Dear Clients and Friends,
On December 17, the House passed a bipartisan agreement on tax extenders—i.e., the 50 or so temporary tax provisions that are routinely extended by Congress on a one-or two-year basis—and numerous other tax provisions in the “Protecting Americans from Tax Hikes (PATH) Act of 2015” (the Act). The agreement, which makes permanent many of the individual and business extenders, is expected to be quickly passed by the Senate and signed into law by the President.
Key individual tax breaks in the Act:
1. The Child Tax Credit (CTC) allows taxpayers to claim a $1,000 tax credit for each qualifying child under age 17 that the taxpayer can claim as a dependent. The CTC phases out when taxpayers’ income exceeds certain thresholds. The Act makes the CTC permanent by setting the threshold dollar amount for purposes of computing the refundable credit at an unindexed $3,000. This change is effective for tax years beginning after the date of enactment.
2. The Hope Scholarship Credit is a credit of $1,800 (indexed for inflation) for various tuition and related expenses for the first two years of post-secondary education. It phases out for adjusted gross income (AGI) starting at $48,000 (if single) and $96,000 (if married filing jointly), with indexing for inflation. Under pre-Act law, through 2017, the American Opportunity Tax Credit (AOTC; essentially a modified version of the pre-existing Hope credit) increased the above credit to $2,500 for four years of post-secondary education, and increased the beginning of the phase-out amounts to $80,000 (single) and $160,000 (married filing jointly). The Act makes the AOTC permanent.
3. 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.
4. Effective for tax years beginning after 2014, 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.
5. Effective for distributions made in tax years beginning after Dec. 31, 2014, 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.
6. Effective for tax years beginning after Dec. 31, 2014, the Act retroactively extends through 2016 the above-the-line deduction for qualified tuition and related expenses for higher education.
Key business tax breaks in the Act:
1. The Act makes the following changes to the Code Sec. 179 expensing election:
a. The $500,000 expensing limitation and $2 million phase-out amounts are retroactively extended and made permanent.
b. For any tax year beginning after 2015, both the $500,000 and $2 million limits are indexed for inflation.
c. For tax years beginning after Dec. 31, 2015, air conditioning and heating units are eligible for expensing.
2. Effective for property placed in service after Dec. 31, 2014, the Act retroactively extends and makes permanent the inclusion of qualified leasehold improvement property, qualified restaurant property and qualified retail improvement property in the 15-year MACRS class.
3. 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:
a. (1) a 50% bonus depreciation allowance for qualified property placed in service in 2015 through 2017 ;
b. (2) a 40% bonus depreciation allowance for qualified property placed in service in 2018; and
c. (3) a 30% bonus depreciation allowance for qualified property placed in service in 2019.
4. After 2015, additional first-year depreciation is allowed for qualified improvement property without regard to whether the improvements are property subject to a lease, and there is no requirement that the improvement must be placed in service more than three years after the date the building was first placed in service.
5. For property placed in service after Dec. 31, 2015 and before Jan. 1, 2018, the Act provides that the Code Sec. 280F limitation for a passenger auto or light truck or van that is qualified property is increased by $8,000. For an auto or light truck or van placed in service in 2018, the Code Sec. 280F limitation is increased by $6,400. For an auto or light truck or van placed in service in 2019, the Code Sec. 280F limitation is increased by $4,800.