CCH Tax Talks Tackles The Consequences of Delayed Individual and Business Extenders

The retrospective nature of the Consolidated Appropriations Act of 2020's tax changes affected many taxpayers. Mark Luscombe, principal analyst at Wolters Kluwer Tax and Accounting, discussed these changes, as well as the kiddie tax, in a recent Wolters Kluwer Tax Talks episode. 

Keep reading for highlights from the episode, or listen to the entire discussion on Soundcloud.

Extenders Affect Tax Returns Retroactively

The Consolidated Appropriations Act of 2020 included several tax changes with retroactive impact, which means that taxpayers and their advisors will need to file amended returns. Many of the changes relate back to 30 provisions that expired at the end of 2017. Luscombe explains that these “extenders” have been re-enacted retroactively going back to 2018. 

Listen to the full episode on Soundcloud

The individual provisions that could affect the most people include:

• Retroactively extending the exclusion from gross income and discharge of qualified principal residence indebtedness
• The treatment of mortgage insurance premiums as qualified residence interest
• The deduction for qualified tuition and fees
• Restoring the medical expense threshold deduction back to 7.5% from 10%
• Energy-related provisions extended back to 2018 that affect individuals include a $500 lifetime non-business energy property credit, as well as the qualified fuel cell motor vehicle credit and the two-wheeled plug-in electric vehicle credit.

The bulk of extenders for business tax returns are focused on particular industries (railroad, mining, racehorses, employment on Indian reservations) or are energy-related.

Kiddie Tax Provision Provides Options

Before the kiddie tax was changed, unearned income was taxed at the higher trust rate as opposed to the parents’ tax rate, affecting many military families receiving survivorship benefits. The provision was repealed effective December 31, 2019. The families affected by this change now have the option for their 2019 returns to apply the trust tax rate or the parents’ tax rate, whichever would be more beneficial to them. In 2020 and beyond, everyone will use the parents’ tax rate.

Luscombe advises tax professionals to be alert to all these changes as they through tax filing for clients. “You can easily identify these topics and be alert for opportunities that might warrant going back and looking at 2018 returns to recommend a possible amendment to take advantage of some of these tax breaks that are now retroactively available."