Last month, we covered some of the most sweeping changes to tax regulations for 2020. Following is a list of 8 more 2020 tax changes that may be meaningful for certain segments of the population. As always, consult your tax advisor before making any big moves with your money.
1. Revived Tax Breaks
Several tax breaks that were set to expire or had already expired were revived through 2020. These include deductions for mortgage insurance premiums, college tuition, and forgiveness of debt on a foreclosure or short sale.
2. Child Adoption
The adoption credit is a non-refundable credit available for eligible filers for up to $14,300 of qualified expenses, a $300 increase from last year. The full credit is available for special-needs adoption.
3. Estate Taxes
The lifetime estate and gift tax exemption for 2020 increased from $11.4 million to $11.58 million for individuals and $23.16 million for couples.
4. Kiddie Tax Repealed
The 2017 reforms made to the “kiddie tax” have been repealed. Prior to 2018, children were taxed on unearned income in excess of a certain amount at their tax rate or their parents’ rate. But the tax reform taxed unearned income at the ordinary income rates and capital gains rates, which frequently led to higher taxes for many filers. That tax change was repealed by Congress, and pre-2018 rules now apply.
5. Education Tax Breaks
More people are now able to take advantage of the 2020 lifetime learning credit as it now phases out at higher modified AGI amounts. The phase-out range for couples is $118,000 to $138,000 and for singles is $59,000 to $69,000.
The income caps are also higher in 2020 for tax-free EE bonds used for education. Those expenses must include tuition and fees for college, graduate school, or vocational school for the taxpayer, spouse, or dependent.
529 college savings plans can now be used to pay for fees, books, supplies, and equipment for certain apprenticeship programs. In addition, you can withdraw up to $10,000 from a 529 plan to pay off student loans.
6. Energy Credits
Tax breaks encouraging filers to go green are getting smaller. The residential solar credit fell to 26% (from 30%) for 2020 and will drop again next year to 22%. The credit ends after 2021. This is also the case with tax breaks for geothermal heat pumps, residential wind turbines, and fuel cell property.
7. Mileage Rates
The 2020 mileage rate has dropped from $0.58 to $0.575 for business miles. The allowance for medical travel and military moves declines from $0.20 to $0.17 per mile.
The annual cap on deductible contributions to health savings accounts will go up in 2020 from $3,500 to $3,550 for self-only coverage, and from $7,000 to $7,100 for family coverage. The IRS also announced that anyone with a high-deductible health plan that covers medical expenses related to COVID-19 before plan deductibles have been met can still contribute to an HSA.
Looking for a trusted strategic financial advisor to help you navigate the 2020 tax changes? Contact us to schedule a consultation.