Tax Treats Included in the Further Consolidated Appropriations Act of 2020

By Kim Zarett, CPA, C&R Principal

On December 20, 2019, several Acts were signed into law by President Trump that included numerous tax provisions. 

The Taxpayer Certainty and Disaster Tax Relief Act of 2019 extends over thirty Code provisions, generally through 2020.  Several of the more popular extended provisions for individuals include the following:

  • The exclusion from gross income of discharge of qualified principal residence indebtedness
  • Treatment of mortgage insurance premiums as qualified residence interest
  • The reduction in the Adjusted Gross Income floor for medical and dental expense deductions from 10% to 7.5%
  • The above the line deduction for qualified tuition and related expenses
  • The credit for nonbusiness energy property

The SECURE (Setting Every Community Up for Retirement Enhancement) Act, was signed the same day and contains many provisions intended to strengthen retirement security.  The major provisions of the Act are as follows:

  • Repeal of the maximum age of 70 ½ for Traditional IRA contributions. Beginning in 2020, individuals of any age will be allowed to contribute to a Traditional IRA as long as they have earned income.
  • Required minimum distributions from IRAs are increased to age 72 for those who reach the age of 70 ½ starting in the year 2020.  Qualified charitable distributions are still allowed at age 70 ½.
  • Distribution of inherited IRA accounts. Most non-spouse IRA and retirement plan beneficiaries will be required to distribute inherited accounts within 10 years after the account owner’s death.
  • Taxable non-tuition fellowship and stipend payments are considered compensation for IRA purposes.
  • Penalty-free plan withdrawals for births or adoptions, up to $5,000.  The exception applies on an individual basis, allowing both parents to take advantage of this benefit.
  • Long-term, part-time employee participation in 401(k) plans. Long-term, part-time employees who work at least 500 hours per year with the same employer for at least three consecutive years will be eligible to participate in the employer’s 401(k) plan.
  • Use of credit cards to make plan loans. 401(k) plans may not use credit cards or similar arrangements to make plan loans.
  • Default rate under an automatic enrollment safe harbor 401(k) plan is increased to a maximum of 15% of compensation.
  • Tax credits for auto-enrollment in 401(k) plans. Tax credits for auto-enrollment are available to small employers for adoption of auto-enrollment of participants in 401(k) plans.
  • Employers may adopt employer funded retirement plans up to the due date of the employer’s tax return (including extensions).
  • Section 529 account distributions may be used for costs associated with registered apprenticeships and up to $10,000 of qualified student loan repayments.
  • Kiddie tax is repealed, effective for tax years beginning after December 31, 2019, but taxpayers may elect to apply it to tax years which begin in 2018, 2019, or both.

What do the Changes Mean for You Today?

While not nearly as sweeping as the Tax Cuts and Jobs Act of 2017, both of these Acts contain important changes that could impact your situation.  Now that we have entered into a new year, new decade, let Cover & Rossiter assist you in developing a tax strategy which will maximize your current deductions, with an eye towards the future!