Congress passed the Budget Bill early in the night, and the President signed it on Friday, February 9th. To the surprise of many, the bill included a number of extenders that retroactively apply to 2017 returns. Were you lucky enough to benefit?
Needless to say, these last-minute changes may create a problem for taxpayers who have already filed their returns and will need to file amended returns to take advantage of these extenders. The retroactive changes will cause the IRS some headaches as well. Since the 2017 forms do not accommodate some of the extended provisions, the IRS will have redesign and issue updated forms or provide workaround procedures.
Listed below are the extenders that apply to individuals and small businesses. Please review them to determine if any of them may apply to you. If you have already filed, please give this office a call and let us know, so that an amended return can be prepared to take advantage of any of these changes. In some cases, it may be necessary to wait for IRS guidance if the current 2017 forms do not accommodate the extended provisions. If you have not filed yet and any of the provisions apply to you, be sure to bring them to our attention.
- Mortgage Insurance Premiums – For years 2007 through 2016, premiums paid on mortgage insurance contracts, in connection with acquisition debt, issued after 2006 were deductible as home mortgage interest. The deductibility of these premiums has been retroactively extended through 2017. The deductible amount of the premiums phases out ratably by 10% for each $1,000 by which the taxpayer’s AGI exceeds $100,000 (10% for each $500 by which a married separate taxpayer’s AGI exceeds $50,000). If your AGI is over $109,000 ($54,500 for married separate), the deduction is totally phased out. If you itemize your deductions and have deducted the insurance premiums in the past, you generally will be able to deduct them on your 2017 return. Please note that the 2017 Schedule A does not have an entry for mortgage insurance premiums; we will have to wait for IRS guidance on how to report it on the tax return.
- Above-the-Line Education Expenses – For years 2001 through 2016, taxpayers had the option to take a deduction, without itemizing, for higher-education tuition and related expenses. The deduction has been retroactively extended for 2017. The deduction is capped at $4,000 for an individual whose adjusted gross income (AGI) does not exceed $65,000 ($130,000 for joint filers) or $2,000 for an individual whose AGI does not exceed $80,000 ($160,000 for joint filers). Individuals who were unable to claim an education credit generally take this deduction. This deduction is claimed on Form 1040, but the current form does not provide an entry for this deduction, so we will have to wait for IRS guidance on how to handle this deduction.
- Exclusion of Home Cancellation of Debt Income – When a lender takes a home back and the home’s fair market is less than the balance on the loan, the taxpayers will generally have cancellation of debt (COD) income. For years 2007 and through 2016 taxpayers were able to exclude up to $2 million ($1 million for married taxpayers filing separate) of the COD income. This exclusion is limited to debt that was used purchase or substantially improves a taxpayer’s primary residence and has been extended through 2017.
- Credit For Nonbusiness Energy Property – The provision to make existing homes more energy efficient has been extended through 2017. The provision allows a credit of 10% of the amount paid or incurred by the taxpayer for qualified energy-efficient improvements such as qualifying exterior doors, windows and skylights, metal and asphalt roofs, qualifying heating and AC systems and certain insulation materials or systems, all of which must meet energy-savings requirements certified by the manufacturer. This is a lifetime credit, meaning the $500 maximum credit is reduced by credit taken in any prior year, going back as far as 2006.
The following are less frequently encountered provisions that were also extended:
- Extension of Credit for New Qualified Fuel Cell Motor Vehicles – This provision extends through 2017 the credit for purchases of new qualified fuel cell motor vehicles. The provision allows a credit of between $4,000 and $40,000, depending on the weight of the vehicle.
- Extension of Credit for Alternative Fuel Vehicle Refueling Property – This provision extends through 2017 the credit for installing non-hydrogen alternative fuel vehicle refueling property. (Under current law, hydrogen-related property is already eligible for the credit.) Taxpayers are allowed a credit of up to 30% of the cost to install the qualified alternative fuel vehicle refueling property.
- Extension of Credit for 2-Wheeled Plug-In Electric Vehicles – This provision extends through 2017 the 10% credit for two-wheeled plug-in electric vehicles (capped at $2,500).
- Extension of Credit for Energy-Efficient New Homes – The provision extends through 2017 the tax credit for manufacturers of energy-efficient residential homes. An eligible contractor may claim a tax credit of $1,000 or $2,000 for the construction or manufacture of a new energy-efficient home that meets qualifying criteria.
- Extension of the Classification of Certain Race Horses as 3-Year Property – The provision extends the 3-year recovery period for racehorses to property placed in service during 2017.
- Extension of Energy-Efficient Commercial Buildings Deduction – The provision extends through 2017 the deduction for energy efficiency improvements to lighting, heating, cooling, ventilation and hot water systems of commercial buildings.
There are additional provisions that generally apply to utilities, large businesses and special interests and are not included in this article.
If you have questions related to any of the above, please give us a call.