On December 20, 2019, President Trump signed and enacted the “Taxpayer Certainty and Disaster Tax Relief Act of 2019,” which extends over thirty Code provisions generally from 2018 through 2020.
While there are many aspects of this bill and its impact, here are selected highlights of some of the most significant extenders:
- Exclusion of discharge of qualified principal residence indebtedness from gross income
The Disaster Act allows taxpayer to exclude from income up to $2 million ($1 million for married individuals filing separately) of indebtedness from qualified principal residence that is discharged pursuant to a binding written agreement, for tax years beginning after January 1, 2018, and before January 1, 2021.
- Treatment of mortgage insurance premiums as qualified residence interest
Under the Disaster Act law, mortgage insurance premiums paid or accrued after January 1, 2018 through December 31, 2020, in connection with indebtedness acquisition of taxpayer’s qualified residence, is 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 is phased out ratably by 10% for each $1,000 by which the taxpayer’s adjusted gross income exceeds $100,000 ($500 and $50,000, respectively, in the case of a married individual filing a separate return). Thus, the deduction is not allowed if the taxpayer’s AGI exceeds $110,000 ($55,000 in the case of married individual filing a separate return).
- Reduction in medical expense deduction floor
The Code provides that for tax years 2017 and 2018, individual taxpayers could claim an itemized deduction for unreimbursed medical expenses to the extent that such expenses exceeded 7.5% of their Adjusted Gross Income. The Disaster Act 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 with an Adjusted Gross Income that does not exceed $65,000 ($130,000 for joint filers) or $2,000 for an individual with an Adjusted Gross Income that does not exceed $80,000 ($160,000 for joint filers). This deduction is extended through 2020.
- Credit for health insurance costs of eligible individuals
The Disaster Act extends the health coverage tax credit through 2020. This refundable credit is 72.5% of the premiums paid by certain individuals for coverage of the individual and qualifying family members under qualified health insurance.
- Energy efficient homes credit
An eligible taxpayer may claim a tax credit of $1,000 or $2,000 for the construction or manufacture of a new energy efficient home that meets qualifying criteria. The Disaster Act extends this credit to homes constructed before January 1, 2021.
- Energy efficient commercial buildings deduction
The Code provides a deduction for energy efficiency improvements to lighting, heating, cooling, ventilation, and hot water systems of commercial buildings. This includes a $1.80 deduction per square foot for construction on qualified property. A partial $0.60 deduction per square foot is allowed if certain subsystems meet energy standards but the entire building does not. The Disaster Act extends these deductions to property placed into service before January 1, 2021.
- New markets tax credit
New Markets Tax Credit is available to both individual and corporate taxpayer that commits to investment in a qualified community development in low-income communities. New Markets Tax Credit is 39% of the capital invested in a qualified community development entity that commits to the rules of the program, which in turn must loan to or invest substantially all of such capital in qualified businesses operating in low-income communities. The Disaster Act provides a $5 billion New Markets Tax Credit allocation for 2020. The Act also extends for one year, through 2025, the carryover period for unused New Markets Tax Credits.
- Employer tax credit for paid family and medical leave
Paid family and medical leave credit is extended through 2020. Employers can get a credit based on eligible wages paid to qualifying employees with respect to family and medical leave. The credit is equal to 12.5% of eligible wages if the rate of payment is 50% of such wages and is increased by 0.25 percentage points (but not above 25%) for each percentage point that the rate of payment exceeds 50%. The maximum amount of family and medical leave that may be taken into account with respect to any qualifying employee is 12 weeks per tax year.
- Work opportunity tax credit
Work Opportunity Tax Credit is extended through 2020. This credit is available to employers hiring individuals who are members of one or more of ten targeted groups under the Work Opportunity Tax Credit program.
- Classification of certain race horses as three – year property
The Disaster Act extends the three-year recovery period to race horses two years old or younger placed in service before 2021.
- Seven-year recovery period for motorsports entertainment complexes
The Disaster Act extends the seven-year recovery period for motorsports entertainment complexes through 2020. A motorsports entertainment complex is defined as a racing track facility that is permanently situated on land and that hosts one or more racing events within 36 months of the month it is placed in service.
- Extension of expensing rules for certain productions
The Disaster Act extends deduction for qualified film, television, and theatrical productions of up to $15 million of the aggregate cost ($20 million for certain areas) of a qualifying film, television, or theatrical production in the year the expenditure was incurred through 2020.
- Special allowance for second-generation biofuel plant property
The Disaster Act extends additional first-year 50% bonus depreciation for cellulosic biofuel facilities placed into service before January 1, 2021.
- Nonbusiness energy property
The Disaster Act extends the credit for purchases of nonbusiness energy property through 2020. The Code allows a credit of 10% of the amounts paid or incurred by the taxpayer for qualified energy improvements to the building envelope (windows, doors, skylights, and roofs) of principal residences. The Code also allows credits of fixed dollar amounts ranging from $50 to $300 for energy-efficient property including furnaces, boilers, biomass stoves, heat pumps, water heaters, central air conditioners, and circulating fans, and is subject to a lifetime cap of $500.
- Qualified fuel cell motor vehicles
The Disaster Act extends the credit for purchases of new qualified fuel cell motor vehicles through 2020. The Code allows a credit of between $4,000 and $40,000, depending on the weight of the vehicle, for the purchase of such vehicles. Other vehicles, depending on their fuel efficiency, may qualify for an additional $1,000 to $4,000 credit.
- Alternative fuel refueling property credit
Under pre-Disaster Act law, a taxpayer could claim a 30% credit for the cost of installing non-hydrogen alternative vehicle refueling property for use in the taxpayer’s trade or business (up to $30,000 maximum per year per location) or installed at the taxpayer’s principal residence (up to $1,000 per year per location). This provision now applies to property placed in service before January 1, 2021.
If you have any questions about these extenders, or how they might affect your own tax and business decisions, we will be happy to meet with you and discuss concerns unique to your situation. In the meantime, feel free to call or email me at mariana.moghadam@SobelCoLLC.com or 973-994-9494. We are glad to help!
