The Bipartisan Budget Act of 2018 (BBA), signed into law on February 9, extends for one year a set of tax provisions, known as “extenders,” that expired December 31, 2016. Key provisions that have been extended include:

Exclusion Of Discharge Of Mortgage Debt

The BBA extends homeowners’ ability to exclude from gross income mortgage debt on a principal residence that was forgiven in 2017 (for example, as a result of a foreclosure, short sale or loan modification). It also modifies the exclusion to make it apply to debt discharged later than 2017 but according to a written agreement that was entered into in 2017. Without the extended provision, taxpayers would have to pay income taxes on the amount of mortgage debt forgiven.

Deductibility Of Mortgage Insurance Premiums

For 2017, taxpayers can continue to treat mortgage insurance premiums as deductible interest. However, the deduction phases out for taxpayers with adjusted gross income (AGI) of $100,000 to $110,000 ($50,000 and $55,000 for married couples filing separately) and is eliminated when AGI exceeds the top of the range.

Deductibility Of Qualified Tuition And Related Expenses

“Above-the-line” deductions are subtracted from a taxpayer’s gross income to calculate AGI. The BBA extends the above-the-line deduction for certain 2017 higher education expenses. Taxpayers needn’t itemize to take advantage of the deduction, but it’s capped at $4,000 for individuals with AGI that doesn’t exceed $65,000 ($130,000 for joint filers) and $2,000 for individuals with AGI that doesn’t exceed $80,000 ($160,000 for joint filers).

Keep in mind that the American Opportunity credit or the Lifetime Learning credit might provide more tax savings if you qualify. Also, you generally can’t claim deductions or credits for expenses that were paid for with distributions from tax-advantaged accounts, such as 529 plans or Coverdell Education Savings Accounts.

Incentives For Empowerment Zones

Empowerment zones are located in economically distressed areas. The BBA extends through 2017 the tax incentives — including tax-exempt bonds, employment credits, increased expensing and certain gain exclusion — for certain businesses and employers to operate in empowerment zones.

As noted, these are only one-year extensions, and they’re retroactive to January 1, 2017. This means that the extended breaks won’t be available for 2018 unless Congress passes further extender legislation (or legislation to make some or all of these breaks permanent).

Also be aware that the BBA contains several other provisions that could affect federal taxes, but they generally have narrow applicability. Please contact your tax advisor with any questions about which extenders might apply to you and whether you could be affected by any of the other tax law changes in the BBA. If you already filed your 2017 return, you may need to file an amended return to claim extended breaks. © 2018

Have a tax question? Contact Tax Advisor William Rogers.