On December 31, 2014, over 50 largely taxpayer-friendly tax provisions expired. There has been movement in Congress for the past several months to extend them. On December 18, 2015 the extending legislation was enacted into law, when President Obama signed The Protecting Americans From Tax Hikes Act of 2015. The law makes some of the previously expired provisions permanent, extends some of the provisions for five years, and extends other provisions for two years through 2016. The more relevant provisions of the law are discussed below. Unless otherwise indicated, all of the provisions discussed have been retroactively reinstated to January 1, 2015.
Permanent Provisions: Some of the provisions that have been permanently extended are:
- The research and experimentation credit;
- Enhanced use of the research credit for certain small businesses—Beginning in 2016, eligible small businesses ($50 million or less in gross receipts for the three-taxable-year period preceding the current taxable year) may claim the credit against the alternative minimum tax liability. An eligible small business includes a corporation that is not publicly traded, a partnership, or a sole proprietorship that meets the gross receipts test. At the partner or S-corporation shareholder level, the partner or shareholder must additionally meet the gross receipts test. Qualified small businesses (those with gross receipts of less than $5 million for the current year and no gross receipts for any tax year before the five tax years ending with the current tax year) can claim the credit against their payroll tax liability of up to $250,000 per year for up to five tax years. A qualified small business includes a corporation (including an S-corporation) or partnership that meets the gross receipts test. An individual carrying on one or more trades or businesses also may be considered a qualified small business if the individual meets the gross receipts test;
- Enhanced Section 179 expensing—The Section 179 deduction is now $500,000, with the phase-out beginning at total fixed asset additions in excess of $2,000,000;
- 15-year straight-line depreciation for qualified leasehold improvements, qualified restaurant improvements, and qualified retail improvements;
- Exclusion of 100 percent of gain on certain small business stock, and the elimination of the gain as an AMT preference item;
- The reduced five-year recognition period for the S-corporation built-in gains tax;
- Tax-free treatment of distributions (up to $100,000) from individual retirement plans by individuals who are at least 70 ½ years old, if the proceeds are contributed to qualified charities;
- The basis adjustment to stock of S-corporations making charitable contributions of property is reduced by the shareholder’s pro rata share of the adjusted basis of property contributed by the S-corporation;
- Enhanced American Opportunity tax credit—The increased credit is $2,500 for four years of post-secondary education, and the increased beginning phase-out thresholds are $80,000 (single) and $160,000 (married filing jointly);
- Parity for the exclusion from income for employer-provided mass transit and parking benefits;
- Enhanced child tax credit; and
- The option for individuals to deduct state and local sales taxes in lieu of state and local income taxes as an itemized deduction.
Five-Year Extension: The provisions the legislation extended for five years are:
- Bonus depreciation. Although bonus depreciation has been extended, it is being phased-out over five years and will be gone in 2020. The new law provides for 50 percent bonus depreciation in 2015, 2016, and 2017; 40 percent in 2018; and 30 percent in 2019;
- The work opportunity tax credit is extended and modified to also apply, beginning in 2016, to employers who hire qualified long-term unemployed individuals, and the credit with respect to such long-term unemployed individuals is increased to 40 percent of the first $6,000 in wages;
- The new markets tax credit; and
- Look-thru treatment of payments between related controlled foreign corporations under Subpart F, foreign personal holding company income rules. The law extends the look-through treatment for payments of dividends, interest, rents, and royalties between related controlled foreign corporations, exempting these in most cases from Subpart F treatment.
Two-Year Extension: Some of the provisions the legislation extended for two years include the following:
- The above-the-line deduction for qualified tuition and related expenses—The deduction is capped at $4,000 for an individual whose AGI does not exceed $65,000 ($130,000 for joint filers) or $2,000 for an individual whose AGI does not exceed $80,000 ($160,000 for joint filers);
- Deductibility of mortgage insurance premiums as qualified residence interest;
- The gross income exclusion for discharge of indebtedness on a principal residence;
- The credit for construction of new energy-efficient homes—An eligible contractor may claim a tax credit of $1,000 or $2,000 for the construction or manufacture of a new energy efficient home that meets qualifying criteria;
- The deduction for energy-efficient commercial buildings; and
- A moratorium on the 2.3 percent medical device excise tax. The tax will not apply to sales during calendar years 2016 and 2017.
Please contact your FGMK tax professional to discuss how the provisions of the new law will impact you.
Contact the Author, Steven Bokiess
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