Tax Extenders for the 2020 Tax Season

Tax Extenders for 2020 tax season

There was a very important tax reform last year. The Tax Cuts and Jobs Act that brought many changes in the tax rules that affected many taxpayers.

These changes took many people by surprise.

For example, many taxpayers were used to receiving returns and due to the changes they had to pay instead.

In addition, there were also many taxes and/or temporary deductions that were due, but the Congress decided to extend.

We want to talk about it in this article. After reading it, you will know what Temporary Tax Provisions and Tax Extenders are all about.

Temporary Tax Provisions Explained

Congress often enacts temporary tax provisions.

Almost all of them are tax cuts, exemptions or deductions.

Some become temporary to force the review when they are scheduled to expire or “die.”

Others are temporary because Congress intended to address temporary needs.

Such as the recession, the collapse of the mortgage market or regional climate disasters.

These temporary tax provisions are often referred to as the “expiring provisions”.

Because they are scheduled to expire or, in some years, they did already.

Of remarkable importance are several dozen temporary tax cuts that expired at the end of 2017 and some that expired at the end of 2018.

Most of these cuts reward the investments of companies and consumers in energy efficiency and production, as well as the use of alternative fuels.

However, despite its transitory nature, sometimes Congress decides to extend several of these deductions, and promulgates Tax Extenders.

Tax Extenders explained

Collectively, they are the temporary tax provisions that Congress extends, rather than allowing them to expire as scheduled.

These are often done in groups and are called “Tax Extensions” or Tax Extenders.

For this 2020 tax season, we have several Tax Extenders that we will review in depth in this article.

Tax Extenders for this 2020 tax season

Several dozen temporary tax exemptions expired at the end of 2017.

These deductions were, so to speak, “dead” for the 2018 tax returns that were already filed.

However, Congress “revived” them thanks to Tax Extenders, extending its validity even further. This is already a common practice,

And when we mean they “revived” them, we don’t talk about them extending them.

But, these deductions had already expired, but the Tax Extender was made retroactively to January 1, 2018.

This may seem complicated, because we must make reforms of the tax returns already made.

But, the truth is that it is good news because they are deductions to our taxes.

Anyway, you can relax at the time of making your return of the fiscal years 2019 and 2020, since the tax extenders apply for both years.

So, no worries until 2021 – and even more time for a few taxpayers with special treatment.

The deductions that resurrected with tax extenders

The five most important tax extenders that likely affect your Form 1040 this tax season are as follows:

Exclusion from income for cancellation of acquisition debt on your principal residence (up to $2 million)

Did you have a short sale or a foreclosure of your main home?

With the previous legislation, if they gave you a 1099c as cancellation of that debt, it became taxable income.

Meaning you had to pay taxes on that income.

So, if we assume that the canceled debt was $ 150,000, that income would place us in the 22% bracket.

For this income you had to pay $ 33,000, that’s not fun.

If that was the case, now, thanks to the retroactive of these tax extenders, an amendment can be made.

This way, that tax payment of $ 33,000 is recovered.

Deduction for mortgage insurance premiums as residence interest

The policy that is paid when a person applies for a loan, which is called Mortgage Insurance Premium, which was not deductible and has been extended until 2020.

These deductions are taken in Schedule A of the itemized deduction.

In addition, they have what is called a Face Out. That is, the rebate or this deduction does not apply to all income.

For every $100,000 the deduction for the mortgage insurance premium begins to be reduced by 10%.

7.5 percent floor to deduct medical expenses (instead of 10 percent)

As you know, the medical expense deduction is an itemized deduction subject to a threshold or a limit.

In the past it was 10%, meaning that whatever your Ajusted Gross Income was, you have a floor to take of 10% for that AGI.

Let’s say your AGI is $100,000, then the limit would be 10%, so its $10,000. And your medical expenses for that year were $15,000.

Then, you can only deduct the part between the $10,000 floor and your total expenses, meaning you could only deduct $5,000.

With the new Tax Extender, the new floor is 7.5%. So, now you can deduct more, because your limit is lower.

For the previous example, now you’ll be able to deduct $7,500.

Your new limit is $7,500 (7.5% of your $100,000 AGI) and up to your total medical expense of $15,000.

Although it may not seem like it to the naked eye. This Tax Extender is a good change for us, because the ceiling of medical expenses that we can take is now reduced.

This means, now we will not need so many expenses to take advantage of it.

Above-the-line tuition and fees deduction

Another important change for this year are those related to tuition payments and education payments.

These are Above the Line deductions.

So, they lower the Adjusted Gross Income.

They have also been taken into account in this year’s tax extender.

Depending on the income, we will now have this tuition deduction until 2020.

Non-business energy property credit for energy-efficient improvements to your residence

The deduction for credit for efficient energy use is also within the tax extender approved by Congress.

Therefore, if a person makes an improvement in his house, install solar panels, electrical appliances efficient with the use of energy, in short, any improvement of this type, will enjoy the credit called Non Business Energy Credit.

In addition, this applies to any home, not just the main home.

Get prepared for this tax season with Global Tax

The tax season begins today, Monday, January 27, 2020.

The IRS will begin accepting returns by mail or electronically.

Don’t let this Tax Season take you off guard. Collect all your information and go to the Global Tax offices located at 8133 Leesburg Pike, Suite 920 Vienna, Virginia 22182 as soon as possible.

Or call us at (703) 533-3636 so we can take care of your taxes.

What we know means money!

 

 

 

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