Tax Provisions Extended Retroactively

| Alerding Alerts

On Friday, December 20, 2019, the President signed the Further Consolidated Appropriations Act, 2020 which extends several tax provisions related to expiring or expired tax provisions. In addition, the Secure Act, (Setting Every Community Up for Retirement Enhancement) spending package makes major changes to 401(k) plans and IRAs which mostly take effect on January 1, 2020.

EXTENDERS

Tax extenders are tax provisions that have already expired or were set to expire by year-end.  The Act revives tax provisions retroactively effective for 2018 and extends them through the end of 2020. This means that some taxpayers should consider amending their returns for 2018.

  • The treatment of mortgage insurance premiums is now deductible as qualified residence interest subject to income-level phaseouts.
  • Discharge of qualified principal residence indebtedness can be excluded from gross income.
  • The Act allows for the reduction of the adjusted gross income (“AGI”) floor for medical and dental expense deduction from 10% to 7.5%.
  • There is now a deduction for tuition and fees paid by taxpayers whose income is below certain IRS limits.
  • The new markets tax credit, which encourages investment in an economically depressed area, was extended.
  • The Act extends some energy credits, including the credits for nonbusiness energy property, qualified fuel cell vehicles, and energy-efficient commercial buildings.
  • Eligible employers offering paid family and medical leave may receive a tax credit through 2020.
  • The Work Opportunity Tax Credit (WOTC) was extended. This credit offers employers tax credits for hiring certain individuals from targeted demographic groups.
  • For the Kiddie tax calculation, the rates are based on the tax rate of the parents instead of the trust tax rates.

RETIREMENT PLANS

  • The start date for required minimum distributions (“RMDs”) is now the year in which the owner turns 72 rather than 70 ½.
  • The Act removes the 70 ½ age limit for contributions to IRAs.
  • The distribution period for non-spouse inherited IRAs is now shortened to a 10-year maximum. The old rule allowed permitted beneficiaries to stretch the distribution period over their life expectancy.
  • Now there is a requirement for 401(k) plans to offer participation to part-time employees who meet certain criteria.
  • A new tax credit is allowed for small employers using auto-enrollment plans.

Contact Alerding CPA Group if you need assistance determining whether or not these tax provision extensions impact you.