Late 2019 Federal Tax Legislation

By Stanley Rose December 20, 2019

In addition to the features included in the SECURE Act (addressing retirement plan changes) and some benefits provided to tax exempt entities, both of which are covered in related articles, this piece will provide an overview of some general tax provisions included in this month’s Further Consolidated Appropriations Act, or H. R. 1865.

Much of the legislation consists of tax “extenders,” which refers to laws (usually deductions) that seem to be perpetually extended one sorry year at a time rather than permanently. Here is a list of some of the features that were to expire, but have been extended, in most cases through the year 2020:

• The ability to exclude from taxable income up to $2 million resulting from the discharge of certain principal residence indebtedness. (Generally any forgiveness of debt is treated as income.) Reference: Internal Revenue Code (IRC) Section 101.
• The ability to treat mortgage insurance premiums as mortgage interest, for purposes of itemized deductions. Reference: IRC Sec. 102.
• The ability to deduct, as an itemized deduction, qualified medical costs exceeding 7.5% of a taxpayer’s income, rather than 10%. Reference: IRC Sec. 103.
• A deduction of up to $4,000 for qualified tuition and certain other costs related to higher education. The maximum benefit can be reduced depending on the taxpayer’s income level. Reference: IRC Sec. 104.
• The use of tax credits applicable to biodiesel fuel. This benefit, unlike most in this legislation, is extended through the year 2022. Reference: IRC Sec. 121.
• Residential energy property credit: A credit of up to 10% of qualifying costs (capped annually at no more than $300, with a lifetime cap of $500) for installing certain energy-efficient equipment in principal residences. Reference: IRC Sec. 123.
• A number of alternative fuel, electric vehicle, and renewable energy benefits. Reference: IRC Sections 124-133.
• Credits for paid family and medical leave, and the “work opportunity credit.” Reference: IRC Sections 142-143.

H. R. 1865 also repealed three taxes that were created with President Obama’s Affordable Care Act: The so-called Cadillac Tax, Medical Device Tax, and Health Insurance Tax. Reference: IRC Sections 501-503.

Finally, there is one item that is relevant due to its unfortunate omission from this (or any recent) legislation: A cure for a pesky drafting error in 2017’s Tax Cuts and Jobs Act that left “Qualified Improvement Property” with a 39-year depreciable life rather than a 15-year life. This is significant because Congress intended to assign the shorter life to it, and by failing to do so, this category of costs remains ineligible for full, immediate deduction under the “bonus depreciation” rules.

There are many more tax extenders and other features in H. R. 1865 – too many to cover in this alert. The text of the extenders portion of the bill and other provisions may be found on Congress’ website.

To discuss this tax legislation, please contact your BNN tax advisor at 800.244.7444.