On February 26, 2020, the IRS issued a news release stating that taxpayers must file an amended return to claim the majority of tax benefits retroactively renewed for 2018.
Currently, the IRS is working on updating the 2018 forms to allow amended claims. However, the agency has provided no timetable as to when these forms are going to be ready. Read on to learn more about filing amended returns for 2018 tax extenders.
Reinstated Extender Provisions for Businesses
Legislation passed in 2019 retroactively restored many tax-extender provisions that expired in 2017. The legislation has extended the majority of those provisions retroactively for both 2018 and 2019. The legislation has also retroactively extended them for 2020.
The provisions for businesses that the legislation has reinstated include:
- Tax credits for alternative and biodiesel fuels
- Maintenance credit for railroad tracks (the legislation has extended this through 2022)
- Section 45L credit regarding energy-efficient new homes
- Section 24C credit for improvements to energy-efficient homes
- Section 179D deductions for energy-efficient commercial building property
- Section 45A Indian employment tax credits
- Three-year depreciation for racehorses
- Seven-year cost recoveries for entertainment complexes for motorsports
- Special expensing for TV, live theatrical, and film productions
Reinstated Extender Provisions for Individuals
The legislation has reinstated many individual provisions, including:
- Above-the-line deductions for fees and qualified tuition
- Mortgage insurance premium deductions
- Exclusions for debt forgiveness income for principal residences
- Reductions in the medical expenses deduction floor
The IRS must offer an expedited procedure to claim many tax credits for fuel excise. Also, under certain circumstances, taxpayers can claim several 2018 retroactive depreciation deductions.
Filing an Amended Return
The IRS release has confirmed that taxpayers have to file an amended return to claim renewed benefits. It gave no timeframe as to when the updates to 2018’s forms will be ready. However, 2019’s forms are now mostly updated. The news release also provided information about electing the “Kiddie Tax” alternative application for 2019 and included details about relief for taxpayers who found themselves affected by a federally declared disaster.
Changes to “Kiddie Tax”
The legislation has reversed the change made to the “Kiddie Tax” by the Tax Cuts & Jobs Act. This change required the levy of tax on children’s unearned income at trust rates, not parents’ rates. The change generally takes effect in 2020. However, taxpayers can choose to have it applied to 2018 and 2019. While this provision helped high-income taxpayers, it was unfavorable in the case of low-income taxpayers. It was especially unfavorable for those who received scholarships or survival benefits.
For 2019’s tax year, taxpayers can make this election by returning completed Form 8615. They must include a statement that specifies “election to modify tax of unearned income” along with the return. For 2018’s tax year, taxpayers have to wait until the IRS releases the updated forms, allowing amendments of returns.
What Happens Next?
Taxpayers can claim most incentives for 2019 as usual on 2019 tax returns. Those with claims for fuel tax credits for 2018 and 2019 must assess whether they qualify for an expedited procedure. Taxpayers making 2018 retroactive depreciation changes must evaluate if they can claim on their 2019 returns with accounting method changes. Any taxpayer who qualifies for other 2018 tax extenders must monitor further IRS releases. The taxpayer will then be allowed to file their amended return once the IRS updates 2018’s forms.
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