President Trump on February 9 signed the Bipartisan Budget Act into law after a brief government shutdown occurred overnight. The legislation contains tax provisions in addition to a continuing resolution to fund the government and federal agencies through March 23. The House approved this new law in the early morning hours of February 9, by a 240-to-186 vote. The Senate approved the bipartisan measure a few hours earlier, by a 71-to-28 vote.
Take away. The Bipartisan Budget Act contains a significant number of tax provisions, including disaster tax relief and the extension of over 30 expired tax breaks. The majority of the tax relief included in the legislation applies for the 2017 tax year only. The full impact of these retroactive changes on the current filing season remains to be fully assessed. The IRS issued a statement on February 9 statement, saying that it was beginning to determine next steps. “The IRS will provide additional information as quickly as possible for affected taxpayers and the tax community,“ the Service indicated.
While many economists and lawmakers argue retroactive tax extenders are unfavorable tax policy, others contend that these tax breaks were included in the Bipartisan Budget Act because they had been relied upon and expected for the 2017 tax year but were squeezed out of year-end consideration by the Tax Cut and Jobs Act. A House Ways and Means Committee spokesperson told Wolters Kluwer that “[j]ob creators and families expected these extenders—in a pre-tax reform world—would be taken care of in a similar fashion as Congress has done for years.” Moving forward, however, the committee is planning hearings to determine how and if tax extenders fit in post-tax reform years, the spokesperson added.
Highlight of some of the tax extender provisions with more widespread impact than others are as follows (and are extended through 2017 only unless noted):
- Exclusion from gross income of discharge of qualified principal residence indebtedness;
- Mortgage insurance premiums treated as qualified residence interest;
- Above the line deduction for qualified tuition and related expenses;
- Election to expense mine safety equipment;
- Special expensing rules for certain productions;
- Deduction allowable with respect to income attributable to domestic production activities in Puerto Rico;
- Special rule relating to qualified timber gain;
- Empowerment zone tax incentives;
- Credit for nonbusiness energy property;
- Credit for nonresidential energy property (extended through 2021 and modified);
- Credit for new qualified fuel cell motor vehicles;
- Credit for alternative fuel vehicle refueling property;
- Credit for 2-wheeled plug-in electric vehicles;
- Second generation biofuel producer credit;
- Biodiesel and renewable diesel incentives;
- Credits with respect to facilities producing energy from certain renewable resources;
- Credit for energy-efficient new homes;
- Energy credit (extended through 2021 and modified);
- Special allowance for second generation biofuel plant property;
- Energy efficient commercial buildings deduction; and
- Carbon dioxide sequestration credit (enhanced, modified and generally extended through 2023).
The Bipartisan Budget Act also established disaster tax relief for individuals and businesses impacted by California wildfires. Such relief includes but is not limited to allowing certain access to retirement funds, temporarily suspending the limit on charitable contribution deductions, allowing deductions for personal casualty disaster losses and a tax credit for employee retention. The Act also includes changes to the Opportunity Zones rules for Puerto Rico, originally included in the “Tax Cuts and Jobs Act.” Additionally, tax relief is extended for areas affected by hurricanes Harvey, Irma and Maria.
Additional tax provisions
A number of new tax provisions were included in the legislation, as well as modifications to existing tax provisions. These include modifications of the rules relating to whistleblower awards, user fees on installment agreements, and hardship distributions and withdrawals from deferred accounts. The Act also mandates the creation of a new version of Form 1040, similar to a Form 1040EZ, for seniors, for tax years beginning after February 9, 2018 (the 2019 tax year for calendar year taxpayers). An additional provision of note is the requirement that for the excise tax on investment income of private colleges and universities to apply, the 500 students must be “tuition-paying.” This requirement was included in the original version of the Tax Cuts and Jobs Act, but was removed at the last minute to comply with budget reconciliation rules.
The Joint Committee on Taxation has estimated that extending the expired tax breaks will cost the federal government over $15 billion. The disaster relief will add $456 million to the deficit in addition to relief that has already been provided.