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Tax Extenders Bill Passed and Final Opportunity Zone Regulations Issued

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Congress has passed a bill extending more than 30 provisions in the tax code that had expired over the last two years. The “Taxpayer Certainty and Disaster Tax Relief Act of 2019” (Disaster Act) extends most of the provisions through 2020 and retroactively applies them to 2018.

The most notable inclusions are the energy efficient homebuilder credit (§45L) and the energy efficient commercial building improvements deduction (§179D). The §45L tax credit is a $2,000 credit for each new or rehabbed energy efficient dwelling unit leased or sold by the end of 2020. The §179D deduction is for up to $1.80 per square foot for energy efficiency improvements to commercial buildings. This deduction may also be available for designers of government-owned buildings. Both deductions originally expired after 2017 but may now be retroactively applied to 2018.

Other notable provisions include:

  • Discharge of principal residence indebtedness is excluded from gross income if it meets certain conditions
  • Mortgage insurance premiums treated as mortgage interest for taxpayers under $110,000 Adjusted Gross Income (AGI)
  • Unreimbursed medical expenses are deductible to the extent they exceed 7.5% of AGI
  • Employer tax credit for paid family and medical leave
  • Work Opportunity Tax Credit
  • Health Coverage Tax Credit for qualifying individuals

The bill also repealed several taxes enacted by the Affordable Care Act (ACA), including the medical device excise tax, the health insurance provider fee, and the excise tax on “Cadillac” health insurance plans.

The extension of many of these deductions and credits was expected, but provides greater certainty for planning as we enter the 2020 filing season. Some of the credits, particularly the energy efficiency credits that had lapsed in 2018, present the opportunity to amend 2018 returns and potentially claim a refund.

Qualified Opportunity Zones were also issued. The updates merge and modify the original sets of proposed regulations, which were issued in October 2018 and May 2019. Some of the significant changes from the proposed regulations include:

  • Gains from the sale of appreciated business property (IRC Section 1231 gain) can now be invested on the date the gain is realized. The initial regulations required the 180 day investment window to begin on the last day of the year.
  • The 180 day investment window for eligible gains reported to a taxpayer from a pass-through entity now begins on initial due date for the pass-through entity’s tax return rather than that entity’s year-end.
  • Buildings that are located on the same land can now be combined for purposes of the substantial improvements test.
  • Gains from the sale of opportunity zone business property that meet the 10 year holding period requirement are now eligible for tax exclusion. In the proposed regulations, the full benefit of this tax exclusion only applied to the sale of an interest in a Qualified Opportunity Fund.

Updated guidance regarding both the Tax Extenders Bill and final opportunity zone regulations provides greater clarity for the 2018 – 2020 filing seasons. We look forward to navigating through these changes with you to determine their effect on your current or previous filings.

For more information, contact your Berntson Porter representative at 425-454-7990. We’re here to help!