Earlier today we reported that the Consolidated Appropriations Act 2021, H.R. 133 was passed by Congress and is awaiting the President’s signature. We also reported on the changes, updates and additions to the Paycheck Protection Plan (PPP) which originated under the CARES act passed earlier this year. This letter outlines more provisions of the Act, including the extension of many expiring deductions and credits and additional relief for struggling and unemployed Americans.
- The Act continues to support qualified taxpayers with a second round of Stimulus payments of $600/person, $1200 for married couples, in the form of a refundable credit. To qualify for this credit single taxpayers must have modified adjusted gross income (MAGI) of less than $75,000 and married taxpayers must have less than $150,000. Income in excess of these amounts will reduce the credit by $5 for every $100 over the limit. The Treasury will issue advanced payments in the same way it issued the prior round of stimulus checks.
- In addition, the above the line deduction for charitable giving of $300 has been extended to 2021 for single taxpayers and increases the maximum amount to $600 for married couples filing jointly.
- The increased limit on charitable contributions for corporations and individuals promulgated under the CARES act is extended through 2021.
- Taxpayers can roll over unused amounts in their health and dependent care flexible spending arrangements from 2020 to 2021 and from 2021 to 2022. This provision also permits employers to allow employees to make a 2021 midyear prospective change in contribution amounts.
- Business meal expenses will be 100% deductible as long as the meal comes from a restaurant starting in 2021 and extending through 2022.
- Several disaster tax relief provisions for taxpayers in presidentially declared disaster areas.
- The bill repeals the Sec. 222 deduction for qualified tuition and related expenses but in its place increases the phaseout limits on the lifetime learning credit (so they match the phaseout limits for the American opportunity credit), effective for tax years beginning after Dec. 31, 2020.
- Any taxpayer who deferred their portion of the payroll taxes on their wages was required to repay those deferred amounts through ratable wage reductions by April 30, 2021. The new Act extends the time to repay through December 31, 2021.
In addition to the above provisions many current and expiring laws were extended. The Journal of Accountancy reports the following list of extensions and permanent provisions:
The bill makes permanent the following provisions:
- Sec. 213(f) reduction in medical expense deduction floor, which allows individuals to deduct unreimbursed medical expenses that exceed 7.5% of adjusted gross income instead of 10%.
- Sec. 179D deduction for energy-efficient commercial buildings (the amount will be inflation-adjusted after 2020).
- Sec. 139B gross income exclusion for certain benefits provided to volunteer firefighters and emergency medical responders.
- Sec. 45G railroad track maintenance credit; however, the credit rate is reduced from 50% to 40%.
The bill reduces various excise rates for small brewers and distillers.
The bill provides five-year extensions to the following provisions:
- Sec. 45D new markets tax credit.
- Sec. 45S employer credit for paid family and medical leave.
- Sec. 51 work opportunity credit.
- Sec. 108(a)(1)(E) gross income exclusion for discharge of indebtedness on a principal residence.
- Sec. 127(c)(1)(B) exclusion for certain employer payments of student loans.
- Sec. 168(e)(3)(C)(ii) seven-year recovery period for motorsports entertainment complexes.
- Sec. 181 special expensing rules for certain film, television, and live theatrical productions.
- Sec. 954(c)(6) look through treatment of payments of dividends, interest, rents, and royalties received or accrued from related controlled foreign corporations under the foreign personal holding company rules.
- Sec. 1391(d) empowerment zone designation.
- Sec. 4611 Oil Spill Liability Trust Fund financing rate.
The Sec. 1397A increased expensing under Sec. 179 and Sec. 1397B nonrecognition of gain on rollover of empowerment zone investments are both terminated for property placed in service in tax years beginning after Dec. 31, 2020.
The Sec. 1394 empowerment zone tax-exempt bonds and Sec. 1396 empowerment zone employment credit, which expire Dec. 31, 2020, were not extended.
The bill provides a two-year extension to the following provisions:
- Sec. 25D residential energy-efficient property credit (the bill also makes qualified biomass fuel property expenditures eligible for the credit).
- Sec. 45Q carbon oxide sequestration credit (through 2025).
- Sec. 48 energy investment tax credit for solar and residential energy-efficient property.
The Act provides one-year extensions to the following provisions:
- Sec. 25C 10% credit for qualified nonbusiness energy property.
- Sec. 30B credit for qualified fuel cell motor vehicles.
- Sec. 30C 30% credit for the cost of alternative (nonhydrogen) fuel vehicle refueling property.
- Sec. 30D 10% credit for plug-in electric motorcycles and two-wheeled vehicles.
- Sec. 35 health coverage tax credit.
- Sec. 40(b)(6) credit for each gallon of qualified second-generation biofuel produced.
- Sec. 45(e)(10)(A)(i) production credit for Indian coal facilities.
- Sec. 45(d) credit for electricity produced from certain renewable resources.
- Sec. 45A Indian employment credit.
- Sec. 45L energy-efficient homes credit.
- Sec. 45N mine rescue team training credit.
- Sec. 163(h) treatment of qualified mortgage insurance premiums as qualified residence interest.
- Sec. 168(e)(3)(A) three-year recovery period for racehorses two years old or younger.
- Sec. 168(j)(9) accelerated depreciation for business property on Indian reservations.
- Sec. 4121 Black Lung Disability Trust Fund increase in excise tax on coal.
- Sec. 6426(c) excise tax credits for alternative fuels and Sec. 6427(e) outlay payments for alternative fuels.
- The American Samoa economic development credit (P.L. 109-432, as amended by P.L. 111-312).
We will continue to report to you as the IRS gives guidance and updated tax forms needed to take advantage of the new and extended deductions and credits. Should you have any questions, please don’t hesitate to reach out to your tonneson + co representative.