2019 Late Year Tax Changes

When Congress passed the budget late in the year, they threw in some Easter Eggs for taxpayers. Most of the changes were pretty good for us, but there was one I didn't like...though it only applies if you inherit a retirement account. The act reinstated some tax benefits, affected disaster areas and made major changes to retirement accounts and education savings plans (529's).

This post is based on a very early reading of the act, so there may be some points or subtleties missed...

The acts extended a few tax provisions, and carried some back in to 2018, so you need to look at your 2018 tax return in some situations to see if you can get more money. The big reasons to look back would be if you have education expenses, put in energy efficient heating and air systems, had your house foreclosed, or paid mortgage insurance.

Here's a non-comprehensive list of the extended provisions, with inclusion and level of detail based on the likelihood the average taxpayer would be affected by them:

1. If you had cancelled debt as a result of debt secured by your personal residence, you can exclude the cancelled debt from income. This goes back to 2018, so if you included it in that year, you can amend to remove it.
2. The Tuition and Fees Deduction was reinstated retroactive to 2018. This allows you to deduct up to $4000 of qualified education expenses off of your Adjusted Gross Income (AGI). You don't need to itemize deductions to take it. Usually education expenses are used for the two great tax credits, but this deduction can be good if you can't use the credits, or are subject to a high state tax rate.
3. The $500 credit for heating and air systems that were very energy efficient has been revived for 2018 and forward.
4. Mortgage Insurance Premiums were made deductible for 2018 and later. This includes VA and FHA Funding Fees. There is an income limit and it requires itemizing.
5. The threshold for deducting medical expenses remains at 7.5% vice 10% as was planned.
6. Electric and alternate fuel vehicle credits, as well as charging station credits were extended.

The vast majority of the rest are unlikely to apply to you unless you have a decent sized and complicated business.

Disaster Area provisions: I'm not going to go over these much at all except to state that if you were subject to a disaster as declared by the President, then you should seek some professional help or do some detailed research. There are a TON of these and they can be complicated.

Retirement and 529 provisions: Again, non-comprehensive and description limited based on breadth of applicability.

1. Starting in 2020 you can contribute to Traditional IRA's even if you are older than 70 and a half. They must be 2020 and later contributions, so you can't contribute for 2019 even if it is 2020.
2. For people not already required to make Required Minimum Distributions, the age has been raised from 70 and a half to 72.
3. A new exception to the 10% penalty for early retirement account withdrawals was created for 2020 and later. You can exclude the penalty on up to $5000 withdrawn within one year of the birth or adoption of a child.
4. You can use up to $10,000 from a 529 plan to pay student loans without penalty or inclusion in income. You can't deduct student loan interest paid this way.
5. Requirements to contribute to IRA's and 401k's have been relaxed. These include redefining income for graduate students, allowing part time workers to contribute to 401k's, and making difficulty of care payments eligible compensation for IRA's.

And the bad stuff:

1. The Kiddie Tax rates have reverted to it's pre-Trump Tax Reform status.
2. IRA's inherited in 2020 and later by non-spouses need to be withdrawn within 10 years. There are a few exceptions for minors and the disabled.