An Overview of the Recent Tax Extenders Legislation for Individuals and Families
January 8, 2020
On December 20, 2019, the Taxpayer Certainty and Disaster Tax Relief Act of 2019 (Tax Extenders Act) was signed into law as part of a Consolidated Appropriations Act (H.R. 1865). This legislation extends many previously existing tax provisions through 2020 or 2021. Though the extenders process has become more common over recent years, the 2019 act is interesting in that it retroactively applies some provisions to the 2018 tax year; a year for which most taxpayers have already filed their tax returns.
The following article reviews a number of extended provisions that impact individuals and families. Click here to read more about how it pertains to businesses.
*NOTE: Provisions with asterisks may impact the 2018 tax year in addition to 2019 / 2020. Amended tax returns may be necessary to take advantage of such provisions. Please consult with your Tax Advisor to understand possible positive and negative aspects of amending tax returns.
Tax Extenders for Individuals & Families
Many of the provisions in the Tax Extenders Act that affect individuals and families are viewed as recurring extenders which need to be reauthorized every few years. In addition, there are a handful of provisions from the Tax Cuts and Jobs Act of 2017 (TCJA) which initially had 2-3-year lifespans that will now be extended into 2020 and 2021.
Exclusion from Gross Income for Discharged Residential Mortgage Indebtedness *
From 2007 until 2017 debt forgiven due to a residential foreclosure was excludable from taxable income. The Extenders Act retroactively reinstates this provision for tax year 2018 and extends it to cover 2019 and 2020. The amount of discharged mortgage debt excluded from income is limited to $2 million for individual taxpayers. ($1 million if married-filing-separately).
Deductibility of Residential Mortgage Insurance Premiums *
Prior to December 31, 2017, private mortgage insurance (PMI) payments were deductible for certain individual taxpayers with Adjusted Gross Income (AGI) under $110,000 ($55,000 for married filing separate). The Extenders Act retroactively reinstates this provision for tax year 2018 and extends it to cover 2019 and 2020. This presents a valuable deduction to homeowners who itemize their deductions and are subject to their mortgage lender’s PMI requirements.
Reduction in Medical Expense Deduction Floor
TCJA decreased the so-called floor for deducting qualifying medical expenses to 7.5% of AGI for tax years 2017 and 2018, applicable to all individual taxpayers, regardless of age. The floor was scheduled to increase to 10% for 2019 and later years. The Extenders Act applied the traditional 7.5% floor for the 2019 and 2020 tax years, meaning that individual taxpayers who itemize their deductions and have qualified medical expenses greater than 7.5% of their AGI can continue to benefit from greater itemized deductions.
Credit for Health Insurance Costs of Eligible Individuals
The Health Coverage Tax Credit (HCTC) program has been extended by one year to cover 2020. This program provides a tax credit for certain individuals and families who lost their jobs due to free trade and globalization (ex: manufacturing jobs), along with people whose employer pensions were taken over by the Pension Benefit Guarantee Corporation (PBGC). The tax credit can be as much as 72.5% of premiums paid.
Deduction of Qualified Tuition and Related Expenses *The deduction for qualified tuition and related expenses expired after the 2017 tax year. The Extenders Act retroactively reinstates this provision for tax year 2018 and extends it to cover 2019 and 2020. The deduction is capped at $4,000 for taxpayers whose AGI does not exceed $65,000 ($130,000 for Married-Filing-Jointly) and $2,000 for taxpayers whose AGI does not exceed $80,000 ($160,000 Married-Filing-Jointly). Taxpayers whose AGI exceeds $80,000 ($160,000 Married-Filing-Jointly) are not eligible for this deduction.
Topics such as healthcare and medical expenses, where you live, and how to fund education can be very personal. In cases where these items were impacted by the Extenders Act, sometimes retroactively, it may be beneficial to take some time to better understand the law and how it may impact you and your family. Individuals and families should consult their tax advisors to understand the steps necessary to take advantage of possible tax savings available due to the Extenders Act.
SC&H Group’s Tax Teams will continue to monitor any Congressional action and provide updates as pertinent information is available for individuals and families.
FULL TEXT FOR REFERENCE OR FOOTNOTE: https://www.congress.gov/bill/116th-congress/house-bill/1865/text