The media is buzzing about the latest extender's bill known as the PATH Act ("Protecting Americans from Tax Hikes Act of 2015") signed into law by President Obama on December 18, 2015. Tax highlights from the PATH Act impactful to businesses and individuals are summarized below.
Businesses
- The research tax credit was made permanent. After 2015, AMT taxpayers may offset the research tax credit against AMT and certain start-up companes may offset the credit against payroll tax.
- Incentives to invest in capital were extended allowing businesses to deduct their costs sooner including:
- Extension of Section 179 increased amounts ($500,000 maximium amount and $2 million investment limitation).
- Extension of bonus depreciaton through 2019, with the depreciation percentage declining from 50% (years 2015-2017) to 40% (2018) and to 30% (year 2019)
- Extension of the 15-year recovery period for qualified leashold improvements, qualified restaurant buildings and improvements and qualified retail improvements.
- After 2014, the built-in gain recognition period is 5 years for S corporations that were previously C corporations.
- Businesses hiring employees from specific targeted groups can enjoy the tax benefits of the work opportunity credit through 2019.
- The energy efficient commercial buildings deduction has been extended.
- Effective January 1, 2016, the medical device excise tax of 2.3% will be postponed until 2018.
- The "cadillac tax" on high-cost employer sponsored health coverage was delayed for two years.
- Certain business energy incentives were extended including the production tax credit for wind facilities and the solar energy credit.
Individuals
- The American Opporunity Tax credit was permanently extended.
- Individuals at least 70 1/2 years of age may permanently exclude from their income Traditional IRA or Roth IRA distributions made directly to a qualified charity.
- Discharge income from qualified mortgage debt for a principal residence is excludible through 2016.
- Computer equipment and technology starting after 2014 qualify as higher eduction expenses under the 529 rules.
- Up to $250 of teacher's education expenses uses in the classroom may permanently be deducted above-the-line.
- Taxpayers with children meeting certain income limitations may permanently benefit from the child tax credit and the increased credit percentages under the earned income tax credit.
- Stricter rules have been imposed on the earned income credit, child tax tax credit and the American Opportunity tax credit.
- Mortgage insurance premiums are extended as deductible mortgage interest.
- Certain individual energy incentives were extended including the energy-efficient new homes credit and the nonbusiness energy property credit.
Alyssa Rausch, CPA, MBA, is a tax manager at Smolin, Lupin & Co., PA. She is a member of the New Jersey Society of CPAs. Contact her at arausch@smolin.com or at 862-881-4748.