On Friday before Christmas, the President signed into law the Further Consolidated Appropriations Act, 2020. This Act not only prevented a government shutdown but also passed many tax provisions.
The major provisions included the extension and retroactive application of tax provisions that had expired. Some of these revisions may lead to a 2018 amended return.
- Retroactive reinstatement for the mortgage insurance premium (PMI) deduction and is extended through 2020.
- Retroactive reinstatement for the exclusion of qualified mortgage debt and is extended through 2020.
- Retroactive reinstatement for the above-the-line qualified tuition and related expenses deduction and is extended through 2020.
- Retroactive reinstatement for the construction of energy-efficient homes and is extended through 2020.
- The medical expenses deduction returns to 7.5% for 2019 and 2020.
- The employer credit for paid family and medical leave and the work opportunity credit has been reinstated for 2020.
The Act also made significant changes to retirement plans by including the SECURE Act.
Starting in 2020, the age for required minimum distributions will increase from 70 1/2 to 72. The Act also removes the age limit for contributions to traditional IRAs.
This legislation does not affect the rules for 2019. If you’re at least 70½ in 2019, you must take a required minimum distribution. And you’re not allowed to make contributions to your traditional IRA for 2019 after age 70½.
In addition, starting in 2020, new parents can take penalty-free distributions from a 401(k), IRA or another qualified retirement plan within a year after a birth or adoption.
The Act eliminated the “stretch IRA,” which allowed beneficiaries of IRAs and qualified plans to withdraw all money from inherited accounts over their lifetime. Starting in 2020, distributions must be taken within ten years.
Contact us with any questions and for suggestions with tax planning opportunities as a result of these changes.