Tax Extenders and Repeal of ACA Taxes
By Eduardo Chung and Jesse Sirotkin
January 15, 2020
On December 20, 2019 President Trump signed into law the Taxpayer Certainty and Disaster Tax Relief Act of 2019 (the “Disaster Act”) as part of an omnibus spending package, the Further Consolidated Appropriations Act (the “Appropriations Act”). The Disaster Act extends over 30 tax provisions, most through 2020. The Appropriations Act repeals several Affordable Care Act (“ACA”) excise taxes.
We’ve summarized the most important extenders below:
- Mortgage Relief – The Disaster Act extends, through tax year 2020, both the deduction for qualified private mortgage insurance (subject to phase-outs) and the exclusion from income of canceled mortgage debt on a qualified principal residence (up to $2 million). It further provides that mortgage debt discharged after tax year 2020 will still qualify if the discharge was pursuant to a binding written contract entered into prior to 2021.
- Reduction in Medical Expense Deduction Floor – For 2017 and 2018, individuals could claim an itemized deduction for unreimbursed medical expenses to the extent that such expenses exceeded 7.5% of Adjusted Gross Income (“AGI”). The Disaster Act extends this provision through calendar year 2020.
- Deduction of Qualified Tuition and Related Expenses – An above-the-line deduction is allowed for qualified tuition and related expenses for higher education capped at $4,000 or $2,000 depending on income. The Disaster Act extends this provision through calendar year 2020.
- Qualified Fuel Cell Motor Vehicles – A credit is allowed for purchases of new qualified fuel cell motor vehicles of between $4,000 and $40,000, depending on the weight of the vehicle. The Disaster Act extends this provision through calendar year 2020.
- Credit for Electricity Produced from Certain Renewable Resources – An income tax credit is allowed for the production of electricity from qualified energy resources at qualified facilities (the “renewable electricity production credit”). Qualified energy resources mean wind, closed-loop biomass, open-loop biomass, geothermal energy, solar energy, small irrigation power, municipal solid waste, qualified hydropower production, and marine and hydrokinetic renewable energy. Qualified facilities are, generally, facilities that generate electricity using qualified energy resources.
- Under prior law, qualifying facilities generating electricity using closed-loop biomass, open-loop biomass, geothermal energy, land fill gas and trash, qualified hydropower, and marine and hydrokinetic renewable energy facilities had to have begun constructions before Jan. 1, 2018, to claim the credit. The Disaster Act extends this credit for such facilities that begin construction through calendar year 2020.
- For wind facilities the construction of which begin in calendar year 2020, the Disaster Act reduces the credit by 40%.
- New Markets Tax Credit – A New Markets Tax Credit is available for 39% of the capital invested in a qualified community development entity, which in turn must loan to, or invest substantially all of such capital in, qualified businesses operating in low-income communities. The Disaster Act provides a $5 billion New Markets Tax Credit allocation for 2020. The Disaster Act also extends for one year, through 2025, the carryover period for unused New Markets Tax Credits.
- Employer Tax Credit for Paid Family and Medical Leave – An employer receives a credit for paid family and medical leave based on eligible wages paid to qualifying employees with respect to family and medical leave. The Disaster Act extends this provision through calendar year 2020.
- Work Opportunity Credit – The Internal Revenue Code (the “Code”) provides an elective general business credit to employers hiring individuals who are members of one or more of ten targeted groups. The Disaster Act extends this provision through calendar year 2020.
- Look-Through Rule for Related Controlled Foreign Corporations – The Code provides look-through treatment for payments of dividends, interest, rents, and royalties between related controlled foreign corporations. The Disaster Act extends this provision through calendar year 2020.
- Health Coverage Tax Credit – The Code provides a refundable credit equal to 72.5% of the premiums paid by certain individuals for coverage of the individual and qualifying family members under qualified health insurance. The Disaster Act extends this credit through calendar year 2020.
The following provisions have also been addressed by the Disaster Act:
- Extensions Through 2020
- Credit for purchase of energy efficiency improvements to existing homes.
- Credit for alternative fuel vehicle refueling property installed in principal residence.
- Credit for electric motorcycles.
- Extensions Through 2020
- Coal/black lung excise tax.
- Indian employment tax credit.
- Mine rescue team training tax credit.
- Classification of certain race horses as three-year property.
- Seven-year recovery period for motorsports entertainment complexes.
- Accelerated depreciation for qualified Indian reservation property.
- Election of special expensing rules for certain film and television productions and expansion of special expensing to live theatrical productions.
- Empowerment zone tax incentives (with modifications).
- American Samoa economic development credit (with modifications).
- Biodiesel and renewable diesel incentives (with modifications).
- Second generation biofuel producer credit and special deduction for second generation biofuel plant property.
- Credit for alternative fuel vehicle refueling property installed at trade or business.
- Credit for production of Indian coal facilities.
- Credit for energy-efficient home construction.
- Energy efficient commercial buildings deduction.
- Special rule for sales to implement FERC or state electric restructuring policy for qualified electric utilities.
- Alternative fuel excise tax credit and related payment provisions (with modifications).
- Oil excise tax.
- Reductions in alcohol excise taxes
- Extensions Through 2022
- Railroad track maintenance tax credit (with modifications).
ACA Repeal Provisions
Repeal of Medical Device Excise Tax
The ACA provided that the sale of a taxable medical device by the manufacturer, producer, or importer is subject to a tax equal to 2.3% of the price for which it is sold (medical device excise tax). The Appropriations Act repeals the medical device excise tax for sales occurring after December 31, 2019.
Repeal of Health Insurance Provider’s Fee
The ACA imposed an annual flat fee on covered entities engaged in the business of providing health insurance with respect to U.S. health risks. The Appropriations Act repeals the provider’s fee for years beginning after December 31, 2020.
Repeal of High-Cost Employer-Sponsored Health Coverage Tax (Cadillac Plans)
The ACA imposed an excise tax on insurers when the aggregate value of employer-sponsored health insurance coverage exceeded a threshold amount. This tax is commonly referred to as the tax on “Cadillac” plans. The Appropriations Act repeals this tax for tax years beginning after December 31, 2019.
Please contact your Mazars USA LLP professional for additional information.