On December 20, 2019, an omnibus spending package, the “Further Consolidated Appropriations Act, 2020” (H.R. 1865) was adopted into law. In addition to providing full-year funding through September 30, 2020, the legislation includes many changes to retirement plan rules and extends several expired tax provisions.  A few of the provisions that may impact you are listed below:

Retirement Plan provisions-

  • Repeal the maximum age for IRA contributions and raises the age for required mandatory distributions from 70 1/2 to 72.
  • Eliminate the prohibition on traditional IRA contributions for those over the age of 70 1/2. Older workers would be able to keep saving in a traditional IRA.
  • Remove the “stretch” provisions of inherited 401(k)s and IRAs. In the past, beneficiaries could spread distributions over their life expectancy. The Act requires most beneficiaries to take distributions over a 10-year period.
  • Allow for tax-free distributions from 529 plans for certain apprenticeship programs and qualified student loan payments.

Extenders-

Exclusion from gross income of discharge of qualified principal residence indebtedness

Under pre-Disaster Act law, discharge of indebtedness income from qualified principal residence debt, up to a $2 million limit ($1 million for married individuals filing separately), was, in tax years beginning before Jan. 1, 2018, excluded from gross income.  The new law extends this exclusion for two years, i.e., for discharges of indebtedness before Jan. 1, 2021. 

Treatment of mortgage insurance premiums as qualified residence interest

Under prior law, mortgage insurance premiums paid or accrued before Jan. 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 new law extends this treatment through 2020 for amounts paid or incurred after Dec. 31, 2017. 

Reduction in medical expense deduction floor

The Code provides that, individuals, for 2017 and 2018, could claim an itemized deduction for unreimbursed medical expenses to the extent that such expenses exceeded 7.5% of AGI. The new law extends this threshold of 7.5% for tax years beginning after Dec. 31, 2018 and before Jan. 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 law extends this deduction through 2020. 

Nonbusiness energy property

The Code provides a credit for purchases of nonbusiness energy property. The Code 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 law extends this credit through 2020.

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 new 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 law extends this credit through 2020. 

Credit for health insurance costs of eligible individuals

The Code provides a refundable credit 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 law extends the HCTC through 2020.