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Volume 20; Tax Extender Highlights

Posted by Admin Posted on Dec 23 2015

 

PRESIDENT SIGNS TAX EXTENDERS BILL

On December 18, Congress passed and the President signed into law the “Consolidated Appropriations Act, 2016” and the “Protecting Americans from Tax Hikes (PATH) Act of 2015,” funding the government and providing a number of significant tax changes.

In this special edition Becker and Rosen Newsletter, we are providing you with a recapitulation of the many new tax provisions that these bills will enact or extend. Please find in the sections below the highlights of the acts covering: Individual Tax Breaks, Business Tax Breaks, Depreciation and Expensing Provisions, and Energy Provisions.

If you have any questions about how the new tax extenders may benefit you, or would like more information, please contact our office at (314) 725-0324.

 
INDIVIDUAL TAX EXTENDER HIGHLIGHTS


Written by: Annie Beckel, Staff Accountant

The Child Tax Credit (CTC)

  • This refundable credit has been made permanent at an unindexed $3,000 threshold. The CTC allows a $1,000 tax credit for qualifying children under the age of 17 that are claimed as a dependent. The CTC phases out when taxpayer’s exceed certain income thresholds. (MFJ $110,000, MFS $55,000, all others $75,000 for 2015)

The American Opportunity Tax Credit (AOTC)

  • Allows a taxpayer to claim up to a $2,500 credit to offset expenses for the first four years of post-secondary education. This credit has now been extended permanently. The credit is subject to phase outs of $80,000 for single filers and $160,000 filing jointly.
 Educator Expenses
  • Books, supplies, and other equipment used in the classroom were previously available as an above-the-line deduction, up to $250 per year. The new law permanently extends the deduction. For years beginning after December 31, 2015, the $250 limitation will be indexed for inflation and professional development expenses will also be eligible for the deduction.

The State and Local Sales Tax Deduction

  • This has been made permanent. Taxpayers are allowed to claim an itemized deduction for state and local general sales taxes instead of deducting state and local income taxes. The taxpayer can deduct the amount of sales tax paid during the year or deduct an amount prescribed by the IRS.

Nontaxable IRA Transfers to Eligible Charities

  • These have been extended permanently. Under these provisions, taxpayers who are age 70½ or older are allowed to make tax-free distributions to a charity, up to a maximum of $100,000 per year.

Mortgage Insurance Premiums as Deductible Qualified Residence Interest

  • This has been retroactively extended through 2016. Any mortgage interest premiums paid or accrued before January 1, 2017 in connection with acquisition indebtedness on a taxpayer’s residence are allowed to be deducted as qualified residence interest on schedule A.

Deduction for Higher Education Expenses

  • This has been extended through 2016. A taxpayer whose adjusted gross income (AGI) doesn’t exceed $65,000 ($130,000 MFJ) could take qualified tuition and related expenses as an above-the-line deduction up to $4,000. A taxpayer whose AGI is over $65,000 but under $80,000 ($160,000 MFJ) is limited to a $2,000 deduction. 
     
BUSINESS TAX EXTENDER HIGHLIGHTS


Written by Cindy Smith, CPA
           

Research Credit

  • Allows tax credits based on a percentage of qualified research expenditures. This credit has been retroactively and permanently extended. In addition, beginning in 2016 certain eligible small businesses may claim the credit against alternative minimum tax (AMT) and up to $250,000 per year of the credit can be utilized by certain small startup businesses against the employer’s payroll tax.

Small Business Stock

  • The exclusion of 100% of gain on certain small business stock was permanently extended, and also excepted from minimum tax preference treatment.

Work Opportunity Tax Credit

  • Gives employers a tax incentive to hire veterans, economically challenged individuals, and other members of certain targeted groups. This credit has been extended to apply to eligible individuals who begin work for the employer before January 1, 2019. The credit can be as high as $6,000 and in certain circumstances even higher when hiring certain veterans with service-connected disabilities.

