Tax Law Changes That Affect Your Taxes

Capitol Building in Washington DC with text Tax Law Changes that Affect Your Taxes

Dear Fellow Taxpayers,

Tax law changes that can affect your 2018 0r 2019 taxes – On Friday, December 20th, a new bill was signed into law. There are some retroactive tax law changes to current and expired tax laws buried in the 1770 pages of the tax bill. These new law extenders are in place for both 2019 and 2020.

Here are some highlights in the Tax Law Changes:

  • Mortgage forgiveness is not income. If a bank forgives mortgage indebtedness, it is typically income to you. And qualified principal residence indebtedness that is forgiven may be excluded from income with the reactivation of this tax law. Retroactive to 2018
  • 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. Retroactive to 2018
  • 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 again. You will need to evaluate this tax break versus others like the American Opportunity Credit and the Lifetime Learning Credit. Retroactive to 2018
  • The medical expense deduction threshold stays at 7.5%. Prior rules had the threshold set at 10%. To deduct these qualified expenses, your costs need to exceed this amount of your adjusted gross income. Retroactive to 2018
  • 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.
  • You are now allowed to take a distribution in 2020 from an IRA or other qualified retirement plans penalty free. However, you still have to pay income tax if the distribution was made within 1 year of the birth of a child or the adoption of one. Two caveats: (1) it is capped at $5000 per birth or adoption, and (2) the adoption cannot be the children of your spouse. The good news is that you do not have to actually provide the money you spent directly from the distribution, just that you used the money for the birth or adoption.
  • In a major change for inherited IRAs to non-spouses, the inherited IRA has to be fully liquidated within ten years starting the year after the passing of the owner of the plan. You can take it out in any increment you want or wait for the 10th year.
    Kiddie Tax – The Tax Cuts and Jobs Act raised the rate to which minors are taxed on unearned or investment income (the higher trust rate). However, the Secure Act changed the law to pre-TCJA rules.

Tax Law Changes that Affect Your Taxes – These highlights are just some of the changes and extenders noted in the bill. If you look at your 2018 return and you believe that you can take advantage of the extenders that were made retroactive to 2018, we at SFS can amend the return. We will have to determine if the tax savings justifies the fee. Contact us today for an appointment or book online,

Jeffrey “staying on top of the law” Schneider, EA, CTRS, ACT-E, NTPIF

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