Most taxpayers believe that when they file their taxes each year that they are done. The exceptions to this would be receiving corrected information, forgetting to include an item of income or claiming a missed deduction.
For the 2018 tax year, there is one more reason. There were several provision in the IRS tax code that expired at the end of 2017 and that congress typically acts on to extend every year. These provisions are known as extender provisions. This article will address those extender provisions and help you to determine if you might need to amend your 2018 tax return.
Let’s first look at which items could impact individual filers. Though not a complete list, these are the items that might impact the largest number of tax filers. These include the exclusion from gross income of discharge of qualified principal residence indebtedness, the treatment of mortgage insurance premiums as a qualified residence interest, and the deduction of qualified tuition and related expenses.
Agreements entered into prior to January 1, 2018 to discharge your mortgage on your primary residence was fully excluded from taxable income on qualified indebtedness of up to $2 million ($1 million if married filing separately). Though this provision was not extended, other provisions within the tax code still exist to provide tax relief for those who have lost their homes after 2017 to short sales and foreclosure, though not as simply as this provision.
The premium paid for mortgage insurance was allowed as qualified mortgage interest deduction for those with AGI of less than $100,000 phasing out at $109,000 in AGI prior to 2018. Mortgage insurance is generally required for those who were not able to put 20% down on the purchase of their home.
The AGI deduction of up to $4,000 in qualified tuition and related expenses ended after 2017. This benefit applied to those with an AGI of less than $80,000 ($160,000 for joint filers). The deduction was the most advantageous for those who did not qualify for education credits or who lived in a high income tax state where the deduction also provided a state income tax benefit.
On February 28, the Senate Finance Committee lead by Charles Grassley (R-IA) and Ranking Member Ron Wyden (D-OR) introduced legislation to retroactive extend these tax provisions along with 23 other expired provision. The bill also provides disaster tax relief benefits to individuals and businesses affected by major disasters occurring in 2018.
In the past, many lawmakers have indicated that would like to get rid of some of the extenders and make others permanent. Their indecision has resulted in inaction. Under the rules of Congress, all tax legislation must originate in the House. House members have shown even less interest in quickly advancing a renewal of the tax provisions. House Ways and Means Chairman Richard Neal (D-MA) wants to take time to examine and hold hearings on the tax extenders.
As recently as May 16, the Senate Finance Chair announced a task force to review the tax extenders. The committee members will divide the extenders into six groups: workforce and community development, health, energy, business cost recovery and individuals along with other temporary policies.
In a statement explaining the task force, Grassley said, “it’s past time for Congress to end its bad habit of waiting until the last minute to extend temporary tax policy…meant to encourage long-term growth and investment.” Grassley said he would continue to work with the House to resolve the situation as well as provide relief for those affected by disasters.
We will keep you posted should Congress extend these expired provisions. Stay tuned.
About the Author
James Snyder, CPA, CSPM is a principal at YHB in the Leesburg, VA office. He provides income and estate planning services, business consulting, and estate and trust administration services to successful individuals in many professions, especially engineering, law, technology and real estate. He also provides strategic guidance and planning for clients involved in stock option transactions and wealth transfer.
