What You Need to Know About Several Retroactive Tax Provisions
Congress reached an agreement on a two-year budget in early February. The Bipartisan Budget Act of 2018 (H.R.1892 – “Budget Act”) moved swiftly through Congress this week as legislators tried to avert another government shutdown. The Budget Act worked its way through the legislative process and was signed into law on February 9, 2018. This government shutdown lasted only a few hours.
The Budget Act was mostly a bipartisan spending bill, however, there were several other measures added to the legislation, including various tax provisions. The Senate attached these tax provisions to the Budget Act, and while the House would have rather addressed each of these separately in committee hearings, they allowed these to be included with the looming government shutdown. The tax provisions included in this spending bill were relatively minor items and amounted to about $17 billion of tax cuts. This pales in comparison to the recently enacted Tax Cuts and Jobs Act that totaled nearly $1.5 trillion in tax savings.
The bulk of the tax provisions in the Budget bill were items that had expired at the end of 2016. These are often referred to as “extender items,” as they have a short legislative life and need to be regularly extended by Congress. Congress was unable to include these extender items in the Tax Cuts and Jobs Act bill, and thus they fell to this week’s budget bill. Impacted taxpayers should take note of these extender items as they were restored retroactively by the Budget Act and are available for 2017 tax returns. Many of these were extended, however, for only one year, thus even with this legislation, most of these extender items expired again, but now as of December 31, 2017. Thus, Congress will need to deal with these extender items once again during 2018.
There were over thirty extender items included in the Budget. Please click here for a link to a Summary of all the tax changes (including the extender items) in this Budget Act and the related tax costs as prepared by the Joint Committee on Taxation (JCT). Here are a few of the extender provisions and effectives dates:
|EXTENDER PROVISION||DATE PROVISION EXPIRED||DATE PROVISION EXTENDED TO|
|Mortgage insurance premiums treated as qualified residence interest||12/31/2016||12/31/2017|
|Above-the-line deduction for qualified tuition and related expenses||12/31/2016||12/31/2017|
|Credit for non-business energy property||12/31/2016||12/31/2017|
|Credit for residential energy efficient property||12/31/2016||12/31/2021|
|Credit for new qualified fuel cell motor vehicles||12/31/2016||12/31/2017|
|Credit for alternative fuel vehicle refueling property||12/31/2016||12/31/2017|
|Bio-diesel and renewable diesel incentives||12/31/2016||12/31/2017|
|Credit for energy-efficient new homes||12/31/2016||12/31/2017|
|Energy efficient commercial buildings deduction (Section 179D)||12/31/2016||12/31/2017|
|Extension of excise tax credits and outlay payments for alternative fuel, and excise tax credits for alternative fuel mixtures||12/31/2016||12/31/2017|
Some other tax provisions in the Budget Act, besides the extender items, are as follows:
- Disaster Related Tax Relief from Hurricanes Harvey, Irma, and Marie, and also recent California wild fires. Provides employee retention tax credit; retirement plan distribution relief; casualty loss deductions, and other items.
- Exception from private foundation excess business holding tax for independently-operated philanthropic business holdings.
- Modification of rules governing hardship distributions from retirement plans.
- Simplified tax filing requirements for individual age 65 and over (a new Form 1040SR beginning in 2019).
There were also a few items that were not in the tax section of the Budget Act, but were in the Health and Human Services (HHS) section of the legislation. Several items to note include:
- Adjustments to Medicare Part B and Part D Premium Subsidies for higher income individuals. For 2019, the percentage of Part B and Part D costs paid by individuals with modified adjusted gross income (MAGI) from $160,000 to $500,000 will be at 80%; and for those with over $500,000 of MAGI, the cost will rise to 85%.
- Closing the “Donut Hole” sooner for seniors. This deals with the costs of prescriptions for those on Medicare. This “donut hole” was schedule to expire in 2020, but the Budget Act moved this up to 2019.
Again, it is important to be aware of these tax items as they may impact 2017 tax returns. The IRS will need to update its forms to accept and process these items for the 2017 tax year.
Observation: These extender items have been around for a number of years, and will likely continue to be something that Congress deals with and that taxpayers and practitioners monitor. But, many of these extender items are uncommon for most taxpayers. This may change, however, in a few years. The recently enacted Tax Cuts and Jobs Act contains a number of the tax changes (primarily for individuals) that have a “sunset” feature to them, and these changes will expire in several years (many in 2025). The expiring changes include the individual tax rates, the state and local tax deduction limit, the limits on mortgage interest expense deductions, the new 20% qualified business income deduction, the estate and gift exemption increase, and many others. Thus, the extender items that were part of the Budget Act may continue to be debated within Congress, but the list and significance of extender items could dramatically change in a few years.
Please contact your Sikich tax advisor if you have any questions.