On December 18th, 2015, President Obama signed into law the Protecting Americans from Tax Hikes (PATH) Act of 2015. In the following “Expertise Beyond the Numbers” blog post, SC&H Group’s Tax Services team provides insights into the new legislation, and how the various provisions may impact your business and individual tax liability.
Congress acted last week to extend certain provisions of the Tax Code, which had been set to expire.
This year’s Extender Bill, the Protecting Americans from Tax Hikes (PATH) Act of 2015, is a little different than previous versions from past years – at least 20 of the provisions were made permanent, and several were extended over multiple years.
This is major and welcomed tax legislation that benefits both business and individuals. The PATH Act provides considerable ability for taxpayers – and their advisors – to plan beyond just a 12-month period.
Below are just some of the key business provisions from the PATH Act:
- Section 179 Expensing Thresholds were permanently increased to $500,000 with an overall $2,000,000 investment limit in section 179 Property. Prior to the Act, the limit had decreased to only $25,000 for 2015.
- A 15-Year permanent write off exists for Qualified Leasehold Improvements, Restaurant Property, and Retail Improvements. The shorter life will enable these improvements to also qualify for bonus depreciation.
- Bonus Depreciation is extended & phased down through 2019. 50% Bonus Depreciation will be available in 2015 through 2017. The benefit decreases to 40% in 2018, and then 30% in 2019.
- R&D Tax Credit is made permanent & modified. The R&D Tax Credit was made permanent, and was modified to allow eligible small businesses whose gross receipts are $50 million or less the ability to apply their credit against their alternative minimum tax (AMT) liability, and to allow certain eligible small businesses the ability to apply their credit against their payroll tax (i.e., FICA) liabilities.
- Qualified Small Business Stock. The Act makes permanent the 100% exclusion for gain on the sale or exchange of qualified small business stock held for more than 5 years by non-corporate taxpayers.
- Built in Gains Tax Recognition period is permanently set at five (5) years. This is the time period after a C corporation converts to an S Corporation. Net recognized built in gains are taxed at the highest corporate rate during this measurement period. The original measurement period had been 10 years.
- There is an enhanced charitable deduction for taxpayers engaged in a business with food inventory. The act makes permanent special rules applicable to the donation of food items.
- The Work Opportunity Credit is extended through 2019.
- Section 179D Energy Efficiency Deductions Extended for Commercial Buildings through 2016. Using the 179D deduction, building owners and tenants who make expenditures to cause new or renovated commercial buildings to be more energy efficient and designers of qualifying government buildings will again be eligible for a significant Federal tax deduction, an immediate one time depreciation deduction of up to $1.80 per square foot.
Below are some of the key individual provisions from the PATH Act:
- The American Opportunity Tax Credit, an education credit available up to $2,500, has been made permanent. The AOTC is subject to a phase-out for taxpayers with adjusted gross income in excess of $80,000 (single) or $160,000 (married filing joint).
- The State and Local Sales Tax Deduction election (in lieu of deducting state and local income taxes) has been made permanent.
- The above-the-line deduction for elementary and secondary school teacher’s classroom expenses has been indexed for inflation beginning in 2016, and now includes professional development expenses, has been made permanent.
- The provision allowing individuals to make tax-free distributions from their IRA’s to a qualified charitable organization has been made permanent. The tax free treatment is still capped at $100,000 per taxpayer per year.
- Both the tuition and fees deduction and mortgage insurance premium deduction have been extended through 2016.
- The mortgage debt exclusion, which allows a taxpayer to exclude from income cancellation of mortgage debt on a principal resident of up to $2 million ($1 million for married filing separate filers), has been extended through 2016. This does include debt discharged in 2017 if the discharge’s binding written agreement is entered into in 2016.