Tax Law Changes: 2020 Updates

Lots of tax changes are coming your way for next year’s tax returns.

As part of the Consolidated Appropriations Bill signed into law on Dec. 20, 2019, Congress formalized several tax extenders as well as some repeals on taxes related to the Patient Protection and Affordable Care Act. Each of these could affect your tax returns for next year. We’re sharing all the details below!

 

Extenders

An extender is any regulation that was or has been extended. In some of the cases below, the tax extender has been repealed entirely after being extended more than once already. In other cases the relevant value limit has changed.

1. Home debt cancellation. If you’ve got any canceled debt related to your mortgage, you can exclude that canceled debt amount from your taxable income, extended up to $2 million for single or married filing jointly or $1 million for married filing separately.

2. PMI extension. The bill extended mortgage insurance premiums, known as PMI, as itemized deductions through 2020 for homes and vacation homes.

3. Medical expense deduction. The floor for deducting medical expenses was set to return to 10 percent, but for 2019 and 2020 tax years the floor will remain at 7.5 percent.

4. Tuition and related expenses deduction. While it disappeared for a while, you can again deduct up to $4,000 of expenses for adjusted gross incomes under $65,000 for single filers or $130,000 for joint filers.

5. Employer credit for paid family and medical leave. If you’re a business owner or leader and you pay your employees at least half of their salary while they’re on family or medical leave, you may be eligible to receive up to a 25 percent credit of those wages paid (for up to 12 weeks of paid time for that employee).

6. Kiddie tax. The changes to this tax enacted by the TCJA were retroactively repealed by the SECURE Act. The tax is once again based on the parents’ marginal tax rate and not the trust/estate rates.

7. Property energy credit. You can claim up to $500 (lifetime maximum) for energy improvements to your residence. The limit on new windows is $200 for all tax years after 2005. The limit on qualified furnace purchases is $150.

8. Energy-efficient commercial buildings deduction. You can now deduct up to $1.80 per square foot for having installed energy-efficient lighting, heating, cooling, ventilation and hot water systems in commercial buildings.

9. Work opportunity credit. Though it was set to expire, it’s now renewed. Employers can continue to claim credits for hiring employees in certain targeted groups, including veterans, felons, long-term unemployed and those on welfare.

10. Excise taxes on beer and spirits. This has been continued through 2020, including a reduction of federal excise taxes to $3.50 per barrel on the first 60,000 barrels for domestic small brewers and $16 per barrel for the first 6 million barrels for other sized breweries.

11. Repealed nonprofit parking tax. For the past couple of years, nonprofits have had to pay a 21 percent unrelated business income tax on any employer-provided parking they provided, part of section 512(a)(7), which has now been repealed.

 

Healthcare Taxes Repealed

These taxes mainly originated in the Patient Protection and Affordable Care Act, though some hadn’t even gone into effect yet.

1. Cadillac tax. Intended to target high-cost healthcare plans, estimated to be those that cost about twice as much as the average annual health insurance contributions made by employers. It was a 40 percent tax applicable to any cost over that average amount. The tax had not yet gone into effect, as it was slated to begin in 2022 and has now been repealed.

2. Excise tax on medical devices. This tax on medical devices specifically was slated to begin starting in 2018, and had been extended for two years, but has now been repealed.

These changes will likely affect next year’s tax return, though some of them may apply to you for this year’s return. Some are specific for businesses or nonprofits, others for individuals.