The Protecting Americans from Tax HikesAct of 2015 (PATH Act) was signed by the President on December 18, retroactivelyextending certain favorable tax laws, the so-called “tax extenders.” Many of the tax laws in the Act were extendedpermanently and for long-term extensions which will allow taxpayers to make taxplanning decisions during the course of a year instead of in lateDecember. Here are some highlights fromthis legislation.
Individual Extenders:
Charitable Distributions from IRA’s: Individuals age 70 ½ and older can make tax-free distributions, up to $100,000 per taxpayer, from IRA’s directly to a qualified charity. This was permanently extended.
State and Local Sales Tax Deduction: Individuals may elect to claim sales taxes as an itemized deduction instead of state and local income taxes. This was permanently extended.Individuals can exclude from taxable income up to $2 million of cancellation of mortgage debt income on a principal residence. This was extended through 2016.
Mortgage Debt Exclusion:
Mortgage Insurance Premiums: Mortgage insurance premiums can be treated as qualified residence interest, subject to AGI phase-out. This was extended through 2016.
Teachers’ Classroom Expense Deduction: Teachers can deduct up to $250 of out-of-pocket classroom expenses. The permanent extension also indexes the $250 amount for inflation, beginning in 2016.
Energy Tax Credit: Certain qualified residential property expenses are eligible for up to a $500 tax credit. These expenses include insulation, energy efficient windows, and energy efficient heating and cooling systems. This credit was extended through 2016.
American Opportunity Tax Credit: Qualified education expenses are eligible for a $2,500 credit. This was permanently extended.
Business Extenders:
Bonus Depreciation: Additional 50% bonus depreciation deduction is allowed on assets placed in service during 2015-2019 (must be new assets with lives of 20 years or less). Bonus depreciation will be 40% during 2018 and 30% during 2019.Taxpayers can immediately deduct up to $500,000 of the cost of qualified assets placed in service as long as total asset additions did not exceed $2 million during the year. This permanent bill also indexes the $500,000 and $2 million amounts for inflation beginning in 2016.
Section 179: Qualified Leasehold/Retail Improvements: Qualified leasehold improvements, retail improvements and restaurant property can be depreciated over 15 years instead of 39 years. This was permanently extended. This property is also eligible for the 50% bonus depreciation deduction and Section 179 deduction (up to $250,000 for Section 179).
Built-In Gains: The S corporation recognition period for built-in gains was permanently set to five years.
Research Tax Credit: The R&D credit for qualified research expenses was permanently extended.
Work Opportunity Tax Credit: Employers that hire military veterans and other qualified individuals may be eligible for a tax credit. This was extended through 2019.
