Congress has extended the "extenders," an assortment of more than 50 individual and business tax deductions, tax credits, and other tax-saving laws which are temporary because they have a specific end date. Most of the tax breaks expired at the end of 2014, but now, due to the recently enacted Protecting Americans from Tax Hikes Act of 2015, many provisions are permanent and have extended the remaining provisions for either five or two years, while making changes to other provisions.

Extended Business Credits and Special Depreciation and Expensing Rules Include:

  • the research credit; 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 liability;
  • the work opportunity tax credit; 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;
  • three-year depreciation for racehorses; extended through 2016;
  • 15-year straight line cost recovery for qualified leasehold improvements, qualified restaurant buildings and improvements, and qualified retail improvements; made permanent;
  • 50% bonus depreciation; 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 (but 2019 for the long production period property and aircraft) and 30% for property placed in serviced during 2019 (but 2020 for the long production period property and aircraft); the provision makes qualified building improvements (no longer just qualified building leasehold improvements) bonus depreciation eligible;
  • the election to accelerate alternative minimum tax (AMT) credits in lieu of additional first-year depreciation; extended for property placed in service during 2015; the provision modifies the AMT rules beginning in 2016 by increasing the amount of unused AMT credits that may be claimed in lieu of bonus depreciation;
  • the enhanced charitable deduction for contributions of food inventory is made permanent; the new law modifies the deduction by increasing the limitation on deductible contributions of food inventory from 10% to 15% of the taxpayer's adjusted gross income (15% of taxable income in the case of a C corporation) per year and also modifies the deduction to provide special rules for valuing food inventory;
  • increase in elective business 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; also made permanent is the allowance of expensing for computer software and qualified real property (certain leasehold improvement, retail improvement and restaurant property); the $500,000 and $2,000,000 limits are indexed for inflation for tax years beginning after 2015; expensing is allowed for air conditioning and heating units placed in service in tax years beginning after 2015; the election and the specifics of the election are made revocable;
  • the exclusion from a tax-exempt organization's unrelated business taxable income (UBTI) of interest, rent, royalties, and annuities paid to it from a controlled entity; made permanent;
  • the exclusion of 100% of gain on certain small business stock; 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; made permanent;
  • the reduction in S corporation recognition period for built-in gains tax; made permanent;

The new legislation also includes a two-year delay in a pair of new taxes installed as part of the healthcare reform law. The levy on medical devices (which would have started in 2016) and an-other on high-end health insurance plans, known as the "Cadillac tax," which would have applied beginning in 2018.

Extended Individual Provisions Include:

  • 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; 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; made permanent; also modified, beginning in 2016, to index the $250 cap to inflation;
  • the exclusion of up to $2 million ($1 million if married filing separately) of discharged principal residence indebtedness from gross income; 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;
  • the deduction for mortgage insurance premiums deductible as qualified residence interest; 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; made permanent;
  • the increased contribution limits and carryforward period for contributions of appreciated real property for conservation purposes is made permanent;
  • the above-the-line deduction for qualified tuition and related expenses; extended through 2016;
  • energy incentives were extended for two years including the $500 credit for purchase of certain non-business energy-efficient property; and
  • the provision that permits tax-free distributions to charity from an individual retirement account (IRA) of up to $100,000 per taxpayer per tax year, by taxpayers age 70½ or older; made permanent.
  • For the first time in many years you will be able to prepare tax projections without making a wide range of assumptions as to what the current and future years’ law will be with respect to these provisions.

    Please refer to the actual law for a complete understanding of the changes made by the 2015 Path Act.

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