Congress Extends Disaster Tax Relief Act

On December 20, 2019 the “Taxpayer Certainty and Disaster Tax Relief Act of 2019” was signed into law. There are several provisions that may affect an individuals’ or employers’ taxes. For more information on any of these items please call our office at 518.636.5166 or email Rick.

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 January 1, 2018, excluded from gross income.

New Law- The Disaster Act retroactively extends this exclusion to discharges of indebtedness before January 1, 2021.

Treatment of mortgage insurance premiums as qualified residence interest

Under 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 resident were treated as deductible qualified residence interest, subject to a phase-out based on the taxpayer’s adjusted gross income (AGI). The amount allowable as a deduction was passed out ratably by 10% for each $1,000 by which the taxpayer’s adjusted gross income exceeded $100,000 ($500 and $50,000 respectively, in the case of a married individual filing a separate return). Thus, the deduction wasn’t allowed if the taxpayer’s AGI exceeded $100,000 ($55,000 in the case of a married individual filing a separate return).

New Law- The Disaster Act extends this treatment through 2020 for amounts paid or incurred after December 31, 2017.

Reduction in medical expenses 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.

New Law- 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.

New Law- The Disaster Act retroactively extends this deduction through 2020. This applies to tax year beginning after December 21, 2017.

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 when 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.

New Law- The Disaster Act retroactively extends this credit through 2020. This applies to property placed in service after December 21, 2017.

Qualified fuel cell motor vehicles

The Code provides a credit for purchases of new qualified fuel cell motor vehicles. The Code allows a credit of between $4,000 and $40,000, depending on the weight of the vehicle, for the purchase of such vehicles. Other vehicles, depending on their efficiency, may qualify for an addition $1,000 to $4,000 credit.

New Law- The Disaster Act extends this credit through 2020.

Alternative fuel refueling property credit

Under pre-Disaster Act law, a taxpayer could claim a 30% credit for the cost of installing non-hydrogen alternative vehicle refueling property for use in the taxpayer’s trade or business (up to $30,000 maximum per year per location) or installed at the taxpayer’s principal residence (up to $1,000 per year per location).

Under pre-Disaster Act law, this provision didn’t apply to property placed in service after December 21, 2017.

New Law- The Disaster Act extends this credit so that it applies to property placed in service before January 1, 2021.

Two-wheeled plug-in electric vehicle credit

The Code provides a 10% credit for highway-capable, two-wheeled pug-in electric vehicles (capped at $2,500). Battery capacity within the vehicles must be greater than or equal to 2.5 kilowatt hours.

New Law- The Disaster Act extends this credit so that it applies to vehicles acquired before January 1, 2021.

Energy efficient commercial buildings deduction

The Code provides a deduction for energy efficient improvement 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, including the interior lighting systems, the heating, cooling, ventilation, and hot water systems, and the building envelope.

New Law- The Disaster Act 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 businesses operating in low-income communities.

New Law- The Disaster Act provided 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 aboe 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 employees is 12 weeks per tax year.

New Law- The Disaster Act extends this credit through 2020.

 

Work Opportunity Tax Credit

The Code provides an elective general business credit to employers hiring individuals who are member of one or more of ten targeted groups under the Work Opportunity Tax Credit program. To see a list of the targeted groups Click Here.

New Law- The Disaster Act extends this credit through 2020.