Year-End Spending Bill Retroactively Revives Many Tax Breaks

December 30, 2019 | Kristine A. Tidgren

On December 20, 2019, President Trump signed into law the Further Consolidated Appropriations Act, 2020, HR 1865, part two of a spending bill designed to keep the government running through September 2020. Buried within the law’s 715 pages are hundreds of other provisions, including an estimated $426 billion (over 10 years) tax package. The tax package retroactively extends some credits and tax breaks that had been expired for two years. These provisions are included in Division Q of the law, titled the “Certainty and Disaster Tax Relief Act of 2019.’’ This post reviews the extended provisions.

Exclusion from gross income of discharge of qualified principal residence indebtedness (Expired at the end of 2017) (Sec. 101)

The § 108(a)(1)(E)(ii) provision excluding from gross income the discharge of qualified principal residence indebtedness has been revived, retroactively, through December 31, 2020.

Treatment of mortgage insurance premiums as qualified residence interest (Expired at the end of 2017) (Sec. 102)

The IRC § 163(h)(3)(E) provision allowing premiums paid or accrued for qualified mortgage insurance by a taxpayer in connection with acquisition indebtedness for a qualified residence to be treated as qualified residence interest is revived, retroactively, through December 31, 2020.

Reduction in medical expense deduction floor (Expired at the end of 2018) (Sec. 103)

The law amends Section 213(f) to lower the medical expense deduction floor from 10 percent to 7.5 percent through December 31, 2020. The change applies to taxable years ending after December 31, 2018.

Deduction of qualified tuition and related expenses (Expired at the end of 2017) (Sec. 104)

The IRC § 222 above-the-line deduction for qualified tuition and related expenses is revived, retroactively, through December 31, 2020.

Other Incentives for Employment Economic Growth and Community Development

The law extends retroactively, through December 31, 2020, the following additional Incentives for Employment, Economic Growth, and Community Development:

  • Sec. 105. Black lung disability trust fund excise tax
  • Sec. 111. Indian employment credit
  • Sec. 113. Mine rescue team training credit
  • Sec. 114. Classification of certain race horses as 3-year property
  • Sec. 115. 7-year recovery period for motorsports entertainment complexes
  • Sec. 116. Accelerated depreciation for business property on Indian reservations
  • Sec. 117. Expensing rules for certain productions
  • Sec. 118. Empowerment zone tax incentives
  • Sec. 119. American Samoa economic development credit

The railroad track maintenance credit is extended through 2022 (Sec. 112).

Incentives for Energy Production, Efficiency, and Green Economy Jobs

Important to struggling biodiesel plants, Section 121 revives the biodiesel and renewable diesel credit that expired at the end of 2017. This credit is extended retroactively through the end of 2022.

The following provisions are retroactively extended through 2020.

  • Sec. 122. Second generation biofuel producer credit
  • Sec. 123. Nonbusiness energy property
  • Sec. 124. Qualified fuel cell motor vehicles
  • Sec. 125. Alternative fuel refueling property credit
  • Sec. 126. 2-wheeled plug-in electric vehicle credit
  • Sec. 127. Credit for electricity produced from certain renewable resources
  • Sec. 129. Energy efficient homes credit
  • Sec. 130. Special allowance for second generation biofuel plant property
  • Sec. 131. Energy efficient commercial buildings deduction
  • Sec. 132. Special rule for sales or dispositions to implement FERC or State electric restructuring policy for qualified electric utilities
  • Sec. 133. Extension and clarification of excise tax credits relating to alternative fuels
  • Sec. 134. Oil spill liability trust fund rate

Provisions That Would Have Expired at the End of 2019

Additionally, the law extends the following provisions that were set to expire at the end of 2019, through 2020.

  • Sec. 141. New markets tax credit.
  • Sec. 142. Employer credit for paid family and medical leave.
  • Sec. 143. Work opportunity credit.
  • Sec. 144. Certain provisions related to beer, wine, and distilled spirits.
  • Sec. 145. Look-thru rule for related controlled foreign corporations.
  • Sec. 146. Credit for health insurance costs of eligible individuals.

Cycle Continues

The inclusion of these extenders in the year-end spending package again highlights the difficulty of temporary tax policy negotiation. The Tax Cuts and Jobs Act failed to address these provisions. Many of these provisions expired two full years ago, and 2018 returns were filed without them. While the revival comes as welcome relief to many, it triggers much administrative effort. IRS has to reprogram its software (we will watch for updates), and taxpayers must file amended returns to take advantage of the changes. More significantly, retroactively reviving tax breaks undercuts the incentive they are designed to provide. And since most are revived for only one more year, the cycle continues.