On December 20, 2019, President Trump signed into law H.R. 1865. This year-end spending bill includes the ‘‘Taxpayer Certainty and Disaster Tax Relief Act of 2019’’ (“Disaster Act”), which extends various tax benefits that had expired or were set to expire.
Exclusion from Gross Income of Discharge of Qualified Principal Residence Indebtedness
Under the pre-Disaster Act law, discharge of qualified principal residence indebtedness up to $2 million for individuals married filing jointly ($1 million for individuals married filing separately) was, in tax years beginning before January 1, 2018, excluded from gross income. The new Disaster Act law extends this exclusion for discharges of indebtedness that occur before January 1, 2021. The Disaster Act also modifies the exclusion to apply to qualified principal residence indebtedness that is discharged after December 31, 2017 pursuant to a binding written agreement entered into before January 1, 2021.
Treatment of Mortgage Insurance Premiums as Qualified Residence Interest
Under the pre-Disaster Act law, mortgage insurance premiums paid or accrued before January 1, 2018 by a taxpayer in connection with acquisition indebtedness with respect to the taxpayer’s qualified residence were treated as deductible qualified residence interest, subject to a phase-out based on the taxpayer’s adjusted gross income (“AGI”). The Disaster Act extends this treatment through 2020 for amounts paid or incurred after December 31, 2017.
Reduction in Medical Expense Deduction Floor
For 2017 and 2018, individuals could claim an itemized deduction for unreimbursed medical expenses to the extent that such expenses exceeded 7.5% of the taxpayer’s AGI. Under the old law this threshold was set to increase to 10%. The Disaster Act extends this threshold of 7.5% for tax years beginning after December 31, 2018 and before January 1, 2021.)
Deduction of Qualified Tuition and Related Expenses
The code provides an above-the-line deduction for qualified tuition and related expenses for higher education. The deduction is capped at $4,000 for an individual whose AGI does not exceed $65,000 ($130,000 for joint filers) or $2,000 for an individual whose AGI does not exceed $80,000 ($160,000 for joint filers). The new Disaster Act law extends this deduction through 2020.
Nonbusiness Energy Property
The Code provides a credit for purchases of nonbusiness energy property, which allows a credit of 10% of the amounts paid or incurred by the taxpayer for qualified energy improvements to the building envelope (windows, doors, skylights, and roofs) of principal residences. The Code allows credits of fixed dollar amounts ranging from $50 to $300 for energy-efficient property including furnaces, boilers, biomass stoves, heat pumps, water heaters, central air conditioners, and circulating fans, and is subject to a lifetime cap of $500. The new Disaster Act extends this credit through 2020.
Qualified Fuel Cell Motor Vehicles
The Code provides for a credit ranging from $4,000 to $40,000 (depending on the weight of the vehicle) for purchases of new qualified fuel cell motor vehicles. Other fuel-efficient vehicles may qualify for an additional $1,000 to $4,000 credit. The new Disaster Act law extends this credit through 2020.
Energy Efficient Homes Credit
The Code provides a credit for manufacturers of energy-efficient residential homes. An eligible contractor may claim a tax credit of $1,000 or $2,000 for the construction of a new energy efficient home that meets qualifying criteria. The new Disaster Act law extends the credit for energy-efficient new home to homes acquired before January 1, 2021.)
Energy Efficient Commercial Buildings Deduction
The Code provides a deduction for energy efficiency improvements to lighting, heating, cooling, ventilation, and hot water systems of commercial buildings. This includes a $1.80 deduction per square foot for construction on qualified property. A partial $0.60 deduction per square foot is allowed if certain subsystems meet energy standards but the entire building does not. The new Disaster Act law extends these deductions to property placed into service before January 1, 2021.
New Markets Tax Credit
The Code provides a New Markets Tax Credit which is available to both individual and corporate taxpayers and is equal to 39% of the capital invested in a qualified community development entity, a for profit or nonprofit entity that commits to the rules of the program, which in turn must loan to or invest substantially all of such capital in qualified business operating in low-income communities. The new Disaster Act law provides a $5 billion New Markets Tax Credit allocation for 2020. The Disaster Act also extends for one year, through 2025, the carryover period for unused New Markets Tax Credits.
