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Tax Extenders

December 21, 2019

On December 20, 2019, President Trump signed into law the Further Consolidated Appropriations Act, 2020 (the Act). The Act extends over 30 provisions, generally through 2020. 

These are a few key provisions that you should know about: 

Exclusion from Gross Income of Discharge of Qualified Principal Residence Indebtedness: 

Gross income does not include the discharge of indebtedness of a taxpayer if the debt discharged is qualified principal residence indebtedness which is discharged before January 1, 2021. This provision had expired on 12/31/2017 and has been extended retroactively.

Treatment of Mortgage Insurance Premiums as Qualified Residence Interest: 

For tax years after 2017 and before 2021, taxpayers can treat amounts they paid during the year for qualified mortgage insurance as qualified residence interest (subject to income level phaseouts). The insurance must be in connection with acquisition debt for a qualified residence. This provision had expired on 12/31/2017 and has been extended retroactively.

Deduction of Qualified Tuition and Related Expenses:

For tax years after 2017 and before 2021, taxpayers with modified adjusted gross income within certain limits may deduct up to $4,000 of qualified education expenses paid during the year. The deduction for tuition and related expenses is based on qualified education expenses a taxpayer pays for an eligible student who is: (1) himself or herself; (2) his or her spouse; or (3) a dependent for whom the taxpayer would be entitled to claim an exemption on his or her tax return under pre-TCJA rules. The maximum deduction is limited to $4,000 of expenses for taxpayers with modified adjusted gross income that does not exceed $65,000 ($130,000 in the case of a joint return). For taxpayers with modified adjusted gross income that exceeds those amounts, the maximum deduction is $2,000, as long as the taxpayer’s adjusted gross income does not exceed $80,000 ($160,000 in the case of a joint return). This provision had expired on 12/31/2017 and has been extended retroactively.

Reduction in Medical Expense Deduction Floor: 

For tax years beginning after 2018 and before 2021, the Act extends the provision which allows a taxpayer to deduct medical expenses to the extent they exceed 7.5 percent of the taxpayer’s adjusted gross income (AGI), rather than the 10 percent of AGI that was scheduled to apply. In addition, there is no adjustment to the medical expense deduction when computing the alternative minimum tax for 2019 and 2020. This provision had expired on 12/31/2018 and has been extended retroactively.

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