McAtee & Associates, CPAS
More tax law changes and extensions you should know about…..
2015 Year-end Tax Legislation Impacts All Taxpayers
On December 4, 2015, President Obama signed the Fixing America’s Surface Transportation (FAST) Act, a multi-year highway and transportation spending bill that also includes tax provisions impacting some taxpayers. The FAST Act includes authorization for the federal government to deny or revoke a U.S. passport for individuals with seriously delinquent tax debt, mandates that the IRS contract with private collection agencies to collect some tax debts, extends highway taxes and repeals an extended due date for Form 5500, Annual Returns/Reports of Employee Benefit Plan.
On December 18, 2015, President Obama signed the Protecting Americans from Tax Hikes (PATH) Act of 2015.
Tax Incentives Permanently Extended
The PATH Act permanently extends the following tax incentives that had expired:
- State and local sales tax deduction. Effective January 1, 2015, the PATH Act retroactively revives and makes permanent the election to claim an itemized deduction for state and local general sales taxes, in lieu of deducting state and local income taxes [Code Sec. 164(b)(5)(1)].
- AOTC. The PATH Act makes the AOTC permanent The AOTC increased the pre-existing Hope Scholarship Credit to $2,500 for four years of post-secondary education and increased the adjusted gross income (AGI) phaseout amounts to $80,000 (single) and ($160,000 (married filing jointly).
- Child tax credit. The PATH Act makes the enhanced child tax credit permanent by providing the threshold dollar amount for purposes of computing the refundable credit at an unindexed $3,000 [Code Sec. 24(d)]. Under the PATH Act, the child tax credit, available up to $1,000 for qualifying dependents under age 17, may be refundable to 15% of the taxpayers earned income in excess of $3,000.
- Earned income credit. The PATH Act makes permanent the increased $5,000 income phaseout amount that applies to joint filers and the increased 45% credit percentage for taxpayers with three or more qualifying children.
- Teachers’ classroom expense deduction. The PATH Act permanently extends the above-the-line deduction for elementary and secondary school teachers’ classroom expenses. It also modifies the deduction by indexing the $250 ceiling amount to inflation beginning in 2016. The Path Act includes professional development expenses, including courses related to the curriculum in which the educator provides instruction, within the scope of the deduction. The modification for professional development courses applies to tax years beginning after December 31, 2015.
- Transit benefits parity. The Path Act permanently retroactively enacts parity among transit benefits, which includes van pool benefits, transit passes and qualified parking. For tax years beginning in 2016, the inflation-adjusted monthly exclusion amount for transit passes and van pool benefits will be $255 (up from 250 in 2015), in line with the inflation-adjusted amount for qualified parking. The exclusion for a qualified bicycle reimbursement is unchanged by the new law and is limited to $20 times the number of months during which the employee uses the bicycle for commuting purposes. In Notice 2016-6, the IRS explained how employers should address the retroactive increase for periods after 2014 in the monthly exclusion for transit passes and van pooling benefits. The IRS also provided a special administrative procedure for employers for making adjustments on their Forms 941, Employer’s Quarterly Federal Tax Return, filed for the fourth quarter of 2015, and in filing Forms W-2 Wage and Tax Statement.
- Charitable distributions from Individual Retirement Accounts (IRAs). The PATH Act permanently extends the provision that allows individuals age 70 ½ and older to make tax-free distributions of up to $100,000 each year from IRAs to a qualified charitable organization [Code Sec. 408(d)(8)(F)]. Amounts in excess of $100,000 must be included in income but may be taken as an itemized charitable deduction, subject to the usual AGI annual caps for contributions. The new law also includes a provision on the deductibility of charitable contributions to agricultural research organizations.
- Qualified conservation contributions. The Path Act retroactively revives and permanently extends the rule that allows taxpayers to claim a charitable deduction for contributions of real property for conservation purposes [Code Sec. 170(b)(1)(E)]. In addition, the new law permanently extends the enhanced deduction for certain individuals and corporate farmers and ranchers. The new law also modifies the deduction that permits Alaska Native Corporations to claim deductions for donations of conservation easements up to 100% of taxable income [Code Sec. 170(b)(2)(C)].