Employer Tax Credit for Paid Family and Medical Leave
The Code provides an employer credit for paid family and medical leave, which permits eligible employers to claim an elective general business credit based on eligible wages paid to qualifying employees with respect to family and medical leave. The credit is equal to 12.5% of eligible wages if the rate of payment is 50% of such wages and is increased by 0.25 percentage points (but not above 25%) for each percentage point that the rate of payment exceeds 50%. The maximum amount of family and medical leave that may be taken into account with respect to any qualifying employee is 12 weeks per tax year. The new Disaster Act law extends this credit through 2020.
Work Opportunity Tax Credit
The Code provides an elective general business credit to employers hiring individuals who are members of one or more of ten targeted groups under the Work Opportunity Tax Credit program. The new Disaster Act law extends this credit through 2020.
Credit for Health Insurance Costs of Eligible Individuals
The Code provides a refundable credit (commonly referred to as the health coverage tax credit or “HCTC”) equal to 72.5% of the premiums paid by certain individuals for coverage of the individual and qualifying family members under qualified health insurance. The new Disaster Act law extends the HCTC through 2020.
Biodiesel and Renewable Diesel
The Code provides for a $1.00 per gallon tax credit for biodiesel and biodiesel mixtures, and the small agri-biodiesel producer credit of $0.10 per gallon. The new Disaster Act extends the biodiesel fuels income tax credit through 2020. With respect to the special excise tax credit, notwithstanding any other provision of law, in the case of any biodiesel mixture credit properly determined for the period beginning on January 1, 2018, and ending with the close of the last calendar quarter beginning before the date of the enactment of the Disaster Act, the credit will be allowed, and any refund or payment attributable to the credit will be made, only in such manner as the IRS provides. The IRS will issue guidance within 30 days of the enactment of the Disaster Act providing a one-time submission of claims covering periods described in the preceding sentence. Additionally, the Disaster Act amends the Code to treat renewable diesel the same as biodiesel, except there is no small producer credit.
Extension and Clarification of Excise Tax Credits relating to Alternative Fuels
A $0.50 per gallon (or gasoline gallon equivalent for non-liquid fuel) excise tax credit was allowed against the Code Sec. 4041 retail fuel excise tax liability for alternative fuel sold for use or used by a taxpayer. A credit was also allowed against the Code Sec. 4081 removal at terminal excise tax liability for alternative fuel used to produce an alternative fuel mixture for sale or use in the taxpayer’s trade or business. A taxpayer could claim an excise tax refund (or, in some cases, a credit against income tax) to the extent the taxpayer’s alternative fuel or mixture excise tax credit exceeded the taxpayer’s Code Sec. 4041 or Code Sec. 4081 liability. The new Disaster Act law extends these incentives through 2020. Notwithstanding any other provision of law, in the case of any alternative fuel credit properly determined for the period beginning on Jan. 1, 2018, and ending with the close of the last calendar quarter beginning before the date of the enactment of the Disaster Act, the credit will be allowed, and any refund or payment attributable to such credit) will be made, only in such manner as IRS provides. IRS is directed to issue guidance within 30 days after the date of the enactment of the Disaster Act providing for a one-time submission of claims covering periods described in the preceding sentence.
Additionally, the Disaster Act modifies the mixture component of the credit by specifying that liquefied petroleum gas, compressed or liquefied natural gas, and compressed or liquefied gas derived from biomass, are not eligible to be included in an alternative fuel mixture. This applies to (A) fuel sold or used on or after the date of the enactment of the Disaster Act, and (B) fuel sold or used before the date of the enactment of the Disaster Act, but only to the extent that claims for the credit under Code Sec. 6426(e) with respect to such sale or use (i) have not been paid or allowed as of the date of enactment of the Disaster Act, and (ii) were made on or after January 8, 2018.
Second Generation Biofuel Producer Credit
Under pre-Disaster Act law, a producer of qualified biofuel produced after December 31, 2008 could claim a credit as part of the alcohol fuel credit for each gallon of “qualified second generation biofuel production”. This credit didn’t apply to second generation biofuel produced after December 31, 2018. The Disaster Act extends the credit for two years for production before January 1, 2021.
For more details or for questions on how these extenders may impact you and your business please contact your WK advisor at (573) 442–6171 in Columbia or (573) 635-6196 in Jefferson City.