit ($1 million for married individuals filing separately), was, in tax years beginning before Jan. 1, 2018, excluded from gross income. The Disaster Act retroactively extends this exclusion to discharges of indebtedness before Jan. 1, 2021.
The new legislation also modifies the exclusion to apply to qualified principal residence indebtedness that is discharged pursuant to a binding written agreement entered into before Jan. 1, 2021. This applies to discharges of indebtedness after Dec. 31, 2017.
Treatment of mortgage insurance premiums as qualified residence interest
Under prior law, mortgage insurance premiums paid or accrued before Jan. 1, 2018 by a taxpayer in connection with acquisition indebtedness with respect to the taxpayer's qualified residence were treated as deductible qualified residence interest, subject to a phase-out based on the taxpayer's adjusted gross income (AGI). The amount allowable as a deduction was phased out ratably by 10% for each $1,000 by which the taxpayer's adjusted gross income exceeded $100,000 ($500 and $50,000, respectively, in the case of a married individual filing a separate return). Thus, the deduction wasn't allowed if the taxpayer's AGI exceeded $110,000 ($55,000 in the case of married individual filing a separate return).
The new legislation extends this treatment through 2020 for amounts paid or incurred after Dec. 31, 2017.
Reduction in medical expense deduction floor
The Code provides that, individuals, for 2017 and 2018, could claim an itemized deduction for unreimbursed medical expenses to the extent that such expenses exceeded 7.5% of AGI.
The new legislation extends this threshold of 7.5% for tax years beginning after Dec. 31, 2018 and before Jan. 1, 2021.
Deduction of qualified tuition and related expenses
The Code provides an above-the-line deduction for qualified tuition and related expenses for higher education. The deduction is capped at $4,000 for an individual whose AGI does not exceed $65,000 ($130,000 for joint filers) or $2,000 for an individual whose AGI does not exceed $80,000 ($160,000 for joint filers).
The new legislation extends this deduction through 2020. This applies to tax years beginning after Dec. 31, 2017.
Below is a summary of additional tax extenders, including a number of provisions related to economic growth and energy efficiency, that were also retroactive to 2018.
- Black lung liability trust fund excise tax
- Indian employment credit
- Railroad track maintenance credit
- Mine rescue team training credit
- Classification of certain race horses as 3-year property
- 7-year recovery period for motorsports entertainment complexes
- Accelerated depreciation for business property on Indian reservation
- Extension of expensing rules for certain productions
- Empowerment zone tax incentives
- American Samoa economic development credit
- Biodiesel and renewable diesel incentives
- Second generation biofuel producer credit
- Nonbusiness energy property
- Qualified fuel cell motor vehicles
- Alternative fuel refueling property credit
- 2-wheeled plug-in electric vehicle credit
- Credit for electricity produced from certain renewable resources
- Production credit for Indian coal facilities
- Energy efficient homes credit
- Special allowance for second generation biofuel plant property
- Energy efficient commercial buildings deduction
- Special rule for sales or dispositions to implement FERC or State electric restructuring policy for qualified electric utilities
- Extension and clarification of excise tax credits relating to alternative fuels
- Oil spill liability trust fund rate
- New Markets Tax Credit
- Employer tax credit for paid family and medical leave
- Work Opportunity Tax Credit
- Certain rules related to beer, wine, and distilled spirits
- Look-through rule for related controlled foreign corporations
- Credit for health insurance costs of eligible individuals
How Can We Help
The changes born from the Tax Cuts and Jobs Act provides individuals a once in a lifetime opportunity to take advantage of these unique tax savings opportunities. At Midcoast, our team of expert advisors can help you determine whether you qualify for this provision or, if you do not, can assist you in exploring alternative ways to qualify for the 20 percent Section 199A deduction.
Midcoast Tax Advisors, LLC
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