Everyone is focused on extensions for Coronavirus unemployment payments, a second round of the Paycheck Protection Plan and a second round of the economic stimuluspayments.
But there are other things we need to watch as well.
These are the “tax extenders.” Every year a handful or more tax laws expire. Rather than deal with these and make them permanent changes once and for all, Congress just keeps kicking the can down the road. These are some of the most important tax extenders that are expiring 12/31/2020. If Congress does nothing, these tax provisions go away.
The Individual Tax Laws That May Go Away 12/31/2020
There are 6 important individual tax provisions that are expiring at the end of the year. What happens if these aren’t extended? Canceled Mortgage Debt: Canceled mortgage debt happens with a bank “writes off” part of the debt when property is surrendered, foreclosed upon and sold at a short sale. The forgiven debt is also called COD income. If it’s your personal residence, the COD income is not taxable. That provision expires 12/31/2020. Unless extended, that means the amount forgiven would become taxable. Mortgage Insurance Premium Deduction: The mortgage interest premium, AKA PMI, is due when your debt is high in relationship to the value of the property. Through 12/31/2020, that premium is deductible. After that, who knows? Tuition Deduction: Through 12/31/2020, all taxpayers (regardless of whether they itemize or not) can deduct up to $4,000 of qualified tuition and related expenses for post secondary education. Unless extended this will phase-out Health Coverage Tax Credit: This is a tax credit for eligible individuals (eligible trade adjustment assistance) available through 12/31/2020
7.5% Floor for Medical Expense Deductions: After 12/31/2020, the income floor willbe raised to 10% of adjusted gross income (AGI) from 7.5% of AGI. Voluntary Firefighter & Emergency Responder Income Exclusion: Through 12/31/2020, voluntary firefighters and emergency medical responders get a reduction of gross income up to $30/month.
More provisions expiring 12/31/2020 include: Credit for nonbusiness alternative energy property Credit for qualified fuel cell motor vehicles Credit for alternative fuel vehicle refueling property Second generation biofuel producer credit Beginning-of-construction date for renewable power facilities Credit for production of Indian coal Indian employment credit New markets tax credit Credit for construction of new energy efficient homes Mine rescue team training credit Employer credit for paid family and medical leave Work opportunity credit 3-year recovery period for race horses 2 years old or younger 7-year recovery period for motorsports entertainment complexes Accelerated depreciation for business prop on an Indian reservation Special depreciation allowance for second gen biofuel plant property Energy efficient commercial buildings deduction Special expensing rules for certain film, television, and live theatrical prod Deduction for qualified tuition and related expenses Special rules for sales or dispositions by a qualified elect utility to implement FERC Look-through treatment of payments between related controlled foreign corp Empowerment zone tax incentives Black Lung Disability Trust FundOil Spill Liability Trust Fund financing rate Provisions modified tax of beer, wine and distilled spirits What does all this mean to you? Don’t assume you know what’s taxable what’s not. Don’t assume you know your deductions or your credits. This coming tax year is going to be like no other. Big changes are coming to your taxes. It could be good. Or it could be bad. It all depends on the steps you take now.
What will you choose?