Protecting Americans from Tax Hikes (PATH) Act of 2015 (12.15 Tax Alert)

Protecting Americans from Tax Hikes (PATH) Act of 2015

The House and Senate approved before their holiday recess the Protecting Americans from Tax Hikes (PATH) Act and an omnibus spending bill for the federal government’s 2016 fiscal year (FY) (HR 2029). The president signed the merged bills on December 18.

The PATH Act does considerably more than the typical tax extenders legislation seen in prior years. It retroactively extends the 50 or so taxpayer-favorable tax “extenders”—temporary tax provisions that are routinely extended by Congress on a one- or two-year basis that had been expired since the end of 2014. It made permanent more than a dozen individual and business extenders.

The following is a partial list of the items extended, made permanent and/or modified in the extender bill.

Extenders for Individuals revived retroactive to the start of 2015:

Nontaxable IRA Transfers to Eligible Charities Made Permanent -- The Act retroactively revives and permanently extends the ability of individuals at least 70½ years of age to exclude from gross income qualified charitable distributions from IRAs of up to $100,000 per year. These distributions are not subject to the charitable contribution percentage limits since they are neither included in gross income nor claimed as a deduction on the taxpayer's return.

State and Local Sales Tax Deduction Made Permanent -- The Act retroactively revives and makes permanent the option to claim an itemized deduction for State and local general sales taxes in lieu of an itemized deduction for State and local income taxes.

Above-the-Line Deduction for Educator Expenses Made Permanent -- The Act permanently extends the educator expense deduction and, for tax years beginning after Dec. 31, 2015, modifies the deduction by (i) indexing the $250 amount for inflation, and (ii) treating professional development expenses as expenses eligible for the deduction.

Above-the-Line Deduction for Higher Education Expenses Retroactively Extended Through 2016

Enhanced American Opportunity Tax Credit Made Permanent

Enhanced Child Tax Credit Made Permanent

Exclusion for Discharged Home Mortgage Debt Retroactively Extended Through 2016

Extenders for Businesses revived retroactive to the start of 2015:

Enhanced Expensing Made Permanent – The Act permanently sets the Code Section 179 expensing limit at $500,000 with a $2 million overall investment limit before phase-out. For any tax year beginning after 2015, both the $500,000 and $2 million limits are indexed for inflation.

15-Year Writeoff for Qualified Leasehold and Retail Improvements and Restaurant Property Made Permanent

Bonus First-Year Depreciation Extended Through 2019 -- The Act extends bonus depreciation for qualified property acquired and placed in service during 2015 through 2019 (through 2020 for certain longer-lived and transportation property). Eligible taxpayers will be able to claim:

(1)  50% bonus depreciation allowance for qualified property placed in service in 2015 through 2017;

(2)  40% bonus depreciation allowance for qualified property placed in service in 2018; and

(3)  30% bonus depreciation allowance for qualified property placed in service in 2019.

Enhanced First-Year Depreciation Cap for Autos and Trucks Extended Through 2019 -- Under the luxury auto dollar limits of Code Section 280F, depreciation deductions that can be claimed for passenger autos and light trucks or vans are subject to dollar limits.

  • For property placed in service after Dec. 31, 2015 and before Jan. 1, 2018, the applicable first-year depreciation limit is increased by $8,000
  • For property placed in service in 2018, the applicable first-year depreciation limit is increased by $6,400
  • For property placed in service in 2019, the applicable first-year depreciation limit is increased by $4,800

Research Credit Permanently Extended and Made Creditable Against Other Taxes

Reduction in S Corp Recognition Period for Built-In Gains Tax Permanently Extended

Exclusion of 100% of Gain on Certain Small Business Stock Permanently Extended

Lower Shareholder Basis Adjustment for Charitable Contributions by S Corporations Permanently Extended -- the amount of a shareholder's basis reduction in S stock by reason of a charitable contribution made by the corporation is equal to his pro rata share of the adjusted basis of the contributed property.

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Written by Lisa Annan

SKINNER FOUCH & OLSON LLP