The Consolidated Appropriations Act was passed in December 2019. It extended many popular tax provisions that expired at the end of 2017. In the act, Congress also extended many provisions retroactively to the 2018 tax year.
What is a tax extender/tax provision?
The specific tax extenders detailed in this article will be available to all taxpayers through 2020. However, these provisions are set to expire again at the end of 2020 unless Congress extends them further. Make sure your clients know these extenders will expire in 2021, so they will not be counting on them for next year.
How will the Consolidated Appropriations Act affect my clients’ 2020 taxes?
The tax extenders from the Consolidated Appropriations Act include:
Tuition and Fees deduction
This deduction allows taxpayers to deduct up to $4,000 to help cover education costs for themselves, their spouse, or dependent children. It can’t be claimed in the same tax year for the same student as the American Opportunity Tax Credit or the Lifetime Learning Tax Credit. The Consolidated Appropriations Act extended the expiration date for this deduction to December 31, 2020. This means that it is retroactively available for tax years 2018, 2019, and 2020.
Mortgage Insurance Premium (PMI) deduction
Private mortgage insurance (PMI) is a type of insurance your client may be required to pay if they have a conventional loan. PMI was part of the mortgage interest deduction, an itemized deduction limited in 2017. However, the Consolidated Appropriations Act extended this deduction through December 31, 2020. This means that it is retroactively available for tax years 2018, 2019, and 2020.
Qualified Disaster Loss
The Consolidated Appropriations Act included a provision allowing all federally declared disasters to be treated as a qualified disaster loss for the purpose of EIC recalculation and casualty loss treatment.
Qualified Person Residence Indebtedness
If your client had some of their mortgage debt partially or fully forgiven, that amount will be included in their gross income. This could cause them to owe a significant amount on their tax return. Luckily there is an exclusion that allows taxpayers to exclude up to $2 million of the forgiven debt from their income. This is reflected on Form 982. This exclusion expired at the end of 2017, but now is extended to January 1, 2021 and applies retroactively to 2018 and 2019 due to the Consolidated Appropriations Act.
Residential energy credits
If your client makes energy improvements to their home, such as energy-efficient windows, they can deduct a portion on their tax return. These credits were set to expire, but they have been extended retroactively through December 31, 2020.
Business tax credits
The tax extenders also include eleven business tax credits that are claimed by individuals on Form 3800. These credits only apply to clients from a pass-through entity on a Schedule K-1.