Changes that may affect you!
In December of 2019, several spending bills were signed to avoid a government shutdown.
These spending bills extended many tax provisions through to December 31st, 2020.
They also made some provisions retro-active back to January 01, 2018.
There are many extenders and we have gone through them and compiled a list of the ones we feel pertain to our clients. Let us know if you think any of these provisions might affect you!
Mortgage Insurance Premiums (PMI or MIP) - The treatment of mortgage insurance premiums as mortgage interest (and deductible on Schedule A) was extended back to 01/01/2018 through to 12/31/2020.
Medical Expenses - The income threshold for the deductibility of medical expenses on Schedule A was extended at 7.5% through 12/31/20. It will then increase to 10%.
Tuition and Fees Deduction - This deduction is an alternative to the American Opportunity and Lifetime Learning credits for college expenses. It has been been extended back to 01/01/2018 through to 12/31/2020. You may want to revisit your 2018 tax return and see if the Tuition and Fees Deduction is a better benefit than the education credits.
Non-Business Energy Improvement Credits - Extended back to 01/01/2018 through to 12/31/2020 is the credit for residential energy improvements. These are improvements to your principal residence that include items such as water heaters, heat pumps, water boilers, furnaces and fans, central air conditioning, exterior doors and windows, and metal roofs that follow guidelines set forth by Energy Star.
Exclusion for the Discharge of Personal Residence Indebtedness - This provision was extended back to 01/01/2018 through to 12/31/2020. This is the relief from claiming canceled debt resulting from the loss of your main home as income.
Kiddie Tax - Under the tax laws enacted for 2018, the "kiddie tax" rate was equal to the higher tax bracket for estates and trusts. This law has been changed back as of 01/01/2020 so that the "kiddie tax" rate is once again equal to the parents' tax rate. Taxpayers can also elect to apply this preferred rate retroactively to tax years 2018 and 2019.
New Provisions Regarding Retirement -
1. Beginning 01/01/2020, there is no maximum age limit for making contributions to an IRA.
2. Beginning 01/01/2020, the Required Minimum Distributions taken from an IRA begin at age 72 instead of 70 1/2.
3. Beginning 01/01/2020, distributions of up to $5000 can be taken during the year penalty free in the case of a birth or adoption of a child. (The money is still taxable income; just not penalized).
4. Beginning 01/01/2020, if you inherit an IRA, you must withdraw the money within 10 years after the date of death.
5. There is a new form for the Qualified Business Income Deduction (also known as 199A) that did not exist last year. If you are a business owner, you will see this new form 8995 with your return.
6. For businesses, the deductible rate for business miles is $0.58/mile in 2019, up 3.5 cents from the prior year. (As of the passing of recent legislation, the mileage rate for 2020 is down to $0.575/mile.)
New Provisions Regarding Section 529 Plans (State College Savings Plans) -
1. Beginning 01/01/2020, 529 plans can also be used for Apprenticeship programs.
2. Beginning 01/01/2020, beneficiaries can take distributions of up to $10,000 during their lifetime to pay towards the student loans of themselves or their siblings.
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