December 23, 2015
December 17 bipartisan deal on tax extenders
On December 16, Finance Committee Chairman Orrin Hatch, House Ways and Means Committee Chairman Kevin Brady, and Senate Finance Committee Ranking Member Ron Wyden announced that an agreement had been reached on extenders and other tax provisions in the “Protecting Americans from Tax Hikes (PATH) Act of 2015.” The bipartisan, bicameral deal makes permanent many of the extenders-i.e., the 50 or so temporary tax provisions that are routinely extended by Congress on a one- or two-year basis and that have been expired since the end of 2014. A number of other extender provisions are extended through 2019, while others are extended for two years through 2016. In addition to the extenders, the PATH Act includes numerous provisions on Real Estate Investment Trusts (REITs), IRS administration, the Tax Court, and miscellaneous other tax rules.
Unlike past legislation that often leaves these extensions up for renewal at year end, this reinstatement is permanent for many of the provisions. However, not all of the tax extenders were permanent, some of them were only renewed for a few years. Additionally, a few expansions were made to some tax laws.
- An enhanced child tax credit
- An enhanced American opportunity tax credit
- An enhanced earned income tax credit
- 529 qualified expenses to include computer and related expenses
- Elimination of 529 aggregation rule
- Elimination of 529 ABLE account in-state residency requirement
Extenders made permanent:
- Tax-free distributions from individual retirement plans for charitable purposes
- The deduction of State and local general sales taxes
- Increased expensing limitations and treatment of certain real property as Section 179 property
- the special rule for contributions of capital gain real property made for conservation purposes
- Charitable deduction for contributions of food inventory
- Tax treatment of certain payments to controlling exempt organizations
- Basis adjustment to stock of S corporations making charitable contributions of property
- Research credit
- Employer wage credit for employees who are active duty members of the uniformed services
- 15-year straight-line cost recovery for qualified leasehold improvements, qualified restaurant buildings and improvements, and qualified retail improvements
- The treatment of certain dividends of regulated investment companies
- Exclusion of 100% of gain on certain small business stock
- Reduction in S corporation recognition period for built-in gains tax
- Parity for exclusion from income for employer-provided mass transit and parking benefits
- Subpart F exception for active financing income
- 9% minimum low-income housing tax credit rates for non-Federally subsidized buildings
- Military housing allowance exclusion for determining whether a tenant in certain counties is low-income
- Regulated investment company (RIC) qualified investment entity treatment under the Foreign Investment in Real Property Tax Act (FIRPTA)
- The “Protecting Americans from Tax Hikes (PATH) Act of 2015.”
Extended through 2016:
- Exclusion of discharged mortgage debt on short sale
- Deductibility of mortgage insurance premiums
- Above the line education deduction for qualified tuition and fees
Of special note to clients with children are the enhanced American Opportunity Tax Credit, the enhanced Child Tax Credit made permanent, and improvements to 529 account rules. Prior to 2009, college students were eligible for an $1,800 Hope Scholarship Credit for tuition and related expenses the first two years of college and the Lifetime Learning Credit the second two years. Following that, the American Recovery and Reinvestment Act changed the Hope Scholarship act to the American Opportunity Tax Credit and expanded the credit to $2,500 a year for up to four years and raised the AGO phase-out to $160,000 for couples and $80,000 for individuals. The Child Tax Credit allows for a $1,000 tax credit for each qualifying child in the household and phases out at AGI greater than $110,000 for married couples and $75,000 for individuals. 529 accounts can now be used for computer equipment and related expenses (software and internet access) and still receive tax-free treatment. In regard to non-qualifying distributions from 529 accounts the government has eliminated the account aggregation rule which stipulated that contributions and gains had to be aggregated together across all 529 accounts held; non-qualifying distributions are now calculated per-account. In practice this means that if a 529 account needs to be liquidated for expenses unrelated to education it is best to use the account with the least amount of gain (most likely the account held for the youngest child).
Of special note to business owners is the change to section 179 provisioning and the 50% bonus depreciation. The section 179 expensing limits, including the $500,000 maximum deduction amount and the $2,000,000 threshold for phasing out the deduction, are retroactively reinstated for 2015 after having lapsed at the end of 2014 have been made permanent. Additionally, the rules governing bonus depreciation have been extended through 2017. They reduce to 40% in 2018 and 30% in 2019. Bonus depreciation ends in 2019.
This legislation is ultimately good news for tax payers as it makes permanent many key tax laws and enhances several others. If you have additional questions please reach out to us via or email or a phone call. Please remember, the comments here are not recommendations or advice; Gainplan and its associates are not tax advisors and any questions about your personal tax situation should directed to a tax professional.
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