On December 27, 2020, Congress passed a second Covid-19 relief bill called the Consolidated Appropriations Act, 2021 (the Act). Included in the Act is the Taxpayer Certainty and Disaster Tax Relief Act of 2020, which includes several extensions relevant to individual taxpayers that were previously set to expire. An overview of the main provisions is set forth below.

Reduction in Medical Expense Deduction Floor

As of January 1, 2021, taxpayers are able to deduct their total qualified unreimbursed medical expenses that exceed only 7.5% of their adjusted gross income (AGI). The Affordable Care Act raised the threshold to 10% of AGI for individuals under age 65 while the threshold remained at 7.5% of AGI for individuals age 65 and older. The threshold was scheduled to increase to 10% for all taxpayers, but Congress temporarily restored the 7.5% threshold for everyone before making the change permanent in the Taxpayer Certainty and Disaster Relief Act of 2020.

Charitable Contribution Deduction

Charitable contribution deductions were extended as follows:

• Extended through 2021, the Act authorizes a $300 ($600 for joint return filers) above-the-line charitable contribution deduction for qualified contributions made by non-itemizers.
• The temporary charitable contribution limit provided in the CARES Act is extended for deductible cash contributions to a public charity from 60% to 100% for 2020 and 2021.

Mortgage Insurance Premium Deduction

The Act extends through December 31, 2021 the treatment of mortgage insurance premiums as deductible qualified residence interest, so premiums paid or accrued through December 31, 2021 can be deducted on tax returns by those who itemized deductions and otherwise qualify for the mortgage insurance premium deduction.

Exclusion for Canceled Mortgage Debt

The Mortgage Forgiveness Debt Relief Act of 2007 typically permitted taxpayers to exclude canceled or forgiven mortgage debt from their taxable income, but this was set to expire December 31, 2020. The Taxpayer Certainty and Disaster Relief Act of 2020 extended the Mortgage Forgiveness Debt Relief Act of 2007 through December 31, 2025. It lowers the maximum amount of forgiven debt excludible from income to $750,000 ($375,000 for a married person filing a separate return).

Energy Credits

The following credits have been extended through December 31, 2021:

• The nonbusiness energy property credit
• The two-wheeled plug-in electric vehicle credit
• The energy-efficient homes credit

Additionally, the Act extends the residential energy-efficient property credit through December 31, 2023 as follows:

• Continuing the rate applicable to 2020, eligible property that is put into service in 2022 will qualify for a credit worth up to 26% of the property cost
• Eligible property that is put into service in 2023 will qualify for a credit worth up to 22% of the property cost.

Qualifying energy-efficient upgrades to homes include solar electricity, solar water heaters, geothermal heat pumps, and small wind turbines.