Small Business Taxes & ManagementTM--Copyright 2020, A/N Group, Inc.
Some tax provisions have been written into the law with a definite expiration date. Some are intended to provide temporary relief from economic conditions. Some are benefits set to expire because of the cost. A few have broad benefits and should not have been enacted with an expiration date, but were. A number of these provisions have been extended, often just before, or shortly after, their expiration. The ones below reached a new milestone. They generally expired at the end of 2017 and most have been extended (Taxpayer Certainty and Disaster Relief Act, part of the Consolidated Appropriations Act) through the end of 2020. Yes, that means you might have taken advantage of some of them on your 2018 return. Depending on how much you would have saved, you might want to consider filing an amended return.
Since many of the provisions affect tax laws that are well-known, the discussion will be brief. We'll also briefly discuss the other provisions in the Act related to disaster relief.
Exclusion From Gross Income of Discharge of Qualified Principal Residence Indebtedness Extends through December 31, 2020 the exclusion from gross income for discharges of qualified principal residence indebtedness. The provision also provides for an exclusion from gross income in the case of those taxpayers whose qualified principal residence indebtedness was discharged on or after January 1, 2021, if the discharge was subject to a written arrangement entered into prior to January 1, 2021.
Deduction of Mortgage Insurance Premiums Certain premiums paid or accrued for qualified mortgage insurance by a taxpayer during the taxable year in connection with acquisition indebtedness on a qualified residence of the taxpayer are treated as interest that is qualified residence interest. The provision extends the deduction for qualified mortgage insurance premiums for three years (with respect to contracts entered into after December 31, 2006). It applies to amounts paid or accrued in 2018, 2019, and 2020.
Reduction in Medical Expense Deduction Floor The floor on medical deductions for individuals was 7.5 percent in 2018, but was sent to increase to 10 percent in 2019. The new law extends for two years the threshold of 7.5 percent to taxable years beginning before January 1, 2021.
Deduction of Qualifed Tuition and Related Expenses Before the expiration of the law, you could take an above-the-line deduction for up to $4,000 depending on filing status and adjusted gross income. Only certain tuition and related expenses qualified. The new law extends the provision through 2020. Thus, taxpayers who may have qualified in 2018 may want to amend their return.
Work Opportunity Tax Credit The work opportunity tax credit is available on an elective basis for employers hiring individuals from one or more of ten targetedgroups. The provision extends for one year the work opportunity tax credit making it available with respect to individuals who begin work for an employer on or before December 31, 2020.
Employer Credit for Paid Family and Medical Leave For wages paid in taxable years beginning after December 31, 2017, and before January 1, 2020, "eligible employers" may claim a general business credit equal to 12.5 percent of the amount of eligible wages (based on the normal hourly wage rate) paid to "qualifying employees" during any period in which such employees are on "family and medical leave" if the rate of payment under the program is 50 percent of the wages normally paid to an employee for actual services performed for the employer. The provision extends the paid family and medical leave credit for one year (for wages paid in taxable years beginning after December 31, 2019, and before January 1, 2021).
Expensing Rules for Certain Productions Qualified film, television, or live theatrical productions can elect to deduct up to $15 million of total production costs in the year paid or incurred. The provision extends the special treatment for three years to qualified productions starting before January 1, 2021.
Tax Incentives in Empowerment Zones These special incentives include the wage credit, expanded tax exempt financing, elective rollover of capital gain from the sale or exchange of a qualified empowerment zone asset, and increased Section 179 expensing for qualifying property. The new law extends these provisions through December 31, 2020.
Biodiesel and Renewable Diesel The provision extends the present-law income tax credit, excise tax credit and payment provisions for biodiesel and renewable diesel through December 31, 2020. The provision creates a special rule to address claims regarding excise tax credits and claims for payment for fuel sold or used during the period beginning on January 1, 2018, through the close of the last calendar quarter beginning before the date of enactment.
Nonbusiness Energy Property A 10-percent credit is available for the purchase of qualified energy efficiency improvements to existing homes. A qualified energy efficiency improvement is any energy efficient building envelope component (1) that is installed in or on a dwelling located in the United States and owned and used by the taxpayer as the taxpayer's principal residence, (2) the original use of which commences with the taxpayer, and (3) that reasonably can be expected to remain in use for at least five years. The provision is effective for property placed in service after December 31, 2017 and through December 31, 2020. The provision also updates the credit’s requirements to reflect the fact that the Department of Energy has replaced the energy factor previously used to measure efficiency with a new standard called the uniform energy factor.
Credit for Electricity From Certain Renewable Resources The provision also updates the credit's requirements to reflect the fact that the Department of Energy has replaced the energy factor previously used to measure efficiency with a new standard called the uniform energy factor. The provision also updates the credit's requirements to reflect the fact that the Department of Energy has replaced the energy factor previously used to measure efficiency with a new standard called the uniform energy factor. For renewable power facilities, the provision extends for three years (one year in the case of wind facilities), through December31, 2020, the beginning of construction deadline for the renewable electricity production credit and the election to claim the energycredit in lieu of the electricity production credit. For wind facilities the construction of which begins in calendar year 2020, the credit is reduced by 60 percent.
