Income Tax Provisions of The Consolidated Appropriations Act, 2021

On December 21, Congress passed The Consolidated Appropriations Act, 2021 (CAA 2021), which was signed by the President on December 27. The following are highlights of the key changes affecting income taxes in the current version of the Act:

  • Under the CARES Act passed last March, individuals who normally do not itemize deductions may take up to a $300 (including joint filers) above-the-line deduction for cash contributions to qualified charitable organizations, for the year 2020. CAA 2021 extends this deduction through 2021 and doubles the limit for joint filers to $600. In addition, the 60% of adjusted gross income limit for itemizers that was suspended for qualified contributions in 2020 under the CARES Act continues to be suspended through 2021.
  • The 30-year ADS recovery period for residential rental real property that applies to property placed in service after 2017 now applies to property placed in service before 2018 if it is held by an electing real property trade or business and, before Jan. 1, 2018, wasn’t subject to the ADS.
  • The 50% limit on deductibility for business meals won’t apply to expenses for food or beverages provided by a restaurant that is paid or incurred after Dec. 31, 2020, and before Jan. 1, 2023.
  • The bill clarifies that taxpayers whose PPP loans are forgiven are allowed deductions for otherwise deductible expenses paid with the proceeds of the loan and that the tax basis and other attributes of the borrower’s assets will not be reduced as a result of the loan forgiveness. 
  • Many taxpayer-friendly provisions that were expiring on December 31, 2020, have been extended or made permanent,  including:
    • Various energy-related credits and deductions
    • The 7.5% of adjusted gross income floor for medical expenses
    • The Work Opportunity Credit
    • The exclusion from income for discharge of indebtedness of qualified principal residence debt
  • Various provisions for qualified disaster area relief were added.

If you would like additional information please contact your Gettry Marcus Advisor.