On December 18, 2015, the President signed into law the Protecting Americans from Tax Hikes Act of 2015 (PATH Act).
The act contains many provisions that will be beneficial to both small businesses and individual taxpayers alike. The extensive legislation extended for at least two years more than fifty tax provisions that had previously expired on December 31, 2014. In addition, approximately twenty additional provisions have been permanently extended, which will facilitate proactive tax planning. This is a stark contrast to previous years where taxpayers were forced to take a “wait and see” approach and scramble to make prudent tax maneuvers as a result of last-minute legislation.
The following are items of interest that have been permanently extended:
- The $500,000 annual deduction limitation for the first-year expensing of depreciable assets under Section 179 as well as the corresponding $2,000,000 phase-out threshold. These amounts will be indexed for inflation starting in 2016.
- The expansion of Section 179 to include “qualified real property” ($250,000 limitation still in effect for 2015).
- The research and development (R&D) tax credit, including the use of the credit to offset alternative minimum tax (AMT) liability.
- Reduced recognition period for S-Corporation built-in gains tax to five years.
- 15 year straight-line cost recovery for qualified leasehold improvements, retail improvements, and restaurant property.
- The American Opportunity Tax Credit of up to $2,500 for qualifying taxpayers enrolled in higher education programs within the first four years of post-secondary education.
- The above the line deduction of up to $250 for classroom expenses incurred by elementary and secondary school teachers (will be indexed for inflation starting in 2016).
- The ability to claim an itemized deduction for state and local sales taxes in lieu of state and local income taxes.
- Tax-free IRA distributions to charities of up to $100,000 for taxpayers that are at least 70 ½.
The following items have been extended with various sun-setting dates:
- 50% “bonus” depreciation is extended for 2015 and through 2017. The percentage is reduced to 40% in 2018 and 30% in 2019. This generally relates to “new” assets rather than used assets with a recovery period of 20 years or less.
- The income exclusion for discharge of indebtedness of up to $2,000,000 on a qualified principal residence is extended through 2016.
- The above the line deduction of up to $4,000 for qualified higher education expenses has been extended through 2016.
- The ability to deduct qualified mortgage insurance premiums has been extended through 2016.
- The credit for qualified energy efficient home improvements has been extended through 2016. Note that this credit has a $500 lifetime limit.
- The Section 179D deduction for qualified energy efficient property has been extended through 2016.
These are just a few of the “high-profile” items included in this vast piece of recent legislation. Please contact your team of advisors at Yount, Hyde & Barbour if you have further questions regarding the PATH Act and how you may be able to take advantage of the new tax law changes.
Chris joined YHB in 2004 after graduating from Virginia Tech. During his time with the firm, he has focused his efforts on providing audit, review, compilation and tax services to clients in a variety of industries, including construction and real estate and not-for-profit entities. Chris also specializes in assisting clients with strategic performance management, including the implementation of dashboards and overall process improvements.