2018 Tax Savings Resurrected: Tax Extenders Approved

Overview

On December 20, 2019, President Trump signed into law, two pieces of legislation that extended government funding and dealt with several of the tax extender provisions.  These tax extender provisions were largely ignored and left on the shelf when the President signed the Tax Cuts and Jobs Act in 2017. However, with the passing of this 2019 legislation, these provisions were “re-activiated” effective January of 2019 (through 2020) with the ability for these provisions to be carried back to 2018.  This essentially means that this legislation has resurrected a bunch of previously expired federal income tax breaks that can now be claimed for 2018.  If you qualify for any of the below “resurrected” tax breaks, you may need to consider amending your 2018 tax return to take advantage of these savings.

Exclusion from gross income of discharge of qualified principal residence indebtedness

Under prior law, discharge of indebtedness income from qualified principal residence debt, up to a $2 million limit ($1 million for married individuals filing separately), was, in tax years beginning before Jan. 1, 2018, excluded from gross income.  The Disaster Act retroactively extends this exclusion to discharges of indebtedness before Jan. 1, 2021.

The new legislation also modifies the exclusion to apply to qualified principal residence indebtedness that is discharged pursuant to a binding written agreement entered into before Jan. 1, 2021. This applies to discharges of indebtedness after Dec. 31, 2017.

Treatment of mortgage insurance premiums as qualified residence interest

Under prior law, mortgage insurance premiums paid or accrued before Jan. 1, 2018 by a taxpayer in connection with acquisition indebtedness with respect to the taxpayer's qualified residence were treated as deductible qualified residence interest, subject to a phase-out based on the taxpayer's adjusted gross income (AGI). The amount allowable as a deduction was phased out ratably by 10% for each $1,000 by which the taxpayer's adjusted gross income exceeded $100,000 ($500 and $50,000, respectively, in the case of a married individual filing a separate return). Thus, the deduction wasn't allowed if the taxpayer's AGI exceeded $110,000 ($55,000 in the case of married individual filing a separate return).

The new legislation extends this treatment through 2020 for amounts paid or incurred after Dec. 31, 2017.

Reduction in medical expense deduction floor

The Code provides that, individuals, for 2017 and 2018, could claim an itemized deduction for unreimbursed medical expenses to the extent that such expenses exceeded 7.5% of AGI.

The new legislation extends this threshold of 7.5% for tax years beginning after Dec. 31, 2018 and before Jan. 1, 2021.

Deduction of qualified tuition and related expenses

The Code provides an above-the-line deduction for qualified tuition and related expenses for higher education. The deduction is capped at $4,000 for an individual whose AGI does not exceed $65,000 ($130,000 for joint filers) or $2,000 for an individual whose AGI does not exceed $80,000 ($160,000 for joint filers).

The new legislation extends this deduction through 2020. This applies to tax years beginning after Dec. 31, 2017.