President Obama on December 18th signed The Protecting Americans from Tax Hikes Act of 2015, or “PATH” – a package of tax extenders costing $622 billion over the next decade. This tax bill contains some nice presents: permanent extensions of tax benefits for businesses and individuals that have long been temporary.
PATH will end a frustrating cycle for millions of taxpayers. In the past, lawmakers have enacted popular temporary provisions and then left taxpayers hanging until the last minute as to whether the provisions would be renewed.
For example, the provision allowing IRA charitable transfers—a highly popular measure that helps charities and lowers taxes for many older Americans—has been renewed five times since 2006, with four of them coming after Thanksgiving. The nadir was 2012, when the break wasn’t re-enacted until early in 2013, and many donors were confused by rules for making retroactive 2012 gifts.
This year, 52 tax provisions that have expired have either been temporarily extended or made permanent. Almost two dozen are made permanent, including six for families and individuals. The R&D Tax Credit and Section 179 Expensing for Capital Investment, important for business, are extended indefinitely.
The bill doesn’t permanently extend all popular breaks. Tax relief for mortgage-debt forgiveness, “bonus” depreciation, and a credit for alternative-fuel vehicles expire in 2016.
Following is a list of notable benefits which are now permanent under the new law or have been temporarily extended.
Individual and family provisions:
- Tax-free distributions from individual retirement plans for charitable purposes
- Deduction of state and local general sales taxes
- Enhanced child tax credit
- Enhanced American opportunity tax credit
- Enhanced earned income tax credit
- Deduction for certain expenses of elementary and secondary school teachers
- Parity for exclusion from income for employer-provided mass transit and parking benefits
- 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
EXTENDED THROUGH 2016:
- Exclusion from gross income of discharge of qualified principal residence indebtedness
- Treatment of mortgage insurance premiums as qualified residence interest
- Above-the-line deduction for qualified tuition and related expenses
Business and other tax provisions:
- Research and development tax credit. In addition, beginning in 2016 eligible small businesses ($50 million or less in gross receipts) may claim the credit against alternative minimum tax (AMT) liability, and the credit can be utilized by certain small businesses against the employer’s payroll tax (i.e., FICA) liability.
- Increased Section 179 deduction. The provision permanently extends the small business expensing limitation and phase-out amounts in effect from 2010 to 2014 ($500,000 and $2 million, respectively). The special rules that allow expensing for computer software and qualified real property (qualified leasehold improvement property, qualified restaurant property, and qualified retail improvement property) also are permanently extended. Both the $500,000 and $2 million figures are indexed for inflation beginning in 2016. The provision further modifies the expensing limitation with respect to qualified real property by eliminating the $250,000 cap beginning in 2016.
- Employer wage credit for employees who are active duty members of the uniformed services.
- Fifteen-year straight-line cost recovery for qualified leasehold improvements, qualified restaurant buildings and improvements, and qualified retail improvements.
- Treatment of certain dividends of regulated investment companies.
- Exclusion of 100 percent of gain on certain small business stock.
- Reduction in S-corporation recognition period for built-in gains tax.
- Subpart F exception for active financing income.
- Temporary 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.
- RIC qualified investment entity treatment under FIRPTA.
EXTENDED THROUGH 2019:
- Bonus depreciation. Bonus depreciation percentage is 50 percent for property placed in service during 2015, 2016, and 2017 and phases down with 40 percent in 2018 and 30 percent in 2019. The provision continues to allow taxpayers to elect to accelerate the use of AMT credits in lieu of bonus depreciation under special rules for property placed in service during 2015. The provision modifies the AMT rules beginning in 2016 by increasing the amount of unused AMT credits that may be claimed in lieu of bonus depreciation. The provision also modifies bonus depreciation to include qualified improvement property and to permit certain trees, vines, and plants bearing fruit or nuts to be eligible for bonus depreciation when planted or grafted, rather than when placed in service.
- Look-through treatment of payments between related controlled foreign corporations under foreign personal holding company rules.
- New markets tax credit.
- Work opportunity tax credit.
EXTENDED THROUGH 2016:
- Indian employment tax credit
- Railroad track maintenance credit
- Mine rescue team training credit
- Qualified zone academy bonds
- Classification of certain race horses as three-year property
- Seven-year recovery period for motor sports entertainment complexes
- Accelerated depreciation for business property on an Indian reservation
- Election to expense mine safety equipment
- Special expensing rules for certain film and television productions
- Deduction allowable with respect to income attributable to domestic production activities in Puerto Rico
- Empowerment zone tax incentives
- Temporary increase in limit on cover-over of rum excise taxes to Puerto Rico and the Virgin Islands
- American Samoa economic development credit
- Moratorium on medical device excise tax
- Credit for nonbusiness energy property
- Credit for alternative fuel vehicle refueling property
- Credit for two-wheeled plug-in electric vehicles
- Second-generation biofuel producer credit
- Biodiesel and renewable diesel incentives
- Production credit for Indian coal facilities
- Credits with respect to facilities producing energy from certain renewable resources
- Credit for energy-efficient new homes
- Special allowance for second-generation biofuel plant property
- Energy-efficient commercial buildings deduction
- Special rule for sales or dispositions to implement FERC or state electric restructuring policy for qualified electric utilities
- Excise tax credits relating to alternative fuels
- Credit for new qualified fuel cell motor vehicles
- News stories and congressional tax writing committee chairmen heralded the tax extenders legislation as a step forward for tax reform.
This alert merely lists the bill’s major tax provisions. You can expect to receive more commentary from W&D on important provisions. In the meantime, if you have any questions, please contact usat (847) 267-9600.