Energy-Efficient Homes Credit A credit is available to an eligible contractor for each qualified new energy-efficient home that is constructed by the eligible contractor and acquired by a person from such eligible contractor for use as a residence during the taxable year. The provision extends the credit for three years, to homes that are acquired prior to January 1, 2021.
Energy-Efficient Commercial Buildings Deduction Section 179D provides an election under which a taxpayer may take an immediate deduction equal to energy-efficient commercial building property expenditures made by the taxpayer. The provision extends the deduction for three years, through December 31, 2020.
New Markets Tax Credit Section 45D provides a new markets tax credit for qualified equity investments made to acquire stock in a corporation, or a capital interest in a partnership, that is a qualified community development entity (CDE). This provision extends the new markets tax credit for one year, through 2020, permitting up to $5 billion in qualified equity investments for the 2020 calendar year. The provision also extends for one year, through 2025, the carryover period for unused new markets tax credits.
Accelerated Depreciation for Business Property on Indian Reservations Before expiration the law allowed for a shorter recovery period for qualified Indian reservation property. The provision extends this benefit for three years to property placed in service before January 1, 2021.
Indian Employment Tax Credit In general, a credit against income tax liability is allowed to employers for the first $20,000 of qualified wages and qualified employee health insurance costs paid or incurred by the employer with respect to certain employees. A qualified employee is a member of an Indian tribe (or a spouse of one) who performs services and whose principal place of abode is on a reservation. The provision extends the Indian employment credit for three years (through taxable years beginning before January 1, 2021).
Disaster Related Employment Relief The tax law provided for an employer credit for employers affected by earlier natural disasters (e.g., Hurricanes Katrina, Wilma, Harvey, etc. and certain California wildfires). No such provision is included in the law for non-specified disasters. The provision provides a credit of 40 percent of the qualified wages (up to a maximum of $6,000 in qualified wages per employee) paid by an eligible employer to an eligible employee. The provision is effective on enactment.
Qualified Disaster-Related Personal Casualty Losses Such losses are generally limited to the amount in excess of 10 percent of a taxpayer's adjusted gross income plus $100 per casualty. Under the provision, in the case of a personal casualty loss which arose in a qualified disaster area on or after the first day of the incident period of the applicable qualified disaster and which were attributable to such qualified disaster, such losses are deductible without regard to whether aggregate net losses exceed 10 percent of a taxpayer's adjusted gross income. In order to be deductible, however, such losses must exceed $500 per casualty. Finally, such losses may be claimed in addition to the standard deduction and may be claimed by tax payers subject to the alternative minimum tax.
Special Rule for Determining Earned Income Under the provision, in the case of a personal casualty loss which arose in a qualified disaster area on or after the first day of the incident period of the applicable qualified disaster and which were attributable to such qualified disaster, such losses are deductiblewithout regard to whether aggregate net losses exceed 10 percent of a taxpayer’s adjusted gross income. In order to be deductible, however, such losses must exceed $500 per casualty. Finally, such losses may be claimed in addition to the standard deduction and may be claimed by tax payers subject to the alternative minimum tax. Qualifying individuals must have had their principal of abode in the applicable qualified disaster zone or who during any portion of such incident period were not in the applicable qualified disaster zone but whose principal place of abode was in the applicable qualified disaster area and were displacedfrom such principal place of abode by reason of the qualified disaster. Victims of Hurricane Sandy (October 29, 2012 through November 3, 2012 qualify for such treatment and the provision extends the statute of limitations for such individuals.
Automatic Extension of Filing Deadlines The IRS generally extends the deadlines for filing returns, paying taxes, filing a claim for refund, etc. to victims in Federally declared disaster areas. The provision provides to qualified taxpayers in the case of a Federally declared disaster a mandatory 60-day period that is disregarded in determining whether the acts listed above were performed in the time prescribed; the amount of interest, penalty, additional amount, or addition to tax; and the amount of credit or refund. The 60-day period begins on the earliest incident date specified in the declaration of the relevant disaster and ends on the datewhich is 60 days after the latest incident date so specified. A disaster area is the geographic area of a Federally declared disaster, which is any disaster subsequently determined by the President to warrant assistance by the Federal government under the Stafford Act.
Qualified taxpayers are (1) any individual whose principal residence is located in a disaster area, (2) any taxpayer if the taxpayer's principal place of business (other than the business of performing services as an employee) is located in a disaster area, (3) any individual who is a relief worker affiliated with a recognizedgovernment or philanthropic organization and who is assisting in a disaster area, (4) any taxpayer whose records necessary to meet a deadline for the acts listed above are maintained in a disaster area, (5) any individual visiting a disaster area who was killed or injured as a result of the disaster, and (6) solely with respect to ajoint return, any spouse of an individual who is a qualified taxpayer.
Copyright 2020 by A/N Group, Inc. This publication is designed to provide accurate and authoritative information in regard to the subject matter covered. It is distributed with the understanding that the publisher is not engaged in rendering legal, accounting, or other professional service. If legal advice or other expert assistance is required, the services of a competent professional should be sought. The information is not necessarily a complete summary of all materials on the subject. Copyright is not claimed on material from U.S. Government sources.--ISSN 1089-1536
--Last Update 02/06/20