For most Americans, filing their tax returns for the 2018 tax year is just a distant and unpleasant memory. Yet even though the vast majority of taxpayers got their returns filed by the mid-April deadline nearly six months ago, a few had hoped that Congress might get around to extending some much-loved tax breaks that have been popular over the years.
Now, those hopes are close to getting dashed. Time and time again, lawmakers have failed to get any forward momentum going on tax extenders, and many now think that key tax breaks might never come back.
What are tax extenders?
Tax extenders are provisions that give tax incentives to taxpayers on certain items, but only for a limited period of time. Temporary tax breaks come about because the federal government has to account for the long-term budgetary impact of any changes to tax laws. It's more expensive to pass a tax break that will extend permanently into the future than it is to have it be in effect for only a single year. Therefore, some tax breaks get passed on a temporary basis, and it's up to Congress to decide year in and year out whether to renew them.
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Typically, the timeline for considering extending these tax breaks is in late December, trying to get things in under the wire before year-end. Even getting things done this late puts pressure on the Internal Revenue Service to work those fixes into their tax forms and instructions to taxpayers. Sometimes, negotiations slip into early January, but as long as they're done relatively quickly, taxpayers can still take the newly renewed provisions into account by the time they file their returns.
Which tax breaks could disappear?
Many popular tax breaks expired for the 2018 tax year, but a few stand out as being especially important for individual taxpayers. They include:
- The tuition and fees deduction, which offered a deduction of up to $4,000 for qualifying educational expenses like tuition and required fees and materials. Although many people who pay this type of educational expense can use alternative tax breaks like the Lifetime Learning Credit, the deduction had less restrictive thresholds for income. That made it the only choice for certain taxpayers.
- Taxpayers were allowed to deduct the amounts they paid for private mortgage insurance in the same way that they could mortgage interest on a primary residence. You had to itemize your deductions in order to take PMI expenses as a tax break, so higher standard deductions under tax reform for 2018 made it less important for some. But for many of those who weren't able to make sizable down payments of 20% or more on their homes and therefore avoid needing to get private mortgage insurance at all, losing deductibility for PMI would have a significant financial impact on their home ownership decision -- especially if a coming recession hits the housing market again.
- Those who had mortgage debt forgiven by a lender didn't have to treat the forgiven amount as income under a temporary tax provision that expired for 2018. Without the extender, those who face financial challenges and successfully work with their lender could have to deal with yet another obstacle in the form of the IRS.
Is there any hope?
There've been measures introduced in both the House and Senate over the course of this year, but few have seen a lot of attention. One bill, the Taxpayer Certainty and Disaster Tax Relief Act of 2019, remains under consideration by the House with no clearly set time frame for further deliberation. A Senate bill with the similar name of the Tax Extender and Disaster Relief Act of 2019 hasn't even gotten an initial hearing, although some task forces have made recommendations after conducting closer looks at key areas.
At this point, it seems unlikely that lawmakers will be able to come to agreement on getting any changes made retroactively to apply to the 2018 tax year. That leaves Congress in the difficult position of trying to decide whether to bring back tax breaks that many have already written off as dead already. The more time goes by, the harder it'll be to win back the popular tax provisions that millions used to their advantage for many years.
