Some key federal tax breaks are made permanent… at last.
During the past few Decembers, taxpayers and tax preparers have waited anxiously for Congress to rescue expiring federal tax provisions. Usually, legislators pass an eleventh-hour bill to extend certain tax perks for another year and reinstate them for the current year.
The Protecting Americans from Tax Hikes Act of 2015, or PATH – just passed by Congress, just signed into law by President Obama – not only renews 52 expiring tax provisions but makes some permanent. You may be a taxpayer who benefits from its passage.1,2,
Would you like to make a tax-free transfer of IRA assets to a charity? PATH makes that opportunity permanently available to you. A traditional IRA owner at least 70½ years old may make a charitable gift from that IRA to a qualified charity and exclude the transferred amount from their gross income for the tax year in which the gift is made. This is a tax-efficient move for wealthy, older IRA owners who see their annual Required Minimum Distribution (RMD) as more of a tax issue than a necessity.3
Does your business do any research or development? The federal R&D tax credit is now permanent – and in a sense, even sweeter. Any company with less than $50 million in gross receipts may use the R&D credit to counter the Alternative Minimum Tax next year and every year. Thanks to PATH, even some start-ups not yet facing income tax may be able to offset payroll taxes via this credit.2
Are you thinking about remodeling your restaurant or retail business? PATH preserves and makes permanent the 15-year period for depreciating remodeling and other improvements. No going back to the old 39-year period.3
Are you hoping those bigger Section 179 deduction limits will remain in place? They will. PATH preserves the current $500,000 immediate deduction limit of the cost of qualifying asset acquisitions, and the current phase-out starting at $2 million. Going forward, both of these thresholds will be inflation-indexed. In related news, PATH also keeps the 50% “bonus depreciation” provision in place through 2017 and extends it to restaurants and retail businesses that are owned as well as leased.2,3
Do you take advantage of the Child Tax Credit? In 2009, the CTC was enhanced to offer parents a $1,000 credit per qualifying child plus an additional (refundable) tax credit equal to 15% of any earned income over $3,000. This $3,000 threshold (which was set to return to the $10,000 level in 2017) becomes permanent thanks to PATH.2
Would you like to claim the American Opportunity Tax Credit? If so, you will be pleased to know that this college education credit will not shrink to $1,800 in 2017. It will remain at $2,500 thanks to PATH. The current phase-out levels ($80,000 for single filers, $160,000 for joint filers) will also remain in place.2
Do you live where there are no state income taxes? PATH makes the itemized federal deduction for state and local sales taxes a permanent option for you.2
Are you a teacher who takes the above-the-line deduction for K-12 school supplies? PATH makes that deduction permanent as well and indexes it for inflation.2
Businesses get a 2-year reprieve from the Cadillac tax. Companies sponsoring high-priced health insurance plans will not have to face this tax until 2018 thanks to PATH.3
PATH suspends the 2.3% excise tax on medical devices for 2 years. This tax, which represents 2.3% of what importers and manufacturers pay on sales of certain healthcare equipment, will resurface in 2018.3
PATH extends some tax perks only through 2016. Most notably, it continues the tax exclusion on canceled home loan debt for another year. It also preserves the current $4,000 limit for the above-the-line tuition deduction for college education.2
Tax breaks rewarding homeowners, homebuilders, and contractors for energy efficiency are also preserved for another year by PATH. Builders and contractors may still take advantage of a credit as large as $2,000 for manufacturing energy-efficient residences, and the 179D deduction is still available for those who build green or make qualifying HVAC and lighting improvements to commercial properties. Home energy tax credits of up to $500 will still reward taxpayers who make energy-saving upgrades to their primary residence.2
PATH may be your route to some significant tax savings. You will have to act fast to claim them for 2015, but you have plenty of time to take advantage of these opportunities in 2016.
1 – thehill.com/blogs/pundits-blog/economy-budget/263889-tax-extenders-on-the-road-to-tax-reform [12/18/15]
2 – forbes.com/sites/anthonynitti/2015/12/16/permanent-rd-higher-section-179-expensing-highlight-tentative-deal-on-tax-extenders/ [12/16/15]
3 – accountingtoday.com/news/tax-practice/congress-makes-some-tax-extenders-permanent-76718-1.html [12/16/15]
BCJ FG 15-127