2015 Tax Extenders Passed

On December 18, 2015, the President signed into law the Protecting Americans from Tax Hikes Act of 2015 (PATH Act). The new law extends several tax provisions retroactive to the beginning of 2015, and also makes some provisions permanent.

The list that follows identifies tax extender items that have been reinstated retroactive to January 1, 2015, along with a brief description of the provision.

SUMMARY OF BUSINESS INCENTIVES FROM PATH ACT

Enhanced Section 179 expense
A temporary Section 179 expense limit of $500,000 and investment limit of $2 million before phase-out was made permanent. Note: Beginning in 2016, the $250,000 cap on the Section 179 expense for qualified real property was eliminated. The provision allowing a Section 179 expense for off-the-shelf computer software was also made permanent.

5-year extension of Special depreciation allowance (aka “Bonus Depreciation”)
The provision extends the special depreciation allowance for property acquired and placed in service during 2015 through 2019. The special depreciation percentage is 50% for property placed in service during 2015, 2016, and 2017, and phases down to 40% in 2018 and 30% in 2019.

Qualified leasehold improvements, restaurant buildings and improvements, and retail buildings and improvements
Recovery periods for qualified leasehold improvements, restaurant buildings and improvements, and retail buildings and improvements were temporarily set at 15 years under extender legislation instead of requiring longer recovery periods. The 15-year recovery period for these assets was made permanent.

Research and development (R&D) tax credit
Sec. 41 research and development credit, which provides a credit for qualified research expenses was made permanent. The provision also modifies the credit so that eligible businesses with $50 million or less in gross receipts can claim the credit against their alternative minimum tax (AMT) liability. Also, certain small businesses can claim the credit against their payroll tax liability.

Additional extender items for businesses include:

• Permanent Five-year recognition period for built-in gains for S corporations
• S corporation basis adjustment from charitable contributions of property
• Employer wage credit for active duty members of the uniformed services
• Low-income housing credit rates for non-federally subsidized buildings
• New markets tax credit
• Work opportunity tax credit
• Empowerment zone tax incentives
• Moratorium on medical device excise tax for sales during 2016 and 2017
• Credit for energy-efficient home manufacturers
• Energy-efficient commercial buildings deduction

SUMMARY OF INDIVIDUAL INCENTIVES FROM PATH ACT

Additional Child Tax Credit
The threshold amount for determining whether a taxpayer is eligible for the refundable (or additional) child tax credit is permanently set at $3,000 (not indexed for inflation).

Enhanced American Opportunity Tax Credit (Hope Credit)
The American Opportunity Tax Credit (AOTC) is an enhanced version of the Hope Credit, allowing a credit of up to $2,500 for four years of post-secondary education. The new law makes the enhanced AOTC permanent.

Educator expenses
The new law makes the adjustment to income for qualified expenses of elementary and secondary school teachers permanent. The law also indexes the current expense cap of $250 for inflation beginning in 2016.

State and local general sales taxes
The provision allowing an itemized deduction for state and local general sales taxes instead of state and local income taxes on Schedule A, Form 1040, expired and was extended several times in the past. The new law makes the provision permanent.

Charitable contributions of IRA distributions
A qualified charitable contribution (QCD) from an IRA is nontaxable if made directly to an eligible charitable organization. This lowers the taxpayer’s AGI, reducing the negative effect of AGI phase-outs. A QCD was dependent on extender legislation in prior years. The new law makes the provision permanent.

Discharge of principal residence indebtedness
The provision allowing exclusion from income for discharge of qualified principal residence indebtedness was extended through 2016.

Itemized deduction for mortgage insurance premiums
The provision allowing mortgage insurance premiums to be deducted as an itemized deduction on Schedule A of Form 1040 was extended through 2016.

Tuition and fees deduction
The provision allowing an above-the-line deduction for tuition and fees paid for the taxpayer, spouse, or dependents and claimed as an adjustment to income, was extended through 2016.

Nonbusiness energy property
The credit for purchases of nonbusiness energy property was extended through 2016.

Additional extender items for individuals include:

• Increased monthly exclusion amount for transportation benefits.
• Charitable contributions of capital gain real property for conservation purposes.
• Exclusion for gain on sale of small business stock.