- Code Sec. 179 expensing. Prior to the enactment of the PATH Act, the dollar limit for Code Sec. 179 expensing for 2015 had reverted to $25,000 with an investment limit of $200,000. The new law makes multiple changes to the Code Sec. 179 expensing deduction. The $500,000 expensing limitation and the $2 million overall investment limit (both amounts indexed for inflation beginning in 2016) are retroactively extended and made permanent [Code Sec. 179(b)]. The rule that allows expensing for computer software is retroactively extended and made permanent [Code Sec. 179(d)(1)(A)]. For tax years beginning after December 31, 2015, expensing of qualified real property is made permanent without a carryover limitation [Code Sec. 179(f)(1)]. The $250,000 expensing limitation with respect to qualifying real property is eliminated. For tax years beginning after December 31, 2015, air conditioning and heating units are eligible for expensing [Code Sec. 179(d)(1)]. Finally, for tax years beginning after December 31, 2014, the new laws makes permanent the provision that an expensing election or specification of property to be expensed may be revoked without IRS consent [Code Sec. 179(c)(s)].
- Research tax credit. The PATH Act permanently extends and modifies the research and development tax credit [Code Sec, 41(h). For tax years that begin after December 31, 2015, eligible small businesses ($50 million or less of gross receipts) may claim the credit against their alternative minimum tax (AMT) liability [Code Sec. 38(c)(4)(B)]. In addition, for tax years that begin after December 31, 2015, qualified small businesses may elect to claim a portion of their research credit as a payroll tax credit against their employer FICAs tax liability, rather than against their income tax liability [Code Sec. 41(h)].
- 100% gain exclusive on qualified small-business stock. The PATH Act retroactively and permanently extends the 100% exclusion allowed for gain on the sale or exchange of qualified small business stock held for more than five years by noncorporate taxpayers [Code Sec. 1202(a)(4)]. In addition, the new law retroactively and permanently provides that none of the excluded gain is subject to AMT.
- Reduced recognition period for S corporation built-in gains tax. The PATH Act retroactively and permanently extends the rule providing for a five-year recognition period (instead of the generally applicable 10-year period) for built-in gain following conversion from a C corporation to an S corporation [Code Sec. 1374(d)(7)].
- 15-year straight-line cost recovery for qualified leasehold improvements, restaurant property and retail improvements. Effective for property placed in service after December 31, 2014, the new law retroactively extends and makes permanent the inclusion of qualified leasehold improvement property, restaurant property and retail improvement property in the 15-year Modified Accelerated Cost Recovery System class [Code Sec. 168(e)(3)(E)].
- Payments to charity from controlled entity. The PATH Act retroactively and permanently extends the rule in Code Sec. 512(b)(13)(E)(iv) providing special tax rules for payments made to a charity from a controlled entity.
- Charitable deduction for contribution of food inventory. The PATH Act retroactively and permanently extends the rules in Code Sec. 170(e)(3)(C)(iv) enabling a taxpayer engaged in a trade or business to claim an enhanced deduction for donations of food inventory.
- Employer wage credit for employees who are active duty members of uniformed services. The PATH Act retroactively and permanently extends the rules in code Sec. 45P(f) providing that eligible small business employers may claim a credit if they pay differential wages to employees during periods of more than 30 day of active duty with the U.S. uniformed services.
- Minimum low-income housing tax credit for nonfederally subsidized buildings. The PATH Act retroactively and permanently extends the rules in Code Sec. 42(b)(2)(A) providing for a low-income housing 9% credit rate freeze.
If you have any questions about this topic or other tax related questions, please do not hesitate to contact us at 727-327-1999.
ANY TAX ADVICE IN THIS COMMUNICATION IS NOT INTENDED OR WRITTEN TO BE USED, AND CANNOT BE USED, BY A CLIENT OR ANY OTHER PERSON OR ENTITY FOR THE PURPOSE OF (i) AVOIDING PENALTIES THAT MAY BE IMPOSED ON ANY TAXPAYER, OR (ii) PROMOTING, MARKETING OR RECOMMENDING TO ANOTHER PARTY ANY MATTERS ADDRESSED HEREIN.
