On December 20, 2019 President Trump signed into law a continuing appropriations bill. But this piece of legislation did far more than merely keep the government open; it included significant tax law changes. In particular, a number of tax “extenders” were retroactively passed, and the most significant change to retirement plan rules in a number of years was enacted.
We have grown used to tax “extenders” for a number of years. Many provisions, usually with a tax revenue cost to the government, are not made permanent due to budgetary rules but are often passed annually, often at the last moment. But in this case Congress has arguably sunk to a new low. Tax extenders retroactive to 2019 and in many cases 2018 were passed in late December, 2019. These “extender provisions”, most of which have possible 2018 impacts, include:
- Exclusion from income of discharge of qualified principal residence indebtedness
- Treatment of mortgage insurance premiums as qualified residence mortgage interest
- A continuation of the 2018 medical expense deduction floor of 7.5% of AGI into 2019 and through 2020.
- The reinstatement of minor nonbusiness energy property tax credits for energy efficient property such as furnaces, heat pumps, water heaters, and central air conditioners.
- Extension of employer tax credits for paid family and medical leave, and Work Opportunity Tax Credits.
- An extension of the “health coverage tax credit” for eligible individuals through 2020.
If you believe your 2018 return may have been affected by these provisions, please be sure to discuss your situation when bringing your 2019 information to us for the preparation of your 2019 returns.
Retirement plan provisions and certain non-retirement changes in the SECURE Act were passed by the House of Representatives last spring, but moved no further until this final legislative push of 2019. Provisions affecting individuals include:
- A repeal of the maximum age for making traditional IRA contributions. If you otherwise qualify you may now make IRA contributions beyond age 70 ½.
- An increase in the age at which you must begin taking required minimum distributions (“RMD’s”) from retirement plans and IRA’s, from 70 ½ to 72, for those who attain age 70 ½ after 12/31/19.
- A substantial acceleration in some cases of the time period over which inherited retirement benefits must be cashed. In many cases these benefits could previously be taken over a much younger beneficiary’s life expectancy; now they must generally be taken out within 10 years of the death of the original participant. This may have particularly inappropriate effects on “conduit trusts” set up to own IRA’s after the original owner’s death; if you have created a trust to own and control access to retirement benefits, we urge you to review those trust documents with us or your estate planning attorney as soon as practical. In some cases trusts that were entirely appropriate just last month would have unintended and undesirable consequences for dates of death after 12/31/19.
- Section 529 plans can potentially now be used for registered apprenticeships and certain student loan principal and interest payments.
- Reinstatement of pre-2018 rules for the “kiddie tax”. The rules enacted in 2018 were in some cases highly unfavorable to certain survivors of deceased members of the military; rather than exempting those individuals, the entire, otherwise more workable “kiddie tax” system was
scrapped. We are back to the rules where a child’s investment income may be taxed at the parents’ rates in some circumstances, which means those affected must all complete their returns essentially simultaneously.
As always, if you have questions as to how these or any other changes in the law apply to your situation, do not hesitate to contact your BSLR tax professional.