NEW YORK - (Jan. 7, 2016) – Three weeks ago, President Obama signed the Protecting Americans from Tax Hikes (PATH) Act of 2015 into law, which included a tax extender package, addressing tax provisions that previously expired during the end of 2014.

These extensions were required for a number of individual, energy and business tax breaks. Furthermore, many of the more than 20 tax provisions that had previously expired, were retroactively reinstated or made to be permanently changed.

Some of the noteworthy permanent changes include enhancements to the American Opportunity Tax Credit (AOTC) and the Earned Income Tax Credit (EITC), which were set to expire in 2017. The American Opportunity Tax Credit, made to offset college costs, was permanently extended as well as the EITC, a refundable federal income tax credit for low- to moderate-income working individuals and families.

Below is further supplemental information, courtesy of the New York State Society’s Personal Financial Planning Committee and Warren Bergstein of Adelman, Katz & Mond, LLP.

Individual

Permanent:

• Tax-free IRA contributions to charity after age 70 ½ - permits tax-free distributions to charity from IRA held by someone age 70-and-half or older of up to $100,000 per taxpayer, per taxable year. These distributions will qualify as part of the taxpayer’s annual required minimum distribution. Amounts in excess of $100,000 must be included in income but may be taken as an itemized charitable deduction, subject to the usual AGI annual caps for contributions.
• State and local sales taxes itemized deduction – the election to claim an itemized deduction for state and local general sales taxes, in lieu of deducting state and local income taxes, expired after Dec. 31, 2014. The Act makes the election permanent.
• Teachers’ Classroom Expense Deduction – the act permanently extends the above – the line deduction for elementary and secondary-school teacher’s classroom expenses.
• Basis adjustment to stock of S-Corporations making charitable contributions of appreciated property.

Permanent with new restrictions:

• American Opportunity Tax Credit - An individual cannot retroactively claim the credit by amending a return for any prior year in which the student for whom the credit is claimed did not have an ITIN.  Provision also bars the individual from claiming the credit for 10 years if they have fraudulent claims of the credit and two years if the credit was claimed with a disregard of the rules. IRS has math error authority allowing them to disallow credit without a formal audit if it is claimed in a period in which the taxpayer was barred.
• Enhanced Child Tax Credit - The threshold amount for determining whether a taxpayer is eligible for the refundable child tax credit is permanently set at $3,000. This bill adds a provision barring individuals from claiming the credit for 10 years if they fraudulently claimed the credit and for two years if they are found to have claimed the credit with reckless or intentional disregard of the rules.

Extended 2015-2016 (two years):

• Income exclusion for discharged mortgage debt – The Act excludes from income cancellation of mortgage debt on a principal residence of up to $2 million ($1 million for filing separately) through 2016. Without an extension, debt that is forgiven through a foreclosure, short sale or loan modification could be treated as taxable income if another exclusion, such as for insolvency, is not available.
• Deduction of mortgage insurance premiums – The Act extends this special treatment through 2016.
• Deduction of qualified tuition & fees “above-the-line” – the Act extends through 2016 the above the line deduction for qualified tuition and fees for post-secondary deduction.

Business

Permanent:

• Five-year holding period for S Corporation built-in gains for dispositions – The Act makes permanent the five-year recognition period for build-in gain following conversion from C to an S corporation.
• Qualified small business stock gain exclusion – The 100 percent exclusion allowed for gain on the sale or exchange of qualified small business stock held for more than five years by non-corporate taxpayers is made permanent.
• Research Tax Credit - refundable up to $250,000 against employer payroll taxes for any business less than 5 years of age and $5 million in annual gross receipts. Private companies with less than $50 million in gross receipts can use the credit against Alternative Minimum Tax.
• 15-year straight-line cost recovery for qualified leasehold improvements, qualified restaurant buildings and improvements, and qualified retail improvements
• Section 179 depreciation(first year expensing) - Increased $500,000 expensing limit and $2 million phase-out threshold and an expanded definition of Sec. 179 property to include qualified real property. Eliminates the $250,000 cap with respect to qualified real property beginning in 2016.

Various:

• Work Opportunity Tax Credit-Extended (through 2019)
• CFC-related payment look-through rule-Extended (through 2019)
• Energy Efficient Commercial Building Deduction-Extended for two years (2015 through 2016)
• New Markets Tax Credit-Extended through 2019 with an annual allocation of $3.5 billion and extends the carryover period to 2024
• Production Tax Credit for Renewables-Extended for five years (2015 through 2019)
• Affordable Care Act “Cadillac Tax”- Postponed the starting date from 2018 to 2020
• Affordable Care Act Medical Device Tax-Two year moratorium
• Bonus depreciation-Extended for property placed in service through 2019 (2020 for certain long-lived and transportation property).  50 percent rate for 2015-2017, 40 percent rate for 2018, and 30 percent rate for 2019
• Indian employment credit/accelerated depreciation (through 2016)
• Railroad track maintenance credit (through 2016)
• Empowerment zones incentives (through 2016)
• Film/television expensing (through 2016)
• Seven-year recovery period for motorsports entertainment complexes (through 2016)
• Code Sec. 199 deduction for Puerto Rico (through 2016)
• Cover over of rum excise taxes (through 2016)
• Economic development credit for American Samoa (through 2016)
• Mine rescue team training credit (through 2016)
• Election to expense mine safety equipment (through 2016)

Additional information:

• Optional standard mileage rates for business use of a vehicle will go down in 2016. For business use of a car, van, pickup truck, or panel truck, the rate for 2016 will be .54 cents per mile, compared with .575 cents in 2015. The portion of the business standard mileage rate that is treated as depreciation will be .24 cents per mile for 2016, the same as 2015.
• Driving for medical or moving purposes may be deducted at 19 cents per mile, which is four cents lower than for 2015.
• The rate for service to a charitable organization is unchanged, set by statute (Sec. 170(i)) at 14 cents a mile.

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