The House and Senate passed the Protecting Americans from Tax Hikes Act of 2015 (PATH Act). President Obama is expected to sign the bill as soon as it reaches the White House. The Act does considerably more than the typical tax extenders legislation seen in prior years. The following are some, but not all, of the tax extenders included in the PATH Act:
In an omnibus fiscal year (FY) 2016 budget bill, lawmakers approved delaying for two years the ACA excise tax on so-called “Cadillac” health insurance plans and imposing a one-year moratorium on the ACA health insurance provider fee.
State and Local Sales Tax Deduction
The election to claim an itemized deduction for state and local general sales taxes, in lieu of deducting state and local income taxes, expired after December 31, 2014. The Act makes the election a permanent option.
American Opportunity Tax Credit
The Act makes permanent the American Opportunity Tax Credit (AOTC), an enhanced version of the Hope education credit. The AOTC has been available at an increased level of $2,500, with adjusted gross income (AGI) phase-out amounts of $80,000 (single) and $160,000 (married filing jointly). The AOTC had been scheduled to expire after 2017.
Child Tax Credit
The Act makes permanent the reduced earned income threshold amount of an unindexed $3,000. This provision had been scheduled to expire after 2017.
Earned Income Credit
The Act makes permanent the increase ($5,000) in phaseout amount for joint filers, scheduled to expire after 2017. The Act also makes permanent the increased 45 percent credit percentage for taxpayers with three or more qualifying children.
Teachers’ Classroom Expense Deduction
The Act permanently extends the above-the-line deduction for elementary and secondary–school teachers’ classroom expenses.
Transit Benefits Parity
The Act permanently extends parity among transit benefits. These include van pool benefits, transit passes and qualified parking.
Charitable Distributions from IRAs
The Act permanently extends the provision for individuals age 70 1/2 and older to be allowed to make tax-free distributions from individual retirement accounts (IRAs) to a qualified charitable organization. The treatment continues to be capped at a maximum of $100,000 per taxpayer each year.
Qualified Conservation Contributions
A special rule allows contributions of capital gain real property for conservation purposes, with the contribution to be taken against 50 percent of the contribution base.
Two-Year Extensions for Individuals
The Act renews several extenders related to individuals, for two years through 2016.
Qualified Tuition/Related-Expenses Deduction
The Act extends through 2016 the above-the-line deduction for qualified tuition and fees for post-secondary education.
Mortgage Debt Exclusion
The Act excludes from income cancellation of mortgage debt on a principal residence of up to $2 million ($1 million for a married taxpayer filing a separate return) through 2016. The Act also modifies the exclusion to apply to qualified principal residence indebtedness discharged in 2017 if discharge is made under a binding written agreement entered into in 2016.
Mortgage Insurance Premium Deduction
This measure treats mortgage insurance premiums as deductible interest that is qualified residence interest subject to AGI phaseout. The Act extends this special treatment through 2016.
Code Sec. 179 Expensing
The Act permanently sets the Code Sec. 179 expensing limit at $500,000 with a $2 million overall investment limit before phase out (both amounts indexed for inflation beginning in 2016).
Research Tax Credit
The research and development (R&D) tax credit is available to taxpayers with specified increases in business-related qualified research expenditures and for increases in payments to universities and other qualified organizations for basic research. The Act permanently extends the credit and increases the alternative simplified credit from 14 percent to 20 percent.
100-Percent Gain Exclusion on Qualified Small Business Stock
The 100-percent exclusion allowed for gain on the sale or exchange of qualified small business stock held for more than five years by non-corporate taxpayers is made permanent.
The Act also extends permanently and in some cases modifies:
- 15-year straight-line cost recovery for qualified leasehold improvements, restaurant property and retail improvements
- Employer wage credit for employees who are active duty members of the uniformed services
- Treatment of certain dividends of regulated investment companies (RICs)
- The subpart F exception for active financing income
- Charitable deductions for the contribution of food inventory
- Tax treatment of certain payments to controlling exempt organizations
- Basis adjustment in stock when an S corporation makes charitable contributions of property
- Minimum low-income housing tax credit for non-federally subsidized buildings
- Military housing allowance exclusion in determining a low-income tenant
- RIC qualified investment entity treatment under FIRPTA
The Act extends bonus depreciation (additional first-year depreciation) under a phase-down schedule through 2019:
- at 50 percent for 2015-2017;
- at 40 percent in 2018;
- and at 30 percent in 2019.
The Act also continues the election to accelerate the use of AMT credits in lieu of bonus depreciation and increases the amount of unused AMT credits that may be claimed in lieu of bonus depreciation. Additionally, the Act modifies bonus depreciation to include qualified improvement property, and permits certain trees, vines and plants bearing fruits or nuts to be eligible for bonus depreciation when planted or grafted.
Work Opportunity Tax Credit
The Work Opportunity Tax Credit (WOTC) is extended through 2019. The Act also enhances the WOTC for employers that hire certain long-term unemployed individuals.
New Markets Tax Credit
The Act authorizes the allocation of $3.5 billion of new markets tax credits for each year from 2015 through 2019.
Code Sec. 25C Credit
The Act extends through 2016 the Code Sec. 25C residential energy property credit.
Production Tax Credit
The FY 2016 omnibus extends the production tax credit (PTC) for wind energy through 2019 but subjects the credit to phase-down.
Energy-Efficient Commercial Buildings Deduction
The Act extends through 2016 the deduction for energy-efficient commercial buildings. Additionally, the Act updates the energy-efficient standards.
If you are interested in the full content of the PATH Act and how changes may impact your tax planning and filing, please contact our offices.