Last minute retroactive tax changes are the bane of a tax preparer’s existence. The only thing worse is when those tax changes happen during tax season.
Congress did it to us again on February 9th, with 36 tax extensions for provisions that had expired at the end of 2016. They have been extended, retroactive to 1/1/17 (14 months ago). Even if these niched provisions don’t personally impact you, it will mean probably mean further delays to getting tax season rolling. The IRS has to deal with these provisions now and update the tax forms. Tax software companies need to update their programs.
For individuals, the most relevant changes are:
- Tax on debt forgiveness for primary residence has been extended. This is good news for anyone who has had a foreclosure, short sale or deed-in-lieu-of-forgiveness of their primary residence. For years, this type of cancellation of debt has not been taxable. Then, after the provision expired 12/31/16, it left some taxpayers in a bad situation. If they couldn’t get their deal done by the end of 2016, it looked like they just suddenly picked up a bunch of tax right when they were experiencing some of the worst financial times of their lives. They’d lost their home and now had to pay tax.
- The deduction for mortgage insurance premiums (PMI) has been extended. In reality, this may only impact your 2017 tax return. There have been such sweeping changes to the way taxpayers itemize due to provisions in the 2018 tax reform act that most tax payers will use the much higher standard deduction and won’t itemize.
- The above-the-line deduction for higher education expenses of up to $4,000 is back.
- $500 energy-efficient home improvements tax credit. You get up to $500 calculated as 10% of the actual amount paid for improvements like better windows or upgraded HVAC systems.
- Up to $2,500 tax credit (10% of the cost) for 2-wheel plug in electric vehicle credit.
- Geothermal and small wind residential energy tax credit of 30% of cost of the system.
If you’d like to see all of the laws that were extended, you can find them at: https://email.steptoecommunications.com/22/1412/uploads/summary-of-tax-extenders-agreement.pdf
Even if this doesn’t directly impact you, it does. The IRS has to make the necessary changes to the 2017 tax return forms. This means your return may be filed later and your refund delayed. I wish these extenders had been addressed months ago, instead of months AFTER the year had already ended.