Tax Extenders - Can It Really Be That Time Again?

September 21, 2020 | Article

Understanding the impact and importance of tax extenders in your tax planning

Earlier this year, the Joint Committee on Taxation prepared a List of Expiring Federal Tax Provisions. The list details items scheduled to expire between December 31, 2020, and December 31, 2029. The listing indicates that over two dozen tax breaks are scheduled to expire at the end of 2020 alone.

What is a Tax Extender?
These tax breaks are typically referred to as “extenders” because they are frequently given short-term, temporary status extensions of life by Congress, rather than permanent status. However, despite their lack of permanency, many taxpayers have come to expect, if not count on, the extenders when planning transactions or filing their tax returns.

What Tax Extenders are Set to Expire at the End of 2020?
Among the tax provisions slated to expire at the end of 2020 are:

Individual tax provisions 

  • The exclusion from income of the discharge of indebtedness on a principal residence
  • The ability to treat mortgage insurance premiums as qualified residence interest
  • The 7.5% of AGI limitation on the itemized deduction for medical expenses
  • The above-the-line deduction for qualified tuition and related expenses
  • Credit for health insurance costs of certain low-income individuals

Social tax incentives

  • Empowerment zone designations
  • New Markets Tax Credit (subject to carryover of excess allocations through 2025)
  • Employer credit for paid family and medical leave
  • The Work Opportunity Tax Credit
  • Indian employment credit
  • Credit for mine rescue training programs
  • Benefits provided volunteer firefighters and emergency medical responders

Energy tax incentives

  • Credit for nonbusiness energy property
  • Energy efficient commercial building deduction
  • Credit for constructing new energy efficient homes
  • Credits for fuel cell motor vehicles and two-wheel plug-in electric vehicles
  • Credit for alternative fuel vehicle refueling property
  • Credit for second generation biofuel production
  • Credit for production of Indian coal
  • Beginning of construction date for renewable power facilities eligible for the electricity production credit or investment credit

Cost recovery

  • Accelerated depreciation for property:
    • On an Indian reservation
    • Second generation biofuel plant property
    • Motorsports entertainment complexes and horses older than 2
  • Expensing for certain film, television and live theatrical productions

Foreign taxes

  • Look through rule for controlled foreign corporations

What are the Chances of Lapsing Tax Extenders Being Extended?
The prospect of Congress extending these important tax provisions is difficult to assess. Uncertainty surrounding the upcoming elections, including the presidential race and control of the House of Representatives and the Senate, makes it difficult to predict, if, or when, extender legislation might happen.

At this point, it appears any serious tax legislation will be deferred by Congress until after the election—possibly not until the new Congress convenes in January 2021 or even later. However, the COVID-19 pandemic, and how it unfolds over the next month, could make legislative relief from the government more urgent and potentially open the door for tax measures that could include the extenders.

How Should I Proceed with Tax Planning?
Know that tax extenders lapsing at year-end 2020 will most likely not be extended until after December 31, 2020. This should not be a cause for concern. If  they are not extended, the lapse would affect years beginning in 2021; therefore, so long as Congress doesn’t delay too long in taking action in 2021, there will be time to consider the tax effect of the lapsed extenders for 2021. 

If they are extended, then you can continue to utilize these tax incentives until the next lapsing date. The best tax planning scenarios should consider the uncertainty surrounding these 2020 expiring tax provisions. Continue to stay informed and alert, especially if you receive a benefit from any of the tax extenders set to expire on December 31, 2020.

Strategic tax planning can create less headaches and more savings.

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