On Feb. 9, Congress passed the Bipartisan Budget Act of 2018, averting a government shutdown and providing tax relief for millions of Americans. President Trump signed it into law soon afterward. The law includes special tax relief for certain disaster victims, the extension of expired tax extenders for 2017 and the extension of energy efficient tax credits. The tax provisions include tax breaks for individuals and businesses, as well as energy saving tax benefits.
On Feb. 23, the IRS announced that it has begun assessing the tax provisions in the law and has now enabled e-file and updated their systems for three provisions for families and individuals. Intuit® ProConnect™, in turn, made updates to our products to reflect these charges per IRS guidance. As a result, you can now help your clients claim mortgage debt relief, mortgage insurance premiums, the Tuition and Fees Deduction, and energy credits. The IRS is continuing to update its systems to handle returns claiming the other tax benefits extended by the new law. In general, these benefits affect a smaller number of taxpayers. Rest assured, ProConnect has you covered and will be up to date once the IRS issues guidance on the rest of the provisions.
Here are some of the tax extenders and special provisions for disaster relief victims that were passed on Feb. 9:
Extended Tax Relief for Individuals and Families
- Mortgage Debt Exclusion – If the taxpayer experienced a foreclosure, short sale or loan modification, they can exclude the amount of debt forgiven on their principal residence from your taxable income up to $2 million on your 2017 taxes.
- Mortgage Insurance Premiums – Taxpayers are able to deduct the amount they paid for mortgage insurance, which is considered interest for mortgage interest deduction purposes.
- Tuition and Fees Deduction – College students or parents can deduct college expenses, including tuition, books and other supplies up to $4,000, even if the student only took one class. The deduction is capped at $4,000 for individuals with adjusted gross income (AGI) up to $65,000 ($130,000 for joint filers) and $2,000 for individuals with AGI up to $80,000 ($160,000 for joint filers).
- Credit for Nonbusiness Energy Property – Homeowners who made energy efficient improvements to their homes such as energy-saving roofs, windows, skylights and doors will still be able to claim the Nonbusiness Energy Property credit for 10 percent of amounts paid for qualified energy efficiency improvements and 100 percent of amounts paid for qualified energy property, including high-efficiency water heaters, air conditioning units and furnaces for a taxpayer’s principal residence.
- Extension and modification of credit for residential energy property – Extends and phases down the temporary components of the residential energy property credit for fuel cells, distributed wind property and geothermal heat pumps. This matches the extension and phase down for solar property that was provided for in the 2015 PATH Act.
- Credit for New Qualified Fuel Cell Motor Vehicles – If the taxpayer purchased a vehicle that runs on oxygen and hydrogen, which creates electricity known as a fuel cell vehicle, they may receive a credit up to $4,000 if their vehicle weighs 8,500 pounds or less. If they have a heavier vehicle, the credit may be more depending on the vehicle’s weight.
Tax Relief and Changes for Victims of Disaster
- California Wildfire Tax Benefits – If the taxpayer is a victim of the California wildfires, there are special rules allowing access to retirement funds, temporary suspension of limits on deductions for charitable contributions, allowance of deductions for personal casualty disaster losses and special rules for measurement of earned income to help them qualify for the Earned Income Tax Credit.
- Tax Benefits for Victims of Hurricanes Harvey, Irma and Maria – The provision makes changes to the Disaster Tax Relief and Airport and Airway Extension Act of 2017, including extending the tax relief provided for to cover disaster areas related to Hurricanes Harvey, Irma and Maria that were declared between Sept. 21 and Oct. 17, 2017.
Business Related Measures
- Extension of Indian employment tax credit – Provides a 20 percent credit to employers for wages and healthcare expenses associated with employing certain members of an Indian tribe.
- Extension of accelerated depreciation for business property on an Indian reservation – Through the provision of shortened recovery periods such as three years instead of five years.
- Extension of empowerment zone tax incentives – Tax benefits relating to tax-exempt bonds, employment credits, increased expensing and gain exclusion from the sale of certain small-business stock for business activities conducted in empowerment zones.
- Extension of classification of certain race horses as three-year property – For depreciation and expensing purposes.
Editor’s note: This article was orginally published on Feb. 9 and was updated on Feb. 23 and again on March 19 to reflect updates from the IRS.