Alfred A Cohen, CPA

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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.

The PATH Act retroactively extends the 50 or so taxpayer-favorable tax “extenders”—temporary tax provisions that are routinely extended by Congress on a one- or two-year basis that had been expired since the end of 2014. It made permanent more than a dozen individual and business. The following are some of the changes enacted.

The Child Tax Credit (CTC) allows taxpayers to claim a $1,000 tax credit for each qualifying child under age 17 that the taxpayer can claim as a dependent. The CTC phases out when taxpayers' income exceeds certain thresholds. To the extent the CTC exceeds the taxpayer's tax liability; the taxpayer is eligible for a refundable credit equal to 15% percent of earned income in excess of a threshold dollar amount. The Act makes the enhanced CTC permanent by setting the threshold dollar amount for purposes of computing the refundable credit at an unindexed $3,000. This change is effective for tax years beginning after the enactment date.

College Credits - the American Opportunity Tax Credit (AOTC) increased the college credit to $2,500 for four years of post-secondary education, and increased the beginning of the phase-out amounts to $80,000 (single) and $160,000 (married filing jointly). The Act makes the AOTC permanent. Effective for tax years beