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There’s snow on the ground, the calendar is winding down, folks are gearing up for the new year, so of course, we’re getting… EXTENDERS?
Yes, it’s true. With the clock ticking, Washington appears to have reached a deal on tax extenders. Extenders are a term used to refer to expired or expiring tax provisions, and tend to be short-term. That’s the case here, with most breaks renewed only through 2020.
So what’s in the extenders bill? Here are some of the highlights:
The mortgage insurance premium (sometimes called PMI) deduction may show up on your Schedule A again. As part of the efforts to revive the housing market, Congress passed a law allowing a tax deduction for the cost of PMI for homes and vacation homes. Under the law, premiums for mortgage insurance (PMI) were lumped together with deductible home mortgage interest on Schedule A. The provision expired but was renewed retroactively for 2017. Now, it would be extended to 2020.
The new-old medical expenses deduction floor may be back. Under the TCJA, the medical expense deduction survived, but there was a catch. While the 7.5% floor returned for the tax years 2017 and 2018, it bounced back to 10%. Under the extenders bill, the (old) 7.5% floor would be extended through 2020. We call it a floor because you can only deduct expenses over 7.5% of your adjusted gross income (AGI).
The qualified tuition and related expenses deduction may also be making a comeback. Pre-TCJA, the deduction allowed taxpayers to claim an above the line deduction for qualifying expenses - without having to itemize. The deduction was cut but could be extended through 2020.
Employers could get some breaks, too. The extenders bill would reinstate the employer credit for paid family and medical leave and the work opportunity credit. Both were slated to expire in 2019 but would be re-upped through 2020.
Also on tap? Relief for craft brewers and distillers. Under the TCJA, federal excise taxes on beer and spirits saw a dip with the biggest benefit going to domestic brewers producing fewer than two million barrels annually. According to the Beer Institute, 99% of U.S. breweries expected to see excise tax payments reduced by 50%. Those provisions were set to expire but are expected to be extended through 2020.
Producers of biodiesel and biodiesel mixtures would also see a benefit: the bio-diesel credit would be extended to 2022.
The extenders bill would also seek to undo an unpopular provision which resulted in a tax on employer-provided parking for nonprofit organizations. Under the TCJA, employee parking was subject to a 21% unrelated business income tax (UBIT). The parking tax provision would be repealed.
And it wouldn’t be an extender bill without tax breaks for auto racetracks and racehorses. Those regularly show up in tax extender bills, kind of like the distant cousin that you don’t understand and rarely see but know will be at Christmas dinner every single time.
What didn’t make the bill? Unrelated job expenses formerly deductible under Schedule A were not reinstated, and caps on interest and state and local taxes (SALT) remained unchanged. And despite a last-minute push from sectors in the automobile industry, the federal electric car tax credit was not extended.
And even though you didn’t necessarily ask for it, don’t expect this holiday gift to come without any strings attached: the extenders provisions are expected to add $35 billion to the deficit.
You can read the proposed bill here (downloads as a PDF).
