Update on 2015 Federal Tax Extenders

Here we are once again in December 2015, wondering if and (likely) when Congress will remove their collective heads from dark places and pass the Tax Extenders bill, retroactively (again) to the first day of January 2015. Yes, this is the same article I basically blogged about last year (Dec. 9, 2014) where I ended:

“And finally, as tax planners, we will (once again) have no firm answers as to when or whether Congress will again extend these “extenders” into 2015, with most expiring at the stroke of midnight on January 1, 2015. Hopefully they will give us more than three weeks late next year to work with the applicable 2015 extenders tax laws. And I believe in Santa Claus, the Easter Bunny and the Chicago Bears!”

One of our great modern-day philosophers, Yogi Berra, had many comments which apply to our current Congress’ tax extender malaise (including the lead-off to this blog):

It’s like déjà vu all over again.
A nickel ain’t worth a dime anymore.
We made too many wrong mistakes.
It was impossible to get a conversation going, everybody was talking too much.

However, to point out a positive aspect on this 2015 road of extenders, Congress appears to want to make many of the extendable provisions last for two years (2015-16). Some of the extenders which currently impact a great variety of Hoosier small-mid business taxpayers include:

1. Extension and modification of section 179 small business expensing
   As the law stands currently (Pre-Extension) for taxable years beginning in 2015, a taxpayer may immediately expense up to $25,000 of Section 179 property annually, with a dollar for dollar phase-out of the maximum deductible amount for purchases in excess of $200,000. The extenders bill would increase the maximum immediate expensing amount and phase-out threshold in 2015 and ’16 to $500,000 and $2 million respectively – the amounts retroactively extended back to January 1, 2014.The extenders bill continues expansion of the definition of Section 179 property to include computer software and $250,000 of the cost of qualified leasehold improvement property, qualified restaurant property, and qualified retail improvement property for two years.
2. Extension of bonus depreciation for “new” purchases
   The bill extends 50 percent bonus depreciation to qualified property purchased and placed in service before January 1, 2017. Current law has no provision for 2015 Bonus depreciation.
3. Extension of 15-year straight-line cost recovery for qualified leasehold improvements, qualified restaurant buildings and improvements, and qualified retail improvements
   The bill extends, for two years, through 2016, the temporary 15-year cost recovery period for certain leasehold, restaurant, and retail improvements, and new restaurant buildings, which are placed in service before January 1, 2017. The extension is effective for qualified property placed in service after December 31, 2014.
4. Extension and modification of the research and experimentation tax credit
   The bill extends, for two years, through 2016, the 20 percent traditional research tax credit and the 14 percent alternative simplified credit. In addition, the bill modifies the provision to expand the current R&D credit to qualifying startup businesses, allowing such company to claim the credit against taxes it pays on employee wages, not just against income tax.
5. Extension of reduction in S corporation recognition period for built-in gains tax
   Following a C corporation’s conversion to an S corporation, the new S entity must hold its assets for a certain period in order to avoid a tax on any built-in gains that existed at the time of the conversion. Previously Congress reduced that period from 10 years to 7 years for sales of assets in 2009 and 2010, and then reduced that period to 5 years for sales of assets in 2011. The Extenders bill extends the reduced 5-year holding period for sales occurring in 2015 and 2016.

Some of the extenders that may have a favorable impact on many Hoosiers include:

1. Extension of tax-free distributions from individual retirement plan for charitable purposes
   The extender in this case would again allow an Individual Retirement Arrangement (“IRA”) owner who is age 70-1/2 or older generally to exclude from gross income up to $100,000 per year in distributions made directly from the IRA to certain public charities.
2. Extension of deduction for mortgage insurance premiums
   The bill extension allows taxpayers to deduct the cost of mortgage insurance (PMI) on a qualified personal residence. The deduction is phased-out ratably by 10% for each $1,000 by which the taxpayer’s AGI exceeds $100,000 for two additional years, through 2016.
3. Extension of above-the-line deduction for higher education expenses
   This extension pertains to the above-the-line tax deduction for qualified higher education expenses, which allows (to the end of 2016) a maximum deduction was $4,000 for taxpayers with AGI of $65,000 or less ($130,000 for joint returns) or $2,000 for taxpayers with AGI of $80,000 or less ($160,000 for joint returns).
4. Extension and modification of the deduction for expenses of elementary and secondary school teachers
   The bill extends, for 2015 and 2016, the $250 above-the-line tax deduction for teachers and other school professionals for expenses paid or incurred for books, supplies, computer equipment, and supplementary materials used by the educator in the classroom. The extenders bill would also modify the provision to index the $250 threshold to inflation. The bill also modifies the provision to enable teachers to use the deduction to cover professional development expenses. [AUTHOR’S COMMENT: $250 hardly covers the additional expenses that most teachers I know spend toward their classes! C’mon, why can’t make this deduction permanent and raise the amount!!]
5. Extension and modification of mortgage debt relief
   Under this provision of the extenders bill, up to $2 million of forgiven debt would again be eligible for an income exclusion ($1 million if married filing separately) through tax year 2016. The extenders bills offer many additional provisions to targeted industries including:
   • Extension and modification of credit for railroad track maintenance
   • Extension of mine rescue team training credit
   • Extension and modification of employer wage credit for activated military reservists
   • Extension of three-year depreciation for racehorses
   • Extension of 7-year recovery period for motorsports entertainment complexes

Leaving with one more “Yogi-ism” in dealing with this current round of 2015 Federal Tax Extenders, once again, we’ll just have to “Take it with a grin of salt!” Have comments on this entertaining subject? Leave them for me below.

Written by: Jeff McGowan, CPA, CGMA
Email Me
Phone: 574.289.4011, x245

*This blog post also appeared in the Indiana CPA Society Center of Excellence Blog.