The 2015 calendar year saw many new tax developments, especially toward year-end. The Consolidated Appropriations Act, 2015 and the Protecting Americans from Tax Hikes (PATH) Act of 2015 both signed into law on December 18, included a several important tax changes, including making permanent a number of key taxpayer-favorable “extender” provisions. Here is a quick summary of the most important tax changes.
Family and Individual Tax Breaks
Tax Breaks Made Permanent. The Act makes a whole slew of favored individual provisions permanent, including the following:
- IRA Qualified Charitable Contributions. IRA owners who have reached age 70½ are allowed to make tax-free charitable contributions of up to $100,000 directly out of their IRAs made in tax years 2015 and beyond. Such contributions are called Qualified Charitable Distributions (QCDs), and they count as IRA Required Minimum Distributions (RMDs).
- American Opportunity Tax Credit (AOTC). The AOTC is a credit of $2,500 for various tuition and related expenses for the first four years of post-secondary education. It phases out for AGI starting at $80,000 (if single) and $160,000 (if married filing jointly). The Act makes the AOTC permanent.
- Deduction of State and Local General Sales Taxes.
- $250 Deduction for K-12 Educators.
- Qualified Conservation Contribution Breaks.
- 100% Gain Exclusion for Qualified Small Business Corporation (QSBC) Stock.
- Parity for Employer-provided Transit and Parking Benefits.
- Favorable Rule for S Corporation Donations of Appreciated Assets.
Credits for Qualified Solar Electric and Water Heating Property Extended through 2021.
Tax Breaks Extended through 2016. Individual tax breaks that weren’t made permanent or extended through 2021 by the Act, were extended for two years through 2016, including the following:
- Tax-free Treatment for Forgiven Principal Residence Mortgage Debt.
- Mortgage Insurance Premium Deduction.
- Qualified Tuition Deduction.
- $500 Energy-efficient Home Improvement Credit.
New Tax Breaks. The Act also includes a number of new individual tax breaks, including:
- Allowing tax-preferred distributions from 529 accounts to be spent on computer equipment and technology.
- Allowing ABLE accounts (tax-preferred savings accounts for disabled individuals) to be established in any state.
- Allowing a taxpayer to roll over distributions from an employer-sponsored retirement plan [e.g., a 401(k) plan] and traditional IRA (that is not a SIMPLE IRA) to a SIMPLE IRA, provided the SIMPLE IRA has existed for at least two years.
Cost Recovery Provisions
Enhanced Section 179 Deduction Made Permanent. The Act retroactively restores and makes permanent the (1) enhanced maximum Section 179 deduction of $500,000 (same as in effect from 2010 through 2014), (2) enhanced Section 179 deduction phase-out threshold of $2 million (same as in effect from 2010 through 2014), and (3) rule allowing Section 179 deductions for qualified real property.
Additionally, for tax years beginning after 2015, (1) the $500,000 and $2 million limits will be indexed for inflation, (2) the special $250,000 deduction cap that previously applied to qualified real property will be eliminated, and (3) air conditioning and heating units will be eligible for expensing.
15-year Depreciation for Certain Real Property Improvements Made Permanent. The Act retroactively extends and makes permanent the 15-year straight-line depreciation privilege for qualified leasehold improvements, qualified restaurant property, and qualified retail space improvements.
Bonus Depreciation Extended through 2019. The Act retroactively extends bonus depreciation for qualifying new (not used) assets that are placed in service during 2015 through 2019 (2020 for certain assets with longer production periods). The bonus depreciation percentage is 50% for property placed in service during 2015 through 2017 (2018 for certain assets with longer production periods) and phases down to 40% for property placed in service in 2018 (2019 for certain assets with longer production periods), and 30% for property placed in service in 2019 (2020 for certain assets with longer production periods).
For new passenger autos and light trucks subject to the luxury auto depreciation limitations, the bonus depreciation increases the maximum first-year depreciation deduction by $8,000 for vehicles placed in service through 2017, $6,400 for vehicles placed in service in 2018, and $4,800 for vehicles placed in service in 2019.
Other Business Tax Breaks
Tax Breaks Made Permanent. Business provisions made permanent by the Act include the following:
- Research and Development (R&D) Credit. Additionally, beginning in 2016, eligible small businesses ($50 million or less in gross receipts) may claim the credit against Alternative Minimum Tax (AMT), and the credit can be utilized by certain small businesses against the employer’s payroll tax (i.e., FICA) liability.
- Differential Pay Credit for Small Employers. The Act retroactively and permanently extends the credit for eligible small employers that provide differential pay to employees while they serve in the military.
- Break for S Corporation Built-in Gains.
Work Opportunity Tax Credit (WOTC) Hiring Deadline Extended through 2019.
Tax Breaks Extended through 2016. The following business tax breaks were retroactively extended for two years through 2016:
- Credit for Building Energy-efficient Homes.
- Energy-efficient Commercial Building Property Deduction.
New Rules for Information Reporting
Accelerated Due Date for Reporting Employee and Nonemployee Compensation. Starting with 2016, Forms 1099-MISC and W-2 filed in 2017, the returns must be filed with the IRS (or SSA) by January 31 of the year following the calendar year to which such returns relate and they are no longer eligible for the extended March 31 filing date for electronically filed returns.
Penalty Relief for De Minimis Errors on Information Returns. For returns required to be filed after 2016, the Act establishes a new safe harbor from penalties if the return is otherwise correctly filed but includes only a de minimis error of $100 or less ($25 or less in the case of errors involving tax withholding). In this case, the issuer is not required to file a corrected return and no penalty is imposed, unless the recipient of the incorrect return requests a corrected return.
Healthcare Excise Taxes Delayed
The Act delays the imposition following healthcare excise taxes:
- Medical Device Tax. The tax will not apply to sales during calendar-years 2016 and 2017.
- Cadillac Tax. The tax will now be imposed for tax years beginning after 2019. The Act also makes this tax a deductible business expense.
As you can see, the tax extender legislation includes lots of tax changes and not all of them were extender provisions. We did not cover them all here because we did not want this to turn into a book. If you have questions or would like more complete information, please contact us at 703.385.8888 or firstname.lastname@example.org.