Major Tax Alert: President Obama Signs “Protecting Americans from Tax Hikes Act of 2015”

President Obama signed a huge tax and spending package into law on Friday, December 18, 2015 following congressional votes that avoided a year-end showdown over the budget and ended legislative business until lawmakers return in 2016. This massive comprehensive package will not only keep the government funded through September 2016, but also addresses the extension of many valuable tax provisions.

The Protecting Americans from Tax Hikes Act of 2015 (PATH Act) does considerably more than the typical tax extenders legislation seen in prior years. It makes permanent over 20 key tax provisions, including the research tax credit, enhanced Code Sec. 179 expensing, and the American Opportunity Tax Credit. It also extends other provisions, including bonus depreciation, for five years; and revives many others for two years. In addition, many extenders have been enhanced. Further, the PATH Act imposes a two-year moratorium on the ACA medical device excise tax. The House passed the Act on December 17th by a vote of 318-109; The Senate approved the Act along with the FY 2016 Omnibus Act on December 18th by a vote of 65 to 33.

“This legislation prevents tax increases, creates more job opportunities, and makes it easier for Americans to do their taxes,” said House Ways and Means Committee Kevin Brady, R-Texas. “That’s a great gift, an overdue gift, for American taxpayers.”

The impact it will have on individuals and businesses is highlighted here:

PERMANENT CHANGES EFFECTIVE RETROACTIVELY TO THE BEGINNING OF 2015

  • American Opportunity Tax Credit (Education Credit)
  • $250 teacher deduction (with new inflation adjustment) (Minor changes for 2016)
  • Enhanced child tax credit
  • Larger earned income credit
  • Increased mass transit and parking exclusion for employees
  • State and local sales tax itemized deduction
  • Trustee to charity tax-free IRA transfers that qualify as RMD after age 70 1/2
  • R&D “Research” credit (plus use against AMT application for small business with <$50 million in sales)
  • Research credit refundable against payroll taxes for start-up companies
  • Employer wage credit for active duty military differential pay
  • 100% exclusion for small business Section 1202 stock gain
  • Built in gains period for S corporations now 5 years
  • Computer and technology costs qualify as education expenses
    • Colleges will drop “amount billed” from 1098 for 2016

TEMPORARY CHANGES EXTENDED THROUGH 12/31/2016

  • Subject to limitations – Principal residence mortgage debt exclusion (“Cancellation of Debt” income on mortgage debt)
  • Mortgage insurance deduction as qualified residence interest
  • Tuition deduction “above the line” (in computing AGI)
  • Indian employment tax credit
  • 3 year depreciation life on race horses
  • Alternative fuel vehicle refueling facility credit
  • Non-business energy property credit for certain energy-efficient improvements to taxpayer’s main home
  • Credit for construction of energy-efficient new homes
  • Energy-efficient commercial building deduction

TEMPORARY CHANGES EXTENDED THROUGH 12/31/2019

  • New markets tax credit
  • Enhanced work opportunity credit
  • Affordable Care Act “Cadillac tax” postponed to 2020

DEPRECIATION CHANGES RETROACTIVE TO 1/1/2015

  • Retail/restaurant/leasehold improvements permanent 15 year depreciation life
  • Retail/restaurant/leasehold improvements permanent $250,000 Sec. 179
  • Bonus depreciation applies at 50% through 2017 (reduced thereafter, expires 2019)
  • Super Section 179 of $500,000 applies permanently (Phase out $2,000,000) (indexed annually to inflation)
  • Section 179 applies to off-the-shelf computer software permanently
  • Section 179 applies to heating/air equipment starting years beginning after 12/31/15

“I think this is one of the biggest steps toward a rewrite of our tax code that we have made in many years, and it will help us start a pro-growth bold tax reform agenda in 2016. In addition to all of that, we are ending Washington’s days of extending tax policies one year at a time.” – House Speaker Paul Ryan

If you have any questions about the new legislation, please contact a KatzAbosch tax advisor at 410.828.2727 or email Michael Agetstein, CPA, PFS at magetstein@katzabosch.com.

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