Protecting Americans from Tax Hikes (PATH) Act of 2015

 

MANY TAX EXTENDERS REINSTATED PERMANENTLY

On December 18, Congress passed and the President signed into law a bipartisan, bicameral agreement on approximately fifty temporary tax provisions that have routinely, if not always timely, been extended by Congress on a one-year or two-year basis.  These provisions have been referred to as the “tax extenders.”  Most of the tax extenders expired at the end of 2014.  As part of numerous tax provisions in the Protecting Americans from Tax Hikes (PATH) Act of 2015, over twenty of the tax extenders have been made permanent.  In this paper, we point out some of the more important and widely applicable provisions.

Individual Tax Extenders

Some of the most important tax extenders affecting individuals that were renewed and made permanent include:

• Qualified charitable distributions from IRAs to eligible charities for taxpayers age 70 ½ or older
• Enhanced child tax credit
• Enhanced American opportunity tax credit (a credit for various tuition and related expenses)
• Enhanced earned income tax credit
• $250 above-the-line deduction for educator expenses
• Increase in excluded employer-provided mass transit and parking benefits
• State and local sales tax deduction (an important provision for Texans)
• Liberalized rules for qualified conservation contributions

Some of the individual tax extenders that were extended temporarily include:

• Exclusion for discharged home mortgage debt extended through 2016
• Mortgage insurance premiums treated as deductible qualified residence interest extended through 2016
• Above-the-line deduction for higher education expenses extended through 2016

Business Tax Extenders

Some of the key business tax extenders that were extended permanently include:

• Research credit
• Certain beneficial tax provisions for regulated investment companies
• Reduction in S Corporation recognition period for built-in gains (from 10 years to 5 years)
• Exclusion of 100% of gain on certain small business stock
• Lower shareholder basis adjustment for charitable contributions by S corporations
• Enhanced Section 179 expensing (rather than capitalizing and depreciating) – $500,000 expensing limitation and $2 million phase-out amount (both dollar amounts being indexed for inflation after 2015)
• 15-year write-off for qualified leasehold improvements for retail and restaurants

Some of the business tax extenders that were extended temporarily include:

• Work opportunity tax credit extended through 2019 and expanded
• New markets tax credit extended through 2019
• Indian employment credit extended through 2016
• Bonus first year depreciation extended through 2019 – 50% bonus in 2015 through 2017; 40% bonus in 2018; 30% bonus in 2019
• Enhanced first-year depreciation cap for autos and trucks extended through 2019
• Choice to forego bonus depreciation and claim alternative minimum tax credits is extended through 2015 and applies thereafter with modifications
• Expensing election for costs of film and TV production extended through 2016 and expanded

One provision of interest to many families is that, for taxable years beginning after December 31, 2014, computer technology and equipment is now permanently allowed as a qualified higher education expense that can be paid through tax-preferred distributions from 529 accounts.  This change restores a beneficial provision that existed previously for only 2009 and 2010.

There are many other tax changes in the PATH Act.  In addition to the changes discussed above, other provisions affect individuals and businesses.  Also, there are changes affecting energy taxes (primarily certain energy tax credits), taxation of real estate investment trusts, miscellaneous non-tax extender laws, IRS administration and the Tax Court.

This paper touches only on the highlights of the PATH Act.  If you have questions about the PATH Act, please contact your HM&M tax advisor.