Information on Important New Tax Legislation

On Friday of last week, the President signed into law the “Protecting Americans from Tax Hikes (PATH) Act of 2015.”

Tax provisions in the PATH Act include: the retroactive extension of the 50 or so taxpayer-favorable tax “extender”-temporary tax provisions that are routinely extended by Congress on a one- or two-year basis that had been expired since the end of 2014, making permanent more than a dozen individual and business extenders, as well as other miscellaneous tax rules.

The following list of extenders is not all-inclusive, but are those that might be of interest to you.

Individual Extenders:

  • The enhanced Child Tax Credit, permanently extended the $1,000 credit, subject to phase out amounts.
  • The enhanced American Opportunity Tax Credit, permanently extended the $2,500 credit for four years of post-secondary education, subject to phase out amounts.
  • The enhanced Earned Income Tax Credit, permanently extended the EITC amount of 45% for those with three or more children.
  • The deduction for certain expenses of elementary and secondary schoolteachers, permanently extended beginning in 2016 the $250 deduction per year of expenses, indexed for inflation.
  • The deduction of state and local general sales taxes, permanently extended.
  • The liberalized rule for contributions of appreciated real property made for conservation purposes.
  • Tax-free distributions from individual retirement plans for charitable purposes. Effective for distributions made in tax years beginning after Dec. 31, 2014, the Act retroactively revives and permanently extends the ability of individuals at least 70½ years of age to exclude from gross income qualified charitable distributions from IRAs of up to $100,000 per year.\The charitable deduction for contributions of food inventory.
  • Modification of the exclusion of mortgage debt discharge, extended for debts discharged before January 1, 2017.
  • Mortgage insurance premiums treated as qualified residence interest, retroactively extended through 2016.
  • The above-the-line deduction for qualified tuition and related expenses, retroactively extended through 2016 for $4,000 of qualified tuition and related expenses for higher education.

Business Extenders:

  • The Research & Development credit with certain small business enhancements, permanently extended.
  • The exclusion of 100% of gain on certain small business stock, permanently extended.
  • Reduction in S corporation recognition period for built-in gains tax, permanently extended to 5-year period.
  • The Work Opportunity Tax Credit, modified and enhanced for employers who hire long-term, unemployed individuals (unemployed for 27 weeks or more) to 40 percent of the first $6,000 of wages.
  • 15-year straight-line cost recovery for qualified leasehold improvements, qualified restaurant buildings and improvements, and qualified retail improvements, permanently extended for property placed in service after December 31, 2014.
  • Bonus depreciation, at 50% for 2015-2017 and phased down to 40% in 2018 and 30% in 2019. The Act also provides that:
    • After 2015, additional first-year depreciation is allowed for qualified improvement property without regard to whether the improvements are property subject to a lease, and there is no requirement that the improvement must be placed in service more than three years after the date the building was first placed into service.
  • Increased expensing limitations and treatment of certain real property as Section 179 property; changes to Section 179 are as follows:
    • The $500,000 expensing limitation and $2 million phase-out amounts are retroactively extended and made permanent.
    • For any tax year beginning after 2015, both the $500,000 and $2 million limits are indexed for inflation.
    • The rule that allows expensing for computer software is retroactively extended and made permanent.
    • For tax years beginning after Dec. 31, 2014, an expensing election or specification of property to be expensed may be revoked without the IRS’s consent. The ability to revoke a Code Sec. 179 election without IRS consent is made permanent.
    • Real property up to $250,000 is eligible to be expensed for tax years beginning before 2016.
    • For tax years beginning after Dec. 31, 2015, expensing of qualified real property is made permanent and the $250,000 expensing limitation with respect to qualifying real property is eliminated.
    • For tax years beginning after Dec. 31, 2015, air conditioning and heating units are eligible for expensing.

This legislation will likely have an impact on your upcoming tax planning. Please contact Melton & Melton, LLP at 281-759-1120, if you would like address any questions on the above extenders or to discuss your options for tax planning before year end.