On December 20, 2019, President Trump signed into law, two appropriations bills that extended government funding while also dealing with several of the tax extender provisions and repealing some Obamacare taxes.
The most broadly applicable tax law changes in the bills are in connection to the tax extenders provisions. The bills reinstate many of the previously expired tax incentives that were not addressed under the Tax Cuts and Jobs act of 2017. Consequently, these changes are effective for the 2019 tax year through the 2020 tax year. In addition, 2018 returns can be amended to take advantage of these changes.
Individual tax extenders
- Reduction of the adjusted gross income floor for medical and dental expense deductions from 10% to 7.5%
- The above-the-line deduction for the tuition and fees
- The treatment of mortgage insurance premiums as deductible qualified resident interest
- Exclusion of qualified residence indebtedness from gross income
Business tax extenders
- The Energy Efficient Commercial Building Deduction
- The Work Opportunity Tax Credit (WOTC)
- Modification of private foundation excise taxes with a flat 1.39% rate replacing the 2%/1% rate
Permanent elimination of Obamacare taxes
- Repeal of excise tax on medical devices
- Repeal of tax on high-end health insurance (“Cadillac Tax”)
- Repeal of the Health Insurance Tax, excise tax on health insurance providers
Also attached to the appropriations bills was the Setting Every Community Up for Retirement Enhancement Act (SECURE Act). The SECURE Act is designed to ease the looming retirement savings crisis by:
- Making it easier for small businesses to offer their employees 401(k) plans by providing tax credits and protections on collective Multiple Employer Plans
- Allowing retirement benefits for long-term, part-time employees
- Removing maximum age limits on retirement contributions, formerly capped at age 70½
- Raising the required minimum distribution (RMD) age to 72 from 70½
- Allowing penalty-free withdrawals up to $5,000 from retirement plans for the birth or adoption of a child
- Relaxing rules on employers offering annuities through sponsored retirement plans
- Allowing penalty-free withdrawals of up to $10,000 from 529 education-savings plans for the repayment of certain student loans
- Revising components of the Tax Cuts and Jobs Act that raised taxes on benefits received by family members of deceased veterans, as well as students and some Native Americans.
- Removing the stretch IRS estate-planning strategy that permits non-spouse beneficiaries of IRAs to spread disbursements from the inherited money over their lifetime. The new limit will be within 10 years of the death of the original account holder.
- Repeals the changes to the Kiddie Tax in the Tax Cuts and Jobs Act. The Act reverts the rules to pre-TCJA.
BKC will continue to provide timely and accurate analysis of the tax extenders and SECURE Act as we move into the new year.
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