Staying up-to-date with all of the tax law changes can be tricky, and that’s exactly why we are here to help! The end of 2019 wrapped up with a short list of updates that will affect not just 2020, but last year’s tax returns as well. Let’s review the news.
5 Tax Law Changes for 2019/2020
A new bill of around 1,770 pages was signed into law on Friday, December 20, 2019. Some of these details relate to current tax laws, and other address laws that have already expired. Both types of tax law changes will be important for how we manage tax returns and tax planning for the months and years ahead.
1. Tuition and Fees Deduction
The expired line deduction for qualified tuition and fees totaling up to $4,000 is now back for taxpayers. One specific note here is that this deduction should be reviewed against the American Opportunity Credit and the Lifetime Learning Credit. That will help ensure you’re getting the best tax break.
2. Mortgage Insurance Premiums
We’re also looking at an itemized deduction for taxpayers whose mortgage lenders require loan insurance. If your loan qualifies, you’ll be able to deduct those insurance premiums again and work to get the most out of your itemized deductions.
3. Medical Expense Deduction
Previous tax rules bumped the medical expense deduction threshold to 10%. But the new laws are keeping it steady at 7.5% instead. To check for this deduction, you’ll need to analyze your medical costs with your adjusted gross income. If your qualified expenses go beyond that 7.5% threshold, then you’ll be able to mark another deduction.
4. Mortgage Forgiveness
In the past, if a bank forgave your mortgage debt, you would have to count that as income. Now, however, any qualified indebtedness that is forgiven for a primary residence will not have to go toward your income.
5. Disaster Area Filing
Another change is that there will be an automatic 60-day filing extension for any “disaster area.” The IRS used to allow these extensions on a case-by-case basis. The automatic extension will now work alongside the option for taxpayers to take money out of their retirement accounts penalty-free—as long as they were located within a federally-declared disaster area during 2018 or 2019.
Be Prepared for Every Update
While we consider these changes to be the highlights of the new tax laws, there are still other updates that you might need to know for your 2019 tax return. For example, utilizing penalty-free withdrawals from your retirement account for new births or adoptions. These can be great conversations to have with your CPA, tax specialist, or other financial advisor!
As always, please know that our NSO and Company team is here to help you make sense of the complex tax laws. If you’d like to schedule a consultation, please send us a message or call us at (317) 588-3131.