10 Notable 'Disaster Act' Tax Extenders

Josh Cook (Jan, 2020)

As the 2020 tax season begins, many of us have wondered whether or not our typical deductions/credits have truly expired or if Congress will pass legislation allowing us to continue to use these benefits. Fortunately, for a number of us, Congress passed extender legislation on December 20, 2019. President Trump signed into law the Taxpayer Certainty and Disaster Tax Relief Act of 2019, or the "Disaster Act," which has extended over 30 code provisions allowing taxpayers to utilize the benefits generally through 2020. When filing your 2019/2020 tax returns look to use the following deductions/credits to your advantage:

From a personal standpoint, the Disaster Act has extended:

  • The reduction in the medical expense deduction floor through the 2020 tax year. The Tax Cuts and Jobs Act ("TCJA") increased the threshold for deductible medical expenses to 10% of your Adjusted Gross Income ("AGI"). The Disaster Act reduces the floor to pre-TCJA rules and any medical expenses in excess of 7.5% of your Adjusted Gross Income (AGI) will be allowed as an itemized deduction on your personal tax returns in 2019 and 2020.
  • The treatment of mortgage insurance premiums as qualified residence interest to be included as a component of a taxpayer's itemized deductions. The Disaster Act has allowed mortgage insurance premiums paid or accrued before January 1, 2021 by a taxpayer in connection with acquisition indebtedness related to an individual's qualified residence to be deducted as qualified residence interest and deducted on Schedule A (subject to phase-out limitations).
  • The exclusion for discharged qualified principal residence indebtedness has been extended through 2020. This exclusion allows a taxpayer to exclude up to $2 million of indebtedness income from the discharge of qualified principal residence debt from their gross income.
  • The Disaster Act retroactively extends the deduction of qualified tuition and related expenses through the 2020 tax year. This code allows an above-the-line deduction for qualified tuition and related expenses to be capped at $4,000. These deductions, however, will be limited based on certain income thresholds.
  • The Health Coverage Tax Credit (HCTC) has extended through the 2020 tax year. This code allows an individual a refundable credit equal to 72.5% of the premiums paid by certain individuals for healthcare coverage.
  • Potentially one of the most common tax credits that we've seen on a day-to-day basis is the nonbusiness energy property credit. The nonbusiness energy credit is calculated as ten percent of the amounts paid or incurred by an individual for qualified energy improvements on their principal residence. Qualified energy improvements can include windows, doors, roofs, etc. There are also fixed dollar credits of $50 to $300 for energy efficient improvements related to new furnaces, hot water heaters, air conditioners, etc. These credits are subject to a lifetime limitation of $500. The Disaster Act has retroactively extended the availability of these credits to 2018 and through the 2020 tax year as well.

From a business standpoint, the Disaster Act has extended:

  • The credit for manufacturers of energy efficient new homes acquired prior to the end of the 2020 tax year. Contractors who construct or manufacture new energy efficient homes can receive a credit of $1,000 or $2,000 per qualifying residence. These credits will then pass-through to the shareholder/partners individual tax returns.
  • The Disaster Act has also extended the deduction related to energy efficient commercial buildings placed into service prior to January 1, 2021. Eligible businesses may receive a deduction for energy efficient improvements to their lighting, heating, cooling, ventilation and hot water systems running their commercial buildings. This deduction allows up to a $1.80 per square foot for construction on qualified properties.
  • The Work Opportunity Tax Credit (WOTC) program has also been extended through the end of 2020. This program allows companies a general business credit for hiring individuals who are a member of one or more of ten targeted groups under the WOTC program.
  • The Empowerment Zone tax incentives have also been extended through the end of the 2020 tax year. The designation of an economically depressed geographic area allows businesses incentives including a 20% wage credit, liberalized Code Section 179 rules, tax exempt bond financing and deferral of capital gains tax on the sale of qualified assets that were sold or replaced. There is currently an Empowerment Zone covering a great deal of Syracuse, NY.

While this list is certainly not an all-inclusive list, the extenders mentioned above are the most commonly recognized deductions/credits in our geographic region. There are several qualifications that an individual or business must meet in order to qualify for the benefits listed above. If you would like to discuss any of these extenders in greater detail or inquire on whether or not a credit applicable to your personal return or business has been extended, please feel free to contact your trusted professional at Dermody, Burke & Brown.

 

The information reflected in this article was current at the time of publication.  This information will not be modified or updated for any subsequent tax law changes, if any.

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