Congress Gets in the Christmas Spirit: Tax Extenders Pass

“It’s looking a lot like Christmas,” is how one Christmas tune begins. Here in Las Vegas, that means it’s cold (for Las Vegas), and the few deciduous trees in town are now leafless. But Congress got in the Christmas spirit, passing tax extenders. There are a lot of provisions, so let’s get to the ones most likely to impact you.

1. Three ObamaCare taxes are gone: the medical device excise tax, the 40% excise tax on high-cost employer provided health coverage, and the annual fee on health insurance providers. ObamaCare continues to go into the garbage can of history on a piecemeal basis.

2. There are numerous changes to retirement programs. The biggest change is that the age for required minimum distributions has been increased to 72 from 70 1/2. This change is effective for distributions required to be made after December 31, 2019 for employees and IRA owners who attain age 70 1/2 after December 31, 2019.

3. It used to be that if you had cancellation of debt income from your primary residence, you could exclude that from taxation. That vanished–but it’s back! This provision is retroactive to 2018, so if this impacted you an amended return may be in the future. This provision sunsets at the end of 2020 (unless Congress extends it again).

4. Mortgage insurance premiums used to be deductible, but that went away. That’s also back, retroactive to 2018; if this impacts you an amended return may be in your future. This provision sunsets at the end of 2020.

5. The medical expense deduction for 2019 and 2020 returns will be based on 7.5% of AGI, not 10% of AGI.

6. The Tuition and Fees deduction is back for 2018 (retroactive) through 2020.

7. The tax credit for construction of energy efficient homes is back for 2018 (retroactive) through 2020.

Those are just the highlights; there are numerous other provisions. This legislation still must be signed into law by President Trump (he has indicated he will sign it). I would expect tax software companies to have made the appropriate adjustments in their software by the end of January.

An obvious question is whether you should file an amended return if you’re impacted by one of these changes for 2018. The answer will be, “It depends.” The reality is that if the issue is major (you’re a home builder and can take the tax credit for energy efficient homes, or you had large cancellation of debt income from your personal residence) the answer will undoubtedly be yes. However, let’s say you paid $300 of mortgage insurance (and you did itemize) in 2018. Let’s further assume you’re in the 22% tax bracket. That means your potential tax savings are $66. If a tax professional prepares an amended return, he or she will have to charge you. Now, for a change like this the cost will generally be minimal (it should take very little time), but tax professionals must charge for their time. Let’s say the charge is $60. Then you have to add in the cost of postage (all amended returns must be mailed to the IRS) which means certified mail, so that will add in another $6. So you would be spending $66 to save $66 in my hypothetical — a wash. Thus, each individual will need to look at their unique situation.

It would be far better for Congress to drastically simplify the Tax Code or not have extenders; simply pass legislation at the beginning of each year rather than the end of it. The good news for 2020 is we do have certainty on these extenders for next year.


Comments are closed.