Medical Device Tax

  • The act provided a two-year moratorium on the 2.3% excise tax imposed on the sale of medical devices. The tax will not apply to sales during 2016 and 2017.

W-2, W-3, and 1099 Forms

  • The provision requires forms W-2, W-3 and statements to report non-employee compensation (e.g. Form 1099-MISC) be filed on or before January 31st of the following year. This provision is effective for calendar years after the date of enactment (e.g. beginning with returns filed in 2017.) 

 

DEPRECIATION TAX EXTENDER HIGHLIGHTS

Written by Madeline Brinker, Staff Accountant
           
The PATH Act retroactively extends several depreciation provisions including Section 179 depreciation, bonus depreciation, and the 15-year depreciable life for qualified leasehold improvements.

Code Section 179 Depreciation

The Section 179 expensing limitation has been retroactively, and permanently, extended to be $500,000 for tax years 2015 and beyond. The $500,000 maximum is reduced dollar-for-dollar by the amount of Code Sec. 179 property placed into service over the $2,000,000 investment ceiling. Both the $500,000 maximum expense and the $2,000,000 limit will be indexed for inflation starting in the 2016 tax year. Additional permanent provisions passed under the PATH Act related to Section 179 depreciation include the following:

  • For tax years beginning after December 31, 2015, qualified real property, defined as qualified leasehold improvements, qualified restaurant property, and qualified retail improvement property, is eligible for Section 179 expensing. There is no longer a $250,000 expensing limitation, and there is not a carryover limitation.
  • Air conditioning and heating units are eligible Sec. 179 property in tax years beginning after December 31, 2015.
  • Off-the shelf computer software is eligible for Section 179 expensing.

Bonus Depreciation

The Act temporarily extends 50% bonus first-year depreciation for qualified property placed in service in 2015-2017. Bonus depreciation is extended through 2019, but the expensing allowance decreases to 40% and 30% in 2018 and 2019, respectively. Other provisions of the PATH Act in relation to bonus depreciation include the following:

  • Regardless of whether (a) improvements are done to property subject to a lease and (b) the improvements were placed in service three years after the building was placed in service, bonus depreciation is allowed for qualified improvement property.
  • For businesses with farming activities, bonus depreciation will be allowed for trees, vines, and plants bearing fruits or nuts when the plant is planted or grafted, rather than when it is placed into service. This provision is effective for 2016-2019.
  • Bonus depreciation may be allocated to a long-term contract for tax years 2015-2019.
  • First-year depreciation for passenger vehicles and light trucks & vans (under 6,000 lbs gross vehicle weight) is increased by $8,000 for tax years 2016-2017, $6,400 for 2018, and $4,800 in 2019.

Qualified Leasehold Improvements

Before the PATH Act was enacted, the 15-year straight-line cost recovery for qualified leasehold improvements, as defined under Sec. 179 depreciation, was scheduled to expire after December 31, 2014. The Act has retroactively and permanently extended this cost recovery provision.
           

 
ENERGY TAX PROVISIONS HIGHLIGHTS


Written by Cindy Smith, CPA

Nonbusiness Energy Property Credit

  • This was extended to apply to property placed in service after December 31, 2014 and before January 1, 2017. The provision allows a credit of 10% of the amount paid (up to $500) for certain energy efficient improvements, such as insulation, windows, boilers, fans, and building property.

Wind and Solar

  • In the Consolidated Appropriations Act of 2016 several wind and solar energy tax credits were extended and/or phased down through 2021. 
     
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Becker and Rosen CPAs, LLC Disclaimer

This newsletter is intended to provide generalized information that is appropriate in certain situations. It is not intended or written to be used, and it cannot be used by the recipient, for the purpose of avoiding federal tax penalties that may be imposed on any taxpayer. The contents of this newsletter should not be acted upon without specific professional guidance. Please call us if you have questions. 

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