On December 17, the U.S. House approved a tax cuts package that addresses tax extenders, retirement savings, 2017 TCJA fixes and more. The U.S. Senate is expected to approve the tax cuts package and President Trump has indicated he will sign the bill.
In this legislation, the U.S. House revived a package of expired tax breaks, known as tax extenders. Below is a list of what is included:
Tax Extenders
Retroactive and current renewal of over two dozen tax extenders which have expired or are soon-to-be expired, spanning from 2017 to 2019, including the below key items.
- $1-per-gallon biodiesel tax credit and railroad maintenance credit extended through 2022, applicable retroactively back to 1/1/18
- Exclusion from gross income from discharge of qualified principal residence indebtedness extended through 2020, applicable to discharges after 12/31/17
- Treatment of mortgage insurance premiums as qualified residence interest extended through 2020, applicable for amounts paid after 12/31/17
- Reduction in medical expense deduction floor of 7.5% extended through 2020 (was to go to 10% for 2019)
- Deduction of qualified tuition and related expenses extended through 2020, applicable for costs incurred after 12/31/17
- Nonbusiness energy property credit ($500 lifetime credit for residential doors, windows, insulation, heat pumps, furnaces, air conditioners, and water heaters) extended through 2020, applicable retroactively to property placed in service in 2018 and 2019
- Energy efficient homes credit for homebuilders extended through 2020, applicable retroactively to homes acquired in 2018 and 2019
- Energy efficient commercial buildings deduction (Sec. 179D) extended through 2020, applicable retroactively to property placed in service in 2018 and 2019
- Extension of excise tax credits relating to alternative fuels – part of which is the $0.50 per gallon credit for propane used in forklifts – extended through 2020, applicable retroactively to fuel sold or used in 2018 and 2019
- Employer credit for paid family and medical leave extended through 2020 (was set to expire in 2019)
- WOTC extended through 2020 (was set to expire in 2019)
- Credit for health insurance costs of eligible individuals extended through 2020
SECURE Act – Retirement Savings
Also included in the year-end appropriations legislation is the Setting Every Community Up for Retirement Enhancement (SECURE Act) which is effective January 1, 2020. The SECURE Act makes several important changes to the rules for retirement savings and employer retirement contributions, as well as changing the kiddie tax rules. Below is a recap of the major provisions of the Act:
- Contributions and Distributions – the most significant change made by the SECURE Act is to replace the 5-year rule for required minimum distributions (RMD) from qualified retirement plans and IRAs made to non-spouse beneficiaries with a 10-year window. This change will severely limit, if not eliminate, the use of a so-called “stretch IRA” as an effective planning tool. Also included in the Act are other RMD beginning date changes (changed from the year the owner reaches age 70 ½ to the year the owner reaches age 72) and maximum age limitation.
- 401(k) Changes – under the new law, employers with 401(k) plans must offer employees who work between 500 and 1, 000 hours per year an additional means to participate in the plan. Changes to safe harbors for contributions are also included.
- Retirement Plans for Small Employers – Several changes are included in this Act to make it easier for smaller employers to offer retirement plans to their employees including employer credit for plan start-up costs and a new class of Multiple Employer Plan (MEP) service providers to offer pooled plans.
- Kiddie Tax Changes – A child’s unearned income is generally subject to the kiddie tax. The Act will fix an unintended consequence in the Tax Cuts and Jobs Act by calculating the kiddie tax by computing the child’s share of the “allocable parental tax” which is affected by not only the tax situation of the child’s parents but also the unearned income of any siblings.
Other Provisions
- Repeal of employee parking being subject to a 21% UBIT for non-profits
- Raises the age for tobacco purchases to 21
- Repeal of 2.3% excise tax on medical devices (would have taken effect next year)
- Repeal of 40% excise tax on the most generous and expensive health insurance plans (“Cadillac tax”) which would have hit in 2022.
Not Part of the Bill
- No fix for qualified improvement property
- Caps on state and local tax (SALT) remain unchanged
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