COVID-19 Relief Law Boosts Temporary Tax Deductions and Credits
Embedded in the COVID-19 relief law is $900 billion for financial assistance.
As you would expect in these unusual times, some of the relief is in the form of direct government financial assistance and some is from tax benefits that can impact both tax year 2020 and tax year 2021.
Most of the provisions create extra deductions or credits where Uncle Sam puts cash directly into your wallet.
The CARES Act made three major changes to charitable contribution deductions for tax year 2020:
- For individuals, there is no adjusted gross income (AGI) limit for contributions normally subject to the 50 percent and 60 percent limitations. The 2020 no-limit rule does not apply to donor-advised funds.
- If you are a non-itemizer, you may now deduct above-the-line cash charitable contributions up to $300 for tax year 2020 only.
The new law enacted on December 27, 2020, extends the increased charitable contribution deduction limits for individuals and corporations to tax year 2021. In addition, in tax year 2021, non-itemizers can deduct below-the-line cash charitable contributions up to $600 on a married-filing-joint return ($300 for singles).
Tax Extenders Passed with the COVID-19 Relief Law
The Taxpayer Certainty and Disaster Tax Relief Act of 2020, enacted on December 27, 2020, deals with the annual tax extenders. Congress made some of them permanent, while others got short- or long-term extensions.
These are the big five Form 1040 tax breaks that were scheduled to expire on December 31, 2020:
- Cancellation of debt. Extended through tax year 2025, but with a reduced maximum exclusion from $2 million to $750,000 for discharges of indebtedness after December 31, 2020. Exclusion from income for cancellation of acquisition debt on your principal residence (up to $2 million).
- Mortgage insurance premiums. Extended through tax year 2021 only.
- 7.5 percent floor for itemized medical deductions. This provision is now permanent!
- Tuition and fees deduction. Eliminated, but the lifetime learning tax credit phaseout limit was increased to $80,000 (or $160,000 on a joint return) to increase access to this tax benefit.
- Principal home energy tax credit. Extended through tax year 2021 only. Non-business energy property tax credit for energy-efficient improvements to your principal residence.