Many important tax changes were enacted in the Protecting Americans from Tax Hikes (PATH) Act of 2015. These changes involve both retroactive provisions for 2015, and permanent extension of some tax-saving laws. Here is a summary of the major changes.
Business Tax changes
The most anticipated change was the permanent extension of Section 179 expensing limits. The annual expensing limitation has been set at $500,000, and the investment ceiling has been set to $2 million. (This means that purchases of equipment that exceed the $2 million ceiling will reduce the expensing election dollar for dollar. At $2.5 million in purchases, the Section 179 deduction is completely phased out.)
The de minimis safe harbor amount for the expensing of repairs and maintenance costs has been set at $2,500 for taxpayers without an “applicable financial statement” (unaudited statement.)
More building improvements will be eligible for bonus depreciation. Under the PATH Act, qualified improvement property is eligible for bonus depreciation. “Qualified improvement property is any improvement to an interior portion of a building that is nonresidential real property, if the improvement is placed in service after the date the building was first placed in service. The previous rules have been expanded to include property that is not subject to a lease, and structural components of a building that benefit a common area are not excluded from the definition of qualified improvements.
For tax years beginning after December 31, 2015, businesses with less than $50 million in gross receipts may offset their employer FICA tax liability with the research credit.
The rules for donation of food inventory have been expanded. The deduction is the lesser of a) the cost of the food plus 50% of the income that would have been recognized if the food were sold at retail, or b) twice the cost of the food. Eligible food donations are made to exempt organizations and used in their charitable purpose.
The PATH Act has permanently extended the differential wage payment credit for all employers who make payments to employees for periods they are called to active duty. These payments represent all or part of the wages the employee would have otherwise received. The credit is equal to 20% of up to $20,000 of payments made.
Individual Tax Changes
The American Opportunity Tax Credit, which provides up to $2,500 in partially refundable tax credits for post secondary education, has been made permanent. The rules for qualifying for the refundable child tax credit have also been expanded. The above-the-line deduction for qualified tuition and related expenses has been extended through 2016.
The “educator’s deduction” for up to $250 of expenses paid for classroom materials has been made permanent, and expanded to include professional development expenses. The deduction will be indexed to inflation beginning in 2016.
Taxpayers may exclude up to $2 million of discharged principal residence indebtedness from income, through 2016. If a binding written agreement is entered into in 2016, but the indebtedness is not discharged until 2017, this will also qualify. The deduction for mortgage insurance premiums as qualified residence interest has also been extended through 2016.
The provision that permits tax-free distributions to charity from an IRA by taxpayers age 70 ½ or older has been made permanent. The amount of eligible distributions that qualify for this provision is $100,000.
The energy credit for nonbusiness energy-efficient improvements to the taxpayer’s main home has been extended through 2016, along with many alternative production credits and construction of energy efficient new homes. The credit for new qualified fuel cell motor vehicles has also been extended through 2016.
These are the major provisions of the new tax law. As always, please feel free to contact our office if you have questions about how these new provisions might affect your situation.
