On Dec. 20, 2019, President Donald Trump signed the FY2020 Appropriations Bill. It included the Consolidated Appropriations Act, the Further Consolidated Appropriations Act, and the SECURE Act. This legislation revolves around tax provisions that were retroactively reinstated for 2018 through 2020. Numerous credits and deductions were extended in the bill. We’ve highlighted several of the changes below.
Individual Tax Rule Changes
The most pressing information you need to know revolves around tax provisions that were retroactively reinstated for 2018 through 2020. The following tax rules are now active.
- Tuition and fees deduction. This educational tax benefit is now available once again after expiring at the end of 2017. Add this potential $4,000 deduction to your tax planning along with the American Opportunity Credit and the Lifetime learning Credit.
- Mortgage insurance premiums. This insurance expense is available once again as an itemized deduction.
- 7.5% Medical expense deduction threshold. Qualified medical expenses that exceed 7.5% of your adjusted gross income (AGI) may be used as an itemized deduction. The 10% threshold is now officially rolled back to last year’s rules.
- Mortgage forgiveness not income. If a bank forgives mortgage indebtedness, it is typically income to you. Now qualified principal residence indebtedness that is forgiven may be excluded from income with the reactivation of this tax law.
- Automatic 60-day filing extension in disaster areas. This new law eliminates the need for IRS announcements, and automates a 60-day filing extension for taxpayers affected by a federally declared disaster.
- Residential Energy Improvement Credits.
Other Changes in SECURE Act
- Moving Required Minimum Distribution (RMD) to age 72 for qualified individual retirement accounts. This is an increase from age 70½.
- Allowing part-time workers access to employer 401(k) plans.
- Eliminating the contribution age limit for traditional IRAs. You can keep putting money aside after age 70½.
- Eliminating stretch IRA rules. Beneficiaries of IRAs and qualified plans must now take distributions within 10 years. Former rules allowed distribution over the lifetime of the beneficiary.
- Rolling back of the kiddie tax rules. It looks like the estate and trust tax tables used as part of the Tax Cuts and Jobs Act, are rolling back to the parent’s tax rate.
- New penalty-free distributions from qualified retirement plans. Up to $5,000 may be withdrawn from qualified retirement plans to help cover the costs of a new birth or adoption. These disbursements must be made within a year after the birth or adoption. There is also a special tax favored withdrawal provision for those in qualified disaster areas during 2018 and 2019.
Business Extenders
There were several business extenders passed in the new bill.
- Work Opportunity Tax Credit
- New Markets Credit
- Employer Credit for Family and Medical Leave
- Incentives for Biodiesel and Renewable Diesel
- Qualified Fuel Cell Vehicle Credit
- Alternative Fuel Vehicle Refueling Property Credit
- Energy Efficient Commercial Building Credit
- Expensing of Films/TV/Theatrical Productions
If you have any questions, contact the tax experts at CDS for help.
