Our beloved Congress has done it again. In the latest Budget Bill that was signed on December 20, 2019, a number of tax incentives that had expired at the end of 2017 have been brought back. Not only brought back but made retroactive to January 1, 2018. This will have taxpayers digging thru their 2018 records to see if an Amended Return is in order and the IRS making changes to the computer software to be able to handle those Amended Returns.
On a lighter note, the IRS says that they will be ready to start processing Tax Year 2019 1040 Returns on January 27. So call to get your appointment reserved!
A few of the extenders for Individual Taxpayers that have been brought back effective thru the end of 2020 are:
Mortgage Insurance Premium – Fairly new loan may be subject to this insurance (aka, PMI) until the home owner has 20% equity in the home. Look at your Form 1098 from the lender to see if PMI was charged. If the Schedule-A form was used on the 2018 Returns then this Extender may benefit. Or if one missed being able to Itemize their deductions by a small amount, PMI might get a taxpayer over the threshold.
Floor for medical expense deduction has been kept at the 7.5% level then will rise to 10% in 2021 (unless it is extended again). I see few taxpayers that are able to utilize this deduction especially with the increase to the Standard Deduction in 2018. But those that do, it will be easier to reach the floor to start getting benefit from your qualified medical expense.
Qualified Tuition and Expense deduction – Did you have post-secondary education expense in 2018? This deduction was available for a small number of taxpayers that could not use the American Opportunity Credit and were phased-out of the Lifetime Learning Credit for too much income. A taxpayer could also benefit from this deduction if they have low income. Low enough that there is no Federal taxable income so the saving is at the State level.
Qualified principle residence indebtedness – If your home was foreclosed on after 1/1/18, then the amount of debt forgiveness could have been treated as taxable income. The Extender can reverse that income.
Qualified Energy Efficiency Improvements – This is one Extender that I expect taxpayers to get the most benefit from. This past tax season, I had a number of clients telling me that they put new windows, insulation, outside doors on their homes. I would tell them that’s good, but there is no tax benefit on the Return. Now I will be able to tell clients that’s good, let’s see what the tax savings are. Or I will let them know they have to the end of the year to make those energy improvements.
All total, there are over 30 Extenders that are being brought back till the end of 2020, the majority are for businesses.
In closing, it seems to me that if the Federal Government wants to reward businesses or individuals for creating jobs or increasing the energy efficiency of their homes by giving tax breaks, then taxpayers need to know ahead of time so they can plan for the future expenses not after the fact. Maybe we need forward looking politicians and not reactionaries representing us in Washington.
Hoping you have a prosperous 2020.
Blog by Doug Johnson – Senior Tax Professional