On December 20, President Donald Trump signed into law the Taxpayer Certainty and Disaster Tax Relief Act of 2019 (the Act). The new legislation retroactively resurrects and/or extends a bunch of individual and business federal income tax breaks, which we will call the extenders. The extensions generally go through 2020. This column covers what you need to know about the extenders that are most likely to help individual taxpayers.
As its name indicates, the Act also includes a bevy of federal tax relief provisions for disaster victims. See below for more information on that.
More-favorable itemized medical expense deduction threshold extended through 2020
The Tax Cuts and Jobs Act (TCJA) set the threshold for itemized medical expense deductions at 7.5% of adjusted gross income (AGI) for 2017 and 2018. The threshold was scheduled to increase to a daunting 10% of AGI for 2019 and beyond. The Act extends the more-taxpayer-friendly 7.5%-of-AGI threshold through 2020.
College tuition write-off resurrected for 2018 and extended through 2020
This deduction can be up to $4,000 annually at lower income levels or up to $2,000 at middle income levels. It expired at the end of 2017. The Act retroactively resurrects the deduction to cover qualified college expenses incurred in 2018 and extends the write-off to cover costs incurred in 2019 and 2020. If you qualify for the deduction based on your income, you can claim it whether you itemize or not.
* Taxpayers with modified adjusted gross income (MAGI) up to $65,000, or up to $130,000 if you’re a married joint-filer, can deduct qualified expenses up to $4,000.
* Taxpayers with MAGI between $65,001 and $80,000, or between $130,001 and $160,000 if you’re a married joint-filer, can deduct up to $2,000.
* The allowable deduction goes to zero if your MAGI is more than $80,000, or $160,000 if you’re a married joint-filer.
Break for forgiven principal residence mortgage debt resurrected for 2018 and extended through 2020
For federal income tax purposes, a forgiven debt generally counts as taxable cancellation of debt (COD) income. However, a temporary exception applied to COD income from cancelled mortgage debt that was used to acquire a principal residence. Under the temporary rule, up to $2 million of COD income from principal residence acquisition debt that was cancelled in 2007-2017 was treated as a tax-free item ($1 million for married individuals who file separately). The Act retroactively resurrects this break to cover eligible debt cancellations that occurred in 2018 and extends the break to cover eligible debt cancellations that occur in 2019 and 2020.
Key Point: The Act allows the exclusion for eligible debt cancellations that occur after 2020 under a binding written agreement that was entered into before 1/1/21.
Mortgage insurance premium write-off resurrected for 2018 and extended through 2020
Premiums for qualified mortgage insurance on debt to acquire, construct, or improve a first or second residence can...