Recent Tax Updates

Bipartisan Budget Act Extended the Expired Extender Provisions and Included Tax Relief for Victims of the California Wildfires

The Bipartisan Budget Act of 2018 that was signed into law on February 9 included an extension of the expired extender provisions and the same tax relief provisions for California wildfires that was given to victims of the hurricanes as follows:

Extender Provisions that Affect Individuals
The following expired federal provisions that affect individuals were extended for one year (2017):

  • Tuition and Fees Deduction - Form 8917/Form 1040, line 34
  • Exclusion of gain from income of foreclosed home mortgage debt (Form 982, line 1e)
  • Ability to treated mortgage insurance premiums as qualified mortgage interest (Schedule A, line 13)
  • Nonbusiness Energy Property Credit – Form 5695, Part II
  • Credit for 2-Wheeled plug-in electric vehicles – Form 8936
  • Credit for new qualified fuel cell motor vehicles – Form 8910

Extended for more than one year:

  • Residential Energy Efficient Property Credit – Form 5695, Part I
    Harmonizes the expiration dates and phase out schedules for the following:
    • 30 percent Investment Tax Credit solar energy, fiber optic solar energy, qualified fuel cell and qualified small wind energy property for property the construction which begins before 2020 and is then phased out for property the construction that begins before 2022.
    • 10 percent ITC for qualified micro turbine, combined heat and power system and thermal energy property is available for property the construction that begins before 2022.

California Wildfire Tax Relief
The following tax provisions that provide relief for taxpayers affected by the California wildfires that occurred on or after October 8, 2017 for 2017 federal tax returns.
Deduction for Personal Casualty Losses
Uncompensated losses in the applicable California wildfire disaster area:

  • Must exceed $500 in order to take a deduction
  • Removes the requirement that the loss exceed 10% of AGI
  • May be taken as an itemized deduction or as an increase in a taxpayer’s standard deduction.

Special Rule for Determining 2017 Earned Income for the Earned Income Tax Credit and Child Tax Credit
Qualified individuals may use their earned income from 2016 to determine their earned income tax credit and their child tax credit for their 2017 federal income tax return if their 2017 earned income is less than their 2016 earned income.

Qualified individuals are those whose principal place of abode was located in the California wildfire disaster zone or they lived in the California wildfire disaster area or they lived in applicable California wildfire disaster are and they were displaced from their home because of the wildfire.

Penalty-Free Access to Retirement Funds

  • For qualified California wildfire distributions, an individual can withdrawal funds (up to $100,000) from a retirement account free of the 10 percent early withdrawal penalty and can spread the taxable portion on that distribution over a three year period.
  • Allows that any qualified California wildfire relief withdrawal will not be taxable if it is recontributed within three years of the date of distribution.
  • Increases the maximum loan amount for qualified California wildfire relief to $100,000.
  • Allows for re-contribution of retirement plan withdrawals for cancelled home purchases or construction of a principal residence due to the California wildfire.

Charitable Contributions for Hurricane Relief
Suspends the limitation on charitable contributions associated with California wildfire relief that are made between October 8, 2017 and December 31, 2018.