Page 8 - Supplement to Income Tax 2020

Recent Tax Developments*

the availability of these tax breaks on 2019 returns. Kiddie Tax (pages 116, 497-500). The Tax Cuts and
Taxpayers who could have claimed any of these tax Jobs Act (TCJA) changed the way of figuring the
breaks on their 2018 returns (had they not expired “kiddie tax” imposed on the investment income of
at the end of 2017) should consider filing amended certain children, effective for 2018 and later years.
returns (Form 1040X) for 2018 to obtain a tax refund. Instead of using the parent’s highest marginal rate,
• Above-the-line deduction for tuition and fees, the TCJA applied the rates of trusts and estates to
claimed on Line 21 of Schedule 1 (pages 339, the unearned income over a set amount for children
618). subject to the kiddie tax. For 2018 the floor was
• Itemized deduction for mortgage insurance $2,100 and for 2019 it is $2,200. The new law changes
premiums, claimed on Line 8d of Schedule A
(page 385). the computation back to the old method (parent’s tax
• Exclusion for discharge of principal residence rates) starting in 2020. However, taxpayers can opt to
indebtedness, claimed on Line 1e of Form 982 use the parent’s tax rates for 2018 and/or 2019. You
(pages 322, 590-591). The exclusion limit of $2 choose whether to use the parent’s rate or the rates
million ($1million if married filing separately) for trusts and estates on Part II of Form 8615; see the
is a lifetime limit that applies to total qualifying Form 8615 instructions for details.
debts discharged from 2007 (when the exclusion
took effect), through 2020, plus discharges after Medical expenses (pages 404-405). Taxpayers who
2020 under written arrangements entered into itemize their deductions on Schedule A can write off
before 2021.
• Credit for adding insulation, storm windows out-of-pocket medical and dental expenses that exceed
and other qualifying energy improvements to a set percentage of adjusted gross income. The floor
a principal residence (“Nonbusiness energy was supposed to be 10% of adjusted gross income
property credit’), claimed on Part II of Form starting in 2019, but the new law lowers it to 7.5%
5695 (page 522). The overall credit is subject for 2019 and 2020.
to a lifetime limit of $500 for all years after
2005, and this is after dollar limits for specific Distributions from Section 529 plans (page 610). The
improvements, such as the overall limit of $200 SECURE Act allows tax-free distributions up to
for windows; see the Form 5695 instructions on $10,000 to be made from a Section 529 plan to pay
the expense limits.
• Credits for fuel-cell vehicles and 2-wheeled off student loans.
plug-in electric vehicles (page 525). See the Retirement plans. The SECURE Act made numerous
instructions to Form 8910 for fuel cell vehicles, changes impacting retirement planning for years to
and Form 8936 for 2-wheeled plug-in vehicles.
• Empowerment zone incentives. These include come. Except as noted, the changes apply beginning
the 60% exclusion for gain on the sale of in 2020 and should be factored into your projected
qualified small business stock acquired before 2020 estimated taxes. When this Supplement was
February 18, 2009, and rollover option for gain completed, the IRS had not yet issued guidelines on
from an empowerment zone asset held over a the SECURE Act changes.
year (page 119). See the instructions to Schedule • Removing the age cap on making contributions
D for details on these restored tax breaks. Also to traditional IRAs (pages 214, 216-217).
extended is an increase in the maximum Section
179 deduction (first-year expensing) by $35,000 • Increasing the age to 72 for beginning required
for qualified empowerment zone property placed minimum distributions, for those reaching age
in service before 2021 (page 729); see the Form 70½ after 2019 (pages 188, 237).
4562 instructions. . • Changing the payout rule for most nonspouse
beneficiaries (see exceptions noted in the
Health coverage credit (page 521). The health coverage Law Alert on page 243) of retirement plans
credit that may be claimed on Form 8885 by certain and IRAs (including Roth IRAs) where the
displaced workers receiving trade-related assistance account owner dies after 2019, by requiring the
was set to expire at the end of 2019, but the new law inherited account to be entirely distributed by
the end of the 10th year after the year of the
extends it for one year through 2020. account owner’s death, rather than spreading

4 | Supplement to J.K. Lasser’s Your Income Tax 2020