Several tax changes were included in the temporary budget passed by Congress and signed into law on February 9, 2018.
Four tax changes impact homeowners and are retroactive to 2017. That’s right. These four tax breaks had already expired at the end of 2016.
Mortgage insurance premiums: homeowners can deduct premiums paid for mortgage insurance. This is reported as an itemized deduction. Congress renewed this deduction for the year 2017 only.
Credit for nonbusiness energy property: worth 10% of the cost of insulation, windows, doors, water heaters, furnaces and central air conditioners. To qualify for the tax credit, these sorts of energy-efficient improvements must be made to a person’s main home. Congress renewed this tax credit for the year 2017 only.
Credit for residential energy property: worth 30% of the cost of solar panels, solar-powered water heaters, geothermal heat pumps, and small wind energy systems. Congress extended this tax credit through the year 2021.
Canceled mortgage debt on primary residence: Cancellation of debt happens when a homeowner works out a deal with their lenders to modify the home loan to reduce the amount of loan principal. Homeowners with cancellation of debt income related to their main home won’t have to include the reduction as taxable income on their 2017 taxes.
What to do if you already filed your tax return?
Sit tight for now.
Individuals will likely want to amend their tax returns if claiming any of these new retroactive deductions or credits will reduce their tax liability. We expect the IRS to develop a streamlined procedure for taxpayers who need to revise their previously filed tax returns.
What to do if you have not yet filed and you want to claim any of these deductions or credits?
Get started with your tax return, but wait to file until the IRS revises the tax forms and instructions.
On the current version of the tax forms, the line items for the expired deductions and credits are marked as “Reserved for future use.” Thus, it should be easy for the IRS to quickly revise the tax forms to add these breaks back in.
What happens next?
The IRS said they are reviewing the legislation and plans to provide additional information in the near future. The last time we had new tax laws make retroactive changes to the previous year, the IRS responded quickly to provide revisions and special instructions. We expect the IRS to develop similar processes for this tax season.
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