Lawmakers are making a bipartisan push to grant filers some certainty on a package of tax breaks for the 2018 tax year.
These breaks are known as “tax extenders, ” a series of temporary provisions in the code that have expired and must be reauthorized by Congress retroactively each year in order for filers to use them.
These extenders run the gamut: Previously, they have included write-offs on racehorses and motorsports complexes.
Sens. Chuck Grassley (R-Iowa) and Ron Wyden (D-Oregon) introduced a bill on Feb. 28, extending these tax breaks for 2018 and 2019.
“Congress needs to get out of this bad habit of regular retroactive extensions of these tax provisions,” said Grassley, the Senate Finance Committee chairman.
“The whole point of these federal tax incentives is to encourage certain behaviors, especially investments in alternative energies, energy efficiency and transportation,” he said. “The best way to do that is ahead of time, not retroactively.”
Some households could be in for a difficult tax season if Congress doesn’t renew the tax breaks.
“You can’t claim the extenders if they aren’t passed,” said Kathy Pickering, executive director of The Tax Institute at H&R Block. Sure enough, the 2018 individual income tax return — Form 1040 — doesn’t have any line items for the extenders.
If Congress were to pass a measure allowing the breaks for 2018, the IRS would have to revise the 1040 and tax prep software providers will have to update their programs to reflect it, said Nicole Kaeding, director of federal projects at the Tax Foundation.
What do you do if you’re trying to rush your return out the door and you need certainty?
“You could either do nothing and, if the law changes, file an amended return,” said Tim Steffen, CPA and director of advanced planning at Robert W. Baird & Co. “Or you can wait and see if something changes.”
Here are three big extenders that are still uncertain for 2018, plus one newly proposed provision for 2019. And despite the potential good news, a number of these breaks are only available to those who itemize on their returns. That may be a high hurdle for many taxpayers, as the new tax law raised the standard deduction to $24,000 for those filing jointly.
Tuition and fees
If you have a kid in college, you may be able to deduct tuition costs and other related expenses up to $4,000 a year.
What’s more, this is an above-the-line deduction, meaning you don’t have to itemize on your taxes to get it.
Mortgage insurance
For the 2018 tax year, homeowners who itemize deductions on their tax return could deduct the interest on their mortgage and home equity loan or line of credit — up to $750,000 in total qualified residence loans.
The debt must go toward buying, building or substantially improving your dwelling in order to qualify for the interest deduction.
The private mortgage insurance tax extender allows you to deduct your mortgage insurance premiums as well.
Mortgage insurance premiums are an additional cost you pay each month if your original down payment generally is less than 20 percent of the sales price.
Debt forgiveness on foreclosure
Maybe your home was foreclosed in 2018 or you got rid of your dwelling in a so-called short-sale.
If your lender canceled or forgave the loan on your principal residence as a result, there’s a tax extender that allows you to exclude up to $2 million (if married) from your gross income for the discharge of the debt.
Normally, the canceled debt is treated as income and subject to taxes, but this break offers some relief.
Medical expense deduction
One of the proposed tax extenders could affect your 2019 returns.
The Tax Cuts and Jobs Act, the new tax code that went into effect in 2018, temporarily broadened the medical expense deduction.
Individuals who already itemize on their tax returns can claim an itemized deduction for unreimbursed medical expenses to the extent those costs exceeded 7.5 percent of their adjusted gross income in 2017 and 2018.
After the 2018 tax year, those expenses must exceed 10 percent of AGI in order for filers to claim them.
The new Grassley-Wyden bill calls for an extension of the 7.5 percent tax break into 2019.