Your PATH to Tax Savings – A Gift from Congress

Last Friday, December 18th, President Obama completed a holiday gift package for the American taxpaying public by signing into law the “Protecting Americans from Tax Hikes Act of 2015” (affectionately known as the PATH Act). In a rare showing of bipartisanship (and perhaps a strong desire to make it home for the Christmas holiday in time), Congress delivered a tax extender package that goes beyond the typical one or two year extension of expired tax breaks by permanently extending some provisions, while implementing some recordkeeping and reporting changes.

We’d like to provide a quick summary of some of the more pertinent tax provisions included in the PATH Act that were retroactively extended to this and future years. For historians of tax law, our chart showing “What’s the Law, When” summarizes how these provisions have varied over the years. As always, if you would like more details or assistance to further understand how these provisions might impact your tax situation, your Perkins advisors stand by ready to assist you.

Permanently extended

  • Itemized deduction for state and local sales taxes
  • Tax-free distributions from IRAs to charity for those over 70 ½
  • Teacher’s above-the-line deduction for classroom expenses (with the $250 max indexed for inflation starting in 2016)
  • Enhanced child tax credit
  • Enhanced American Opportunity Tax Credit
  • Earned income tax credit
  • Parity for exclusion from income for employer-provided mass transit benefits
  • Increased 50% charitable contribution limitation for qualified conservation easements of capital gain real property
  • 100% exclusion for gain from the sale of qualified small business stock held for more than 5 years by non-corporate taxpayers (and permanent elimination of the AMT preference)
  • Limitation of stock basis adjustment for charitable contributions of appreciated property by S corporations
  • R&D tax credit (including modifications starting in 2016 for certain small business with gross receipts of $50 million or less to claim the credit against AMT liability, and qualified startup business to claim the credit against their employer FICA liability)
  • Higher $500,000 maximum Section 179 deduction, indexed for inflation starting in 2016 (along with other modifications favorable to real estate including the potential to include AC & heating units, and reinstatement of expensing qualified leasehold improvement property, qualified restaurant property and qualified retail property along with removal of the prior $250,000 limitation)
  • Shorter 15 year straight-line depreciation for qualified leasehold improvements, qualified retail property and qualified restaurant property
  • Reduced 5 year recognition period for built-in gains following conversion from C to S corporation status

Extended through 2019

  • New Markets Tax Credit
  • Work Opportunity Tax Credit
  • Bonus depreciation on qualified new property (50% for 2015 – 2017, 40% for 2018, and 30% for 2019)

Extended though 2016

  • Exclusion of up to $2 million of COD income from principal residences
  • Above-the-line deduction for qualified tuition and fees for post-secondary education
  • Mortgage insurance premiums treatment as qualified residence interest expense
  • Energy-efficient new homes credit of $1,000/$2,000 per home
  • Energy efficient commercial building deduction (but starting in 2016 there are changes to the ASHRE comparables/benchmarks)

In addition to the PATH Act, Congress passed and the President signed an omnibus fiscal year 2016 budget bill to fund the government for another year.  Additional tidbits from both of these new laws that might be of interest to you include:

  • Requires filing 1099s & W-2s by January 31 (starting with 2017 filings for the 2016 year)
  • Implements a safe harbor for de minimis errors on information returns to avoid having to file amended statements
  • Expands the definition of qualified higher education expenses for allowable tax-free distributions from Section 529 college savings plans to include computer equipment and technology
  • Delays for 2 years the ACA excise tax on so-called “Cadillac” health insurance plans
  • Delays the 2.3% medical devise excise tax for 2016 and 2017 sales
  • Places a one-year moratorium on the ACA health insurance provider fee
  • Modifies and clarifies certain real estate investment trust (REIT) rules
  • Increases funding of the IRS (with a directive to the IRS to use such increase to make “measureable improvements in the customer service” as well as improve the identification and prevention of tax refund fraud and identity theft)

This blog post is a summary and is not intended as tax or legal advice. You should consult with your tax advisor to obtain specific advice with respect to your fact pattern.