Bipartisan Budget Act of 2018 Signed Into Law with Tax Provisions, Including Extenders

The Bipartisan Budget Act of 2018, H.R. 1892, signed into law by President Trump on February 9, 2018, is best known for ending the very short government shutdown that took place for a few hours on February 9, 2018.  But that bill also contained many tax related provisions in its 652 pages.

One key item to note is that the bill gave a one-year reprieve to 34 provisions that expired at the end of 2016.  They still have expired (past tense), but the expiration date is now at the end of 2017.  That means these benefits can be claimed on 2017 income tax returns. 

As well, the law contains some special provisions related to both the California wildfires and Hurricanes Harvey, Irma, and Maria.  The bill also restores some provisions pulled from the Tax Cuts and Jobs Act in the conference committee due to concerns they would have violated the Byrd rule.

But the bill did not include any technical corrections to the Tax Cuts and Jobs Act, including the provision on cooperatives the Tax Foundation has labeled the “grain glitch” where farmers would qualify for a large deduction for selling to cooperatives rather than other buyers.

The disaster relief accorded to those affected by California wildfires, found at Act Sections 20101 through 20104, provide similar relief for California wildfires as was granted to victims of Hurricanes Harvey, Irma and Maria in the Disaster Tax Relief and Airport and Airway Extension Act of 2017.  That includes:

  • Qualified retirement plan relief allowing for exemption from the early distribution excise tax under IRC §72(t) for qualified wildfire related distributions, the right to roll such funds back into a plan for three years from the date of the qualified distribution, the ability to return funds to a retirement plan that were withdrawn for a home purchase abandoned due to the wildfire and special rules related to the provision of loans from qualified plans.
  • A similar employee retention credit as was provided to employers in the hurricane areas, granting a credit for continuing to pay employees when the place of business in the wildfire area was closed due to wildfire related issues.
  • Suspending the 50% (or, for 2018, 60%) limit on charitable contribution if made for wildfire relief through the end of 2018
  • Removing the 10% of adjusted gross income limit on personal casualty losses arising from the wildfire
  • The ability for taxpayers in the affected areas to use either 2016 or 2017 amounts of earned income to compute the earned income tax credit. [Act Sections 20101-20104]

The extenders passed include a number that are very industry specific, but also ones that have broader appeal.  The extenders are found beginning at Act Section 40001.

Those that are likely to impact a larger number of taxpayers (few of us are involved with thoroughbreds or are building tracks for NASCAR racing) include:

  • Extension through the end of 2017 of the exclusion from gross income for discharge of qualified principal residence indebtedness under IRC §108(a)(1)(E) and the special rule on agreements related on such discharged that are entered into through the end of December 31, 2017 [Act Section 40201]
  • Extends the deduction for qualified mortgage insurance premiums under IRC §163(h)(3)(E)(iv) through the end of 2017 [Act Section 40202]
  • Extends the above-the-line deduction for tuition and related expenses through the end of 2017 [Act Section 40203]
  • Extends the nonbusiness energy property credit and residential energy credit through the end of 2017 [Act Sections 40401-40402]

The bill also includes quite a few miscellaneous (that is the actual title given to them) provisions beginning at Act Section 41101.  A number of these had been in the Tax Cuts and Jobs Act at some point but were pulled from that bill due to concerns they may have violated the Byrd rule in the Senate.

Many of them are not of general interest (at least if you aren’t producing alcoholic beverages), but there are some of more general interest.

  • ·The waiver of the limitations with respect to claims arising from the exclusion from gross income amounts received by wrongfully incarcerated individuals under IRC §139F is extended to three years from the date of enactment of the Protecting Americans from Tax Cuts Act (it had previously been one year).  That will move the date to mid-December of 2018 [Act Section 41103]
  • ·Individuals who have funds improperly levied from a retirement plan by the IRS may return the funds and interest by the date the tax return is due for the year the funds are returned [Act Section 41104, IRC §6343(f)]
  • Freezing of the amount the IRS may charge as a user fee for installment agreements [Act Section 41105, IRC §6159(f)]

Additionally, the bill requires the IRS to create a new Form 1040SR for seniors, a form to be “as similar as practicable to Form 1040EZ” except that:

  • The form shall be available only to individuals who have attained age 65 as of the close of the taxable year,
  • The form may be used even if income for the taxable year includes —
    • Social security benefits (as defined in section 86(d) of the Internal Revenue Code of 1986),
    • Distributions from qualified retirement plans (as defined in section 4974(c) of such Code), annuities or other such deferred payment arrangements,
    • Interest and dividends, or
    • Capital gains and losses taken into account in determining adjusted net capital gain (as defined in section 1(h)(3) of such Code), and
  • The form shall be available without regard to the amount of any item of taxable income or the total amount of taxable income for the taxable year. [Act Section 41106]

The form is required to be made available for tax years beginning after the date of enactment of this law (that is, February 9, 2018).  Since that would appear to include fiscal year individual returns that would begin in 2018, the form presumably will be available for 2018 calendar year taxpayers (though the IRS could hold off and release the form only for fiscal year taxpayers and still comply with the letter of the law).