What everyone needs to know
Late on Friday December 20th a new 1,770 page bill was signed into law. Deep within the pages of the bill are a number of retroactive tax law changes to current and expired tax laws. These new law extenders are in place for both 2019 and 2020. Here is what you need to know:
2019 Tax Law Changes
- The tuition and fees deduction is available. The above the line deduction for up to $4,000 in qualified tuition and fees that expired is now available once again. You will need to evaluate this tax break versus others like the American Opportunity Credit and the Lifetime Learning Credit.
- Mortgage Insurance Premiums as an itemized deduction. If your mortgage bank requires insurance on your loan and the loan qualifies, you may once again deduct this premium as an itemized deduction.
- Medical expense deduction threshold stays at 7.5%. Prior rules had the threshold set at 10%. To deduct qualified expenses, your costs need to exceed this amount of your adjusted gross income.
- Mortgage forgiveness is not income. If a bank forgives mortgage indebtedness, it is typically income to you. Now qualified principal residence indebtedness that is forgiven may be excluded from income with the reactivation of this tax law.
- Disaster area filing extensions. In addition to allowing taxpayers to take penalty-free money out of retirement accounts for 2018 and 2019 in federally declared disaster areas, the new rules create an automatic 60-day filing extension for future declared disaster areas. In the past, the IRS issued these filing extensions on a case-by-case basis.
Other developments to come
Many other changes are in the bill. These impact retirement accounts and numerous other areas of the tax code for future years. For instance, changes include: eliminating the contribution age limit when funding traditional IRAs, moving the required minimum distribution from age 70½ to 72, penalty-free withdrawals from retirement accounts for new births and adoptions plus much more.
Next week will cover the numerous changes beyond the 2019 tax year!