Protecting Americans From Tax Hikes Act of 2015
On December 18, 2015, the President signed into law the Protecting Americans from Tax Hikes Act of 2015, which extended or made permanent more than 50 individual and business tax incentives. This letter provides highlights of the most popular individual and business tax incentives of the Act.
Individual Tax Incentives:
Tax credits for low to middle wage earners that were originally enacted as part of the 2009 stimulus package and were slated to expire at the end of 2017 were made permanent. These tax credits are: (1) the American Opportunity Tax Credit, which provides up to $2,500 in partially refundable tax credits for post-secondary education, (2) eased rules for qualifying for the refundable child credit, and (3) various earned income tax credit (EITC) changes.
The $250 above-the-line deduction for teachers and other school professionals for expenses paid or incurred for books, certain supplies, equipment, and supplementary material used by the educator in the classroom were made permanent. After 2015, the deduction will be indexed for inflation.
The exclusion of up to $2 million ($1 million if married filing separately) of discharged principal residence indebtedness from gross income was extended through 2016. The new law also modifies the exclusion to apply to qualified principal residence indebtedness that is discharged in 2017, if the discharge is pursuant to a binding written agreement entered into in 2016.
Parity for the exclusions for employer-provided mass transit and parking benefits was made permanent.
The deduction for mortgage insurance premiums deductible as qualified residence interest was extended through 2016.
The option to take an itemized deduction for State and local general sales taxes instead of the itemized deduction permitted for state and local income taxes was made permanent.
The increased contribution limits and carryforward period for contributions of appreciated real property (including partial interests in real property) for conservation purposes is made permanent. The new law also extends the enhanced deduction for certain farmers and ranchers.
The above-the-line deduction for qualified tuition and related expenses was extended through 2016.
The exclusion from gross income for otherwise taxable IRA distributions that are directly transferred to a qualified charity, by the IRA Trustee, subject to a $100,000 annual limit and the IRA owner having attained age 70 ½, was made permanent.
Business Tax Incentives:
Section 179 expensing (up to $500,000 annual write-off of eligible business property costs that is phased out once those costs exceed $2,000,000 for the year) is made permanent. Made permanent too is the allowance for expensing computer software and qualified real property (certain leasehold improvements, retail improvements and restaurant property.) The $500,000 and $2,000,000 limits are indexed for inflation for tax years beginning after 2015. Increased expensing is allowed for air conditioning and heating units placed in service in tax years beginning after 2015. The $250,000 cap on the expensing of qualified real property is eliminated for tax years beginning after 2015. The election and the specifics of the election are made revocable.
50% bonus depreciation was extended for property placed in service during 2015 through 2019 (but 2016 through 2020 for certain property with a longer production period and certain aircraft). The 50% rate is phased down to 40% for property placed in serviced during 2018 and 30% for property placed in serviced during 2019. The phase down is also required for the $8,000 increase, for bonus-depreciation eligible cars, of the first-year depreciation and expensing dollar cap for cars. The provision makes qualified building improvements (no longer just qualified building leasehold improvements) bonus depreciation eligible and permits most plants bearing fruit or nuts to be eligible for bonus depreciation when planted or grafted rather than when income-producing.
15-year straight line cost recovery for qualified leasehold improvements, qualified restaurant buildings and improvements, and qualified retail improvements was made permanent.
7-year recovery period for motorsports entertainment complexes was extended through 2016.
The research credit was made permanent; additionally, beginning in 2016 eligible small businesses ($50 million or less in gross receipts) may claim the credit against alternative minimum tax (AMT) liability, and the credit can be used by certain even smaller businesses against the employer’s portion of the Social Security portion of the employer’s payroll tax (i.e., FICA) liability.
The employer wage credit for activated military reservists was made permanent. Beginning in 2016, the provision modifies the credit to apply to employers of any size, rather than employers with 50 or fewer employees, as under prior law.
The work opportunity tax credit was extended through 2019. The new law also modifies the credit beginning in 2016 to apply to employers who hire qualified long-term unemployed individuals (i.e., those who have been unemployed for 27 weeks or more) and increases the credit with respect to such long-term unemployed individuals to 50% of the first $6,000 of wages.
The exclusion of 100% of gain on certain small business stock was made permanent. The new law also permanently extends the rule that eliminates such gain as an AMT preference item.
The basis adjustment to stock of S corporations making charitable contributions of property was made permanent.
The reduction in S corporation recognition period for built-in gains tax was made permanent. The reduced recognition period is the five-year period beginning with the first day of the first tax year for which the corporation was an S corporation.
The new legislation also includes a two-year delay in a pair of new taxes installed as part of the healthcare reform law: a levy on medical devices (which would have started in 2016) and another on high-end insurance plans, known as the “Cadillac tax,” which would have applied beginning in 2018.
If you have any questions about these individual and business tax incentives and how they might impact you or your business, please contact the Bloomington office at 952-844-2500 or the St. Paul office at 651-227-9431.
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