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2018 Bipartisan Budget Act of 2018- Tax Changes and Extenders

2018 Bipartisan Budget Act of 2018- Tax Changes and Extenders

February 9th, 2018 was an exciting day for Congress as H.R. 1892, the “Bipartisan Budget Act of 2018”, passed both the Senate and the House and then was signed into law by the President later that day. It is important that taxpayers familiarize themselves with some of the changes, as the changes will not only affect tax law from 2018 and forward but some will also retroactively affect 2017 as well. Key provisions of the Act include but are not limited to: disaster relief provisions, energy provisions, individual tax incentives, business tax incentives, and the Children’s Health Insurance Program (CHIP). The following is a summary of some pertinent key provisions.

Disaster relief
The act contains several disaster relief provisions, many for victims of the California wildfires, including these changes related to qualified pension plans:

  • Any taxpayer whom takes an early distribution from a qualified retirement plan will not have the 10% additional tax imposed on them from Sec.72(t) if they make the donation to a qualified individual.
  • Qualified individuals include any individual who suffered an economic loss while having a principal place of abode from Oct. 8, 2017 to Dec. 31, 2017 in the California wildfire disaster area.
  • Taxpayers who received qualified wildfire distributions can repay them within three years to be treated as a rollover distribution.
  • Increases threshold to $100,000 for loans to be treated as a distribution if taken out after February 9, 2018 through year-end.

Income tax provisions
There are a number of favorable income tax provisions in the act – including individual and business tax benefits, and extension of taxpayer beneficial energy incentives. Importantly, many of these tax reduction items are retroactive through 2017

Individual Tax Provisions
The following 2016 tax provisions have been extended through 2017.

  • Exclusion from gross income of the discharge of qualified principal residence indebtedness income.
  • Qualified tuition and related expenses are continued as above-the-line deductions
  • Mortgage insurance premiums as deductible qualified residence interest

In addition, the act mandated the creation of a new 1040SR for taxpayers over 65 that is supposed to be as simple as Form 1040-EZ and modified the rules for hardship distributions from qualified plans to eliminate the rule prohibiting contributions to qualified plans six months after a taxpayer takes a hardship distribution.

Business Tax Provisions
The following pertinent business tax provisions are extended through 2017.

  • Depreciate certain racehorses as three-year property instead of seven-year property.
  • Have a seven-year recovery period for motorsports entertainment complexes.
  • Repeal of the provision to accelerate estimated payments of corporate income taxes in 2020

Energy Incentives
The passing of the Bipartisan Budget Act clarified some of the confusion surrounding energy credits that were not addressed in earlier legislation throughout the year.

Energy credits that have been extended through 2017 (except as noted otherwise):

  • Credit for certain nonbusiness energy property.
  • Credit for residential energy-efficient property.
    • Including fuel cell property, small wind energy property, geothermal heat pump property, qualified solar electric property, and solar water heating property (specifically extended through 2021).
  • Credit for construction of new energy-efficient homes.
  • Five- year extension and phaseout of certain energy investment credits through December 31, 2021.
  • Energy-efficient commercial buildings deduction – Section 179D, which also benefits architects of energy efficient government buildings
  • Credit for plug-in motorcycles and two-wheeled vehicles

Finally, the bill also extended funding for the Children’s Health Insurance Program (CHIP) through fiscal year 2027.

Conclusion:
The Bipartisan Budget Act extends quite a few beneficial tax provisions, many retroactively through 2017. Taxpayers should be mindful of the changes and be aware of how they affect their tax returns in 2017 and in the future.

Written by Alexandra Papoutsis. For more information contact Barry Groebel at bdgroebel@herbein.com.