On December 24, 2019, The Further Consolidated Appropriations Act was passed. This bill contains tax provisions addressing expiring tax credits and other tax issues. This type of legislation is commonly known as an extender bill. This column focuses on the extender provisions included in that bill.
Further Consolidated Appropriations Act extender provisions:
Discharge of Qualified Principal Resident Indebtedness. The ability to exclude income from discharge of indebtedness of a qualified principal residence for debt up to $2,000,000 for married couples was retroactively reinstated. This type of income occurs when you sell your primary residence or have it repossessed and the value of the property is less than the debt on it. In these cases, for other properties such as rentals, the excess of the forgiven debt over the proceeds from sale or excess debt over the value of the property is reported as income. Due to the economic downturns, which resulted in so many foreclosures in prior years, this provision came into being to help ease the burden on homeowners, who had such foreclosures without having to file bankruptcy. That expired December 31, 2017. It has been retroactively reinstated to include such discharges of indebtedness, which occur from January 1, 2018 thru December 31, 2020. The amount excludable is $1,000,000 for individuals filing as single or married filing separately.
Treating Mortgage Insurance Premiums as Qualified Residence Interest. Under prior year’s laws, mortgage insurance premiums paid or accrued before January 1, 2018, were deductible as qualified residence mortgage interest, if secured by a qualified residence. The extender bill reinstates this provision retroactively for amounts paid or incurred after December 31, 2017 through 2020.
Reduction in the Medical Expense Deduction Floor. You can deduct qualified medical expenses as itemized deductions if the amount of your medical expenses exceeds a certain percentage of your Adjusted Gross Income (AGI). Under the prior law that amount was slated to rise from 7.5 percent of AGI to 10 percent of AGI. The extender bill delays that increase until 2021.
Deduction of Qualified Tuition and Related Expenses. The bill extends the ability to deduct qualified tuition and related expenses for higher education. The amount is capped at $4,000 for an individual whose income 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 filer). This provision is extended retroactively from 2018 and carried through 2020.
It is important to note that a number of these “extender” provisions actually reach back in time to 2018. Many extender bills generally only carry forward provisions, which were set to expire or have their benefits reduced, but in this case Congress hopped in their time machine and created a situation where you may have to weigh the cost benefit of the extended bill versus the headache and cost of amending your return to claim the benefit for 2018!
As always, there are numerous rules which may affect your implementation of any of the topics covered in this column, and also as noted, Congress has a sneaky way of passing law changes at the drop of a hat, so please do your research or contact your tax advisor before undertaking any of the strategies mentioned here.
Robert W. Carmines, MST, CPA is a partner in the Certified Public Accounting firm of Carmines, Robbins & Company, PLC, located in the City Center section of Oyster Point Business Park in Newport News, VA. Phone number is 757-873-8585 and web address is www.DDS-CPA.com or www.CarminesRobbins.com.