Congress is slated to adjourn for the year on Dec. 14, but some legislators are still hoping to tweak the tax code before calling it quits for the holidays.
On Nov. 26, the House Ways and Means Committee introduced a bill dubbed the Retirement, Savings, and Other Tax Relief Act of 2018. The bill, if passed, would renew some important tax credits and deductions that expired last year, provide relief for victims of certain natural disasters, revise retirement savings rules and make some administrative improvements to the Tax Cuts and Jobs Act of 2017, or TCJA.
However, with the 2018 session ending in just over a week, and Democrats about to take control of the House of Representatives in January, it’s questionable whether Congress will be able to pass the bill by the end of the year.
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This fall, the House introduced three bills, together known as Tax Reform 2.0, that would make permanent certain provisions of the TCJA, change some rules for retirement savings and 529 college savings plans, and increase deductions for new businesses. Those bills are now under review by the Senate’s Committee on Finance.
But Tax Reform 2.0 didn’t address the renewal of tax credits and deductions that expired in 2017. Some tax breaks, like the tuition expense deduction, expired in 2017 and Congress must pass legislation to renew them in order for taxpayers to take those credits and deductions.
The Retirement, Savings, and Other Tax Relief Act of 2018 addresses some expiring tax breaks and would make other changes to the tax code.
Tax policy watchers say it’s unlikely the bill will pass this year.
Congress is scheduled to adjourn on Dec. 14, 2018. When legislators return in 2019, Democrats will be in control of the House, while Republicans will remain in control of the Senate and White House.
The TCJA passed without a single Democrat in the House or Senate voting for it, and some have voiced their opposition to additional tax legislation. In fact, the ranking Democrat on the Senate Finance Committee told Politico Republicans didn’t talk to Democrats about the latest tax package before introducing it to the House.
What’s more, a Congressional Budget Office report predicts the latest bill would add nearly $55 billion to the deficit over the next decade.
With all that, it seems unlikely that Democrats in either the House or Senate will be inclined to support the last-minute tax package.
The most important provision of the bill might be the portion that would extend tax breaks set to expire, including:
- The deduction for mortgage insurance premiums
- A deduction for qualified college tuition and related expenses
- A credit for some or all the cost of certain qualified energy-efficient home improvements
- Credits for certain types of fuel-efficient vehicles and electric car charging stations
- A provision that allows homeowners to exclude from their gross income discharged home debt (typically discharged in bankruptcy)
If Congress doesn’t pass legislation extending these tax breaks, taxpayers may not be able to claim them on their 2018 federal income tax returns, which are due on April 15, 2019.
Even if Congress fails to pass legislation this year that extends expired tax breaks, they can still take up the issue in January, when the 2019 legislative session begins.
In fact, the Bipartisan Budget Act of 2018, which extended popular tax breaks like the mortgage insurance premium and qualified tuition deductions, and made them retroactive for 2017, became law on Feb. 9, 2018.
With Democrats taking control of the House in January — and taking over leadership of the House Ways and Means Committee — it’s possible they could introduce their own legislation that extends expiring tax breaks while omitting some of the provisions they object to in Tax Reform 2.0 and the Retirement, Savings, and Other Tax Relief Act.