SECURE Act

On December 20, 2019, the President signed into law the Setting Every Community Up for Retirement Enhancement Act of 2019 (SECURE Act). The new legislation made many changes to how you save money for your retirement, how you can use money in retirement, and how to more effectively use your state's 529 college savings plan.

Also with the new law comes the return of some older provisions that were not available in 2018 but have been retroactively added back (gee...thanks Congress) such as deductible mortgage insurance premiums (PMI), a reduction in the AGI limit for qualified medical expenses, and - Tada! - Energy Efficiency Credits! Seriously, those things have been resurrected so many times they deserve their own horror movie franchise. Because of these add backs, we encourage every client to review our Extenders Review Worksheet and determine if you qualify for any additional refunds from these provisions that we weren't able to deduct in 2018. If you do return the filled out worksheet to us and we'll review it and talk about amending the 2018 return.

So what exactly is in the SECURE Act? Let's find out.

Title 1 - Expanding and Preserving Retirement Savings

Certain taxable non-tuition fellowship and stipend payments are treated as compensation for IRA purposes. Before the SECURE Act, certain taxable stipends and non-tuition fellowship payments were included in taxable income but couldn't be used as a basis for IRA contributions.The term "compensation" shall include any amount that is included in the individual's gross income and paid to the individual to aid in the pursuit of graduate or postdoctoral study. The change enables these students to begin saving for retirement and accumulating tax-favored retirement savings, if they have any funds available of course...I mean they are students after all. This change applies to tax years after 12/31/19.
Repeal of the maximum age for Traditional IRA contributions. The old law stopped you from contributing to a Traditional IRA when you were age 70 1/2 or older. Now you can make a contribution at any age, just as you can with a Roth IRA.
If you want to make a tax-free qualified charitable distribution (QCD) from your IRA you can do that once you reach 70 1/2. The amount of the QCDs that are not included in gross income is reduced, but not below zero, by the excess of the total Traditional IRA contribution deductions taken after 70 1/2, less all prior year reductions you made to your tax free QCDs before the current tax year.
Qualified cash or deferred arrangements must allow long-term employees working more than 500 hours but less than 1,000 hours per year to participate.
Penalty-free withdrawals from retirement plans for individuals in case of birth or adoption of child under the age of 18, or is physically or mentally incapable of self-support. Distributions shall not exceed $5,000. Remember this is only a penalty exception - you still pay income tax on the distribution. A qualified birth or adoption distribution is any distribution from an IRA or qualified retirement plan if made during the one year period beginning on either the date of birth for the child, or the date a legal adoption is final.
Increase in age for required minimum distributions (RMD) from 70 1/2 to 72! Now you can wait longer and let that money grow even more. RMDs do not apply to Roth IRAs.
Taxpayers can elect to treat excluded difficulty of care payments as compensation for determining retirement contribution limitations.

Subtitle A - Tax Relief and Support for Families and Individuals

Exclusion from gross income of discharge of qualified personal residence indebtedness up to $2 million of mortgage debt. This provision expired for tax years ending before January 1, 2018 is now retroactively extended until December 31, 2020. If you received a cancellation of debt notice on your primary residence in that elapsed time period talk to us about amending your return.
Mortgage insurance premiums (PMI) paid or accrued witth connection to acquisition indebtedness to a qualified residence is now treated as qualified interest again. If you paid PMI in 2018 and we didn't deduct it (because we couldn't) talk to us about amending your return to now include it. For some this could mean the difference between itemizing or not itemizing, especially on the state level.
Reduction in medical expense deduction floor. The reduction is from 10% of your AGI back down to 7.5% of your AGI.
Qualified Tuition and Fees deduction is back. The deduction for qualified tuition and related expenses is retroactive to 2018 and is up to $4,000 for taxpayers whose AGI does not exceed $65,000 (Single) or $130,000 (Married Filing Joint), and up to $2,000 for taxpayers who AGI does not exceed $80,000 (Single) or $160,000 (Married Filing Joint). The deduction is $0 for all others.

Subtitle B - Incentives for Employment, Economic Growth and Community Development

Indian Employment Credit
Railroad Track Maintenance Credit
Mine Rescue Training Team Credit
Certain Race Horses Classified as 3 year property
7 Year Recovery Period for Motorsports Entertainment Complexes
Accelerated Depreciation for Business Property on Indian Reservations
Election to Treat Certain Qualified Film, Television, and Live Theatrical Production Costs as Expenses
Empowerment Zone Tax Incentives

Subtitle C - Incentives for Energy Production, Efficiency, and Green Economy

Biodiesel and renewable diesel provides a $1 per gallon tax credit for biodiesel and biodiesel mixtures, and the small agri0biodiesel producer credit of 10 cents per gallon. The credit is extended for two years for production before January 1, 2021.
Nonbusiness energy property such as Air Source Heat Pumps, Central Air Conditioning, Hot Water Heaters, Hot Water Boilers, Advanced Main Air Circulating Fans, Biomass Stove (Wood/Pellet), Insulation, Roofs, Windows, Doors, and Skylights. This is retroactive to 2018. If you did any of these improvements in 2018 and you have not already reached the lifetime credit limit of $500 (whoop-de-doo) then talk to us about "possibly" amending your return to see if it's worth it to go back and capture that credit.
Two-wheeled plug-in electric vehicle credit.
Credit for electricity produced from certain renewable resources. Construction of a qualifying facility must begin before January 1, 2021.
Energy efficient homes credit for manufacturers of new homes acquired before January 1, 2021.
Deduction for energy efficiency improvements of commercial buildings retroactively placed in service before January 1, 2021.

Subtitle D - Certain Provisions Expiring at the End of 2019

New markets tax credit. Carryover extended through 2025.
Employer tax credit for paid family leave. Extended through 2020.
Work opportunity tax credit. Extended through 2020.
Health coverage tax credit (HCTC). Extended through 2020.

Title II - Disaster Tax Relief

Definitions for the purpose of this title
The term ‘‘qualified disaster area’’ means any area with respect to which a major disaster was declared beginning January 1, 2018, and ending on February 19, 2020, (60 days after enactment) by the President under section 401 of the Robert T. Stafford Disaster Relief and Emergency Assistance Act if the incident period of the disaster with respect to which such declaration is made begins on or before the date of the enactment of this act. Such term shall not include the California wildfire disaster area.

The term “qualified disaster zone” means that portion of any qualified disaster area that was determined by the President, during the period beginning on January 1, 2018, and ending on February 19, 2020, to warrant individual or individual and public assistance from the federal government under the Robert T. Stafford Disaster Relief and Emergency Assistance Act by reason of the qualified disaster with respect to such disaster area.

The term “qualified disaster” means, with respect to any qualified disaster area, the disaster by reason of which a major disaster was declared with respect to such area.

The term “incident period” means, with respect to any qualified disaster, the period specified by the Federal Emergency Management Agency as the period during which such disaster occurred (except that for purposes of this title such period shall not be treated as beginning before January 1, 2018, or ending on January 20, 2020.

Allowance of qualified disaster distributions for up to $100,000 from qualified plans if made by June 18, 2020 (180 days after date of enactment). Repayments can be made ratably over a three-year period.
Special disaster-related rules for use of retirement funds. New exception to the 10% early retirement plan withdrawal penalty for qualified disaster relief distributions (not to exceed $100,000 in qualified hurricane distributions cumulatively). The new rule allows for the re-contribution of retirement plan withdrawals for home purchases canceled due to eligible disasters and provides flexibility for loans from retirement plans for qualified hurricane relief.
Employee retention credit for employers affected by qualified disasters of 40% of wages (up to $6,000 per employee) paid by affected employer to employees from a core disaster area.
Special rule for determining earned income that allows taxpayers in designated disaster areas to refer to earned income from the immediately preceding year for purposes of determining the Earned Income Tax Credit (EITC) and Child Tax Credit (CTC) in tax year 2018.
Elimination of the current law requirements that personal casualty losses must exceed 10% of adjusted gross income to qualify for deduction. Also eliminated is the current law requirement that taxpayers must itemize deductions to access this tax relief.
Temporarily suspension of the limitations on the deduction for charitable contributions associated with qualified disaster relief.
Automatic extension of filing deadline. Any individual with a principal place of abode or any taxpayer with a principal place of business in a disaster area is granted an automatic 60-day extension with regard to any tax filing. This applies to federally declared disasters declared after Dec. 20, 2019.

Title III - Other Benefits

Exclusion of State And Local Taxes (SALT) benefits and qualified payments for volunteer emergency responders reinstated for 2020 only. The monthly limit on the exclusion is increased from $30 to $50.
Section 529 college savings plans are expanded to cover the cost for fees, books, supplies and equipment required for participation in a qualified apprenticeship program. Tax free distributions are also now allowed from 529 plans to pay principal and interest on a qualified education loan of the designated beneficiary or a sibling of the designated beneficiary up to $10,000 lifetime limit. THAT'S HUGE NEWS!!! If you have a student loan and you no longer receive any adjustments to your AGI due to income talk to us about that.

Title IV - Revenue Provisions

Modification of required distrbution rules for designated beneficiares. After an employee (or IRA owner) dies, the remaining account balance must be distributed to beneficiaries within 10 years after the date of death. This rule applies regardless of wherther the employee (IRA owner) dies before, on, or after the required beginning date, unless the designated beneficiary is one of the following:

The surviving spouse of the employee (IRA owner).
A child of the employee (IRA owner) who has not reached maturity.
A chronically ill individual as definied in Code Section 401 (a)(9)(E)(ii)(IV).
Any other individual who is not more than 10 years younger than the deceased.

Increased failure to file penalty for tax returns due after December 31, 2019 is increased from $330 to $435.

Title V - Tax Relief For Certain Children

Kiddie tax changes for gold star children and other children. The kiddie tax provisions that were added by the TCJA are repealed. As a result, the unearned income of children is taxed under the pre-TCJA rules and not at trust/estate rates. This means a child will once again be taxed at the parents’ rates on net unearned income if higher than the child’s rates. This will particularly benefit gold star children who receive payments under the Survivor Benefits Plan (SBP), an insurance annuity provided by the Department of Defense. SBP payments are often assigned to a child by a surviving spouse who is receiving Dependency and Indemnity Compensation (DIC) from the Department of Veterans Affairs. Effective for tax years beginning after Dec. 31, 2019, but taxpayers can elect to apply it retroactively to tax years that begin in 2018, 2019, or both.