I live and breath personal finance news – yet it took some deep digging on the IRS website to discover that a number of significant tax breaks (officially referred to as “tax extenders”) were retroactively restored for 2018 and renewed for 2019 and 2020 as part of the Further Consolidated Appropriations Act 2020 (H.R. 1865) that was signed by Congress in December. Surprise!
This includes the popular residential property Energy Tax Credits for non-business energy-efficient home projects (e.g. energy efficient window, door, insulation, air conditioning, or other upgrades), the Tuition & Fees Deduction, more lenient terms on the itemized medical expense deduction, and more.
I’m surprised that this got virtually zero press, given that many of these are significant and popular tax benefits and in many cases, can be claimed while using the increased standard deductions from the Tax Cuts & Jobs Act (tax reform), without itemizing your taxes! There is even the potential to retroactively claim these for 2018, with an amended tax return. Instructions on how to amend your 2018 return are noted at the end of this article.
This is big news for those who are eligible. Here’s a rundown of the big changes:
Energy Tax Credits for Home Efficiency (aka the “Non-Business Energy Property Tax Credits”
The Non-Business Energy Property Tax Credits had expired at the end of 2017, but were retroactively restored for the 2018, as well as extended for the 2019 and 2020 tax years, as now reflected on the U.S. Government’s Energy Star website. As this is a credit, you do not need to itemize in order to claim it.
This energy tax credit equals 10% of the cost of product to $500, or a specified amount from $50–$300 for the following eligible items:
- Biomass Stoves: $300 credit for stoves with an efficiency of 75%+.
- HVAC Air Circulating Fan: $50 for fans that use less than 2% of a furnaces energy.
- Central Air Conditioning: $300 for Split Systems: with SEER ≥ 16 and EER ≥ 13, or package systems with SEER ≥ 14 and EER ≥ 12.
- Gas, propane, or oil hot water boiler: $150 with AFUE ≥ 95.
- Natural gas, propane, or oil furnace: $150 with AFUE ≥ 95.
- Insulation: 10% of the cost, up to $500 (not including installation costs). Includes air sealing caulk, spray foam, house wrap, and weather stripping.
- Roofs: 10% of the cost, up to $500 (not including installation costs) on metal roofs with appropriate pigmented coatings and asphalt roofs with appropriate cooling granules that also meet ENERGY STAR requirements.
- Gas, Oil, or Propane Hot Water Heater: $300, in the case of a storage water heater (20-55 gallons), an energy factor of at least 0.82 or a thermal efficiency of at least 90%. In the case of any other water heater, an energy factor of at least 0.90 or a thermal efficiency of at least 90%.
- Electric Heat Pump Water Heater: $300 with Energy Factor ≥ 2.2.
- Windows, Doors & Skylights: 10% of the cost, up to $500, but windows are capped at $200 (not including installation costs). Must be version 6.0 ENERGY STAR qualified.
Credit for New Qualified Fuel Cell Motor Vehicles
Guessing this won’t impact many of you, but if you purchased a new qualified fuel cell vehicle, you may receive a credit between $4,000 and $40,000, depending on the weight of your vehicle. This credit was retroactively restored for 2018, and is back for 2019 and 2020. You’ll need to submit IRS Form 8910 (instructions here) to claim the credit.
Plug-In Electric Motorcycle Credit
The 10% (up to $2,500 max) credit for plug-in electric motorcycles was also restored for 2018, and is back for 2019 and 2020. The motorcycle must be capable of speeds of 45 mph+ to be eligible. You’ll need to submit IRS Form 8936 (instructions here) to claim the credit.
Alternative Fuel Vehicle Refueling Equipment (e.g. Recharging Station) Credit
The credit for up to 30% of the cost of installing non-hydrogen alternative fuel vehicle refueling equipment was restored for 2018 and extended to 2019 and 2020 as well. This credit most commonly applies to electric recharging stations installed at home. You’ll need to submit IRS Form 8911 (instructions here) to claim the credit.
The Tuition and Fees Education Tax Deduction
The “Tuition and Fees” deduction had also expired at the end of 2017, but was also retroactively restored for the 2018 and 2019 tax years, as well as proactively extended into 2020, as confirmed by IRS publication 970 (see page 39). The Tuition and Fees Deduction is an above-the-line deduction, so you do not need to itemize in order to claim it on your tax return.
- Eligibility: The student must be enrolled at least half-time in a program leading to a degree, certificate, or other recognized educational credential for at least one academic period beginning during the tax year.
- Deduction Amount: Up to $4,000 of the cost of tuition, fees and course materials paid during the taxable year per tax return.
- How to Claim: Fill out your 1040 and add form 8917.
- Income Limits: a taxpayer whose modified adjusted gross income is $65,000 or less ($130,000 or less for joint filers) can claim the deduction for the qualified expenses of an eligible student or for work related expenses. The deduction is capped at $2,000 if a taxpayer’s modified adjusted gross income exceeds those amounts up to a modified adjusted gross income of $80,000 ($160,000 for joint filers), above which taxpayers cannot claim the credit.
- Ineligible Expenses: You cannot receive a credit for: room and board, insurance, transportation, expenses paid with tax-free assistance, medical expenses, expenses used for another deduction or credit, and student fees that are not required as condition of enrollment or attendance.
Medical Expense Deduction
The Tax Cuts and Jobs Act set the threshold for itemized medical expense deductions at 7.5% of adjusted gross income (AGI) for 2017 and 2018 and then raised it to 10% of AGI for 2019 and beyond. The recently passed legislation extends the more friendly 7.5% threshold through 2020. More details are in IRS publication 502.
Mortgage Debt Exclusion
Forgiveness of debt typically results in the cancelled amount being classified as income, for tax purposes. Under a temporary rule, up to $2 million of cancelled debt income from principal residence acquisition debt, cancelled between 2007 and 2017, was treated as tax-free. The Act retroactively resurrects this break to cover eligible debt cancellations that occurred in 2018 and extends it to cover eligible debt cancellations that occurred in 2019 and 2020. More details can be found in IRS publication 4681.
Mortgage Insurance Premium Deduction
You may again be able to deduct the amount you paid for mortgage insurance, which is considered mortgage interest for deduction purposes. Again, this deduction was restored for 2018 and extended to 2019 and 2020. Note that there are income requirements, as the deduction phases out for taxpayers with an AGI over $100K ($50K, if married filing separately). More details can be found in IRS publication 936.
How to Amend your 2018 Tax Return
If you believe you qualified for any of these credits or deductions for the 2018 tax year, you can easily file an amended tax return. I’ve previously covered how to file an amended tax return in detail. In summary, you’ll want to amend through the tax software that you used that year. And then you’ll need to mail in IRS Form 1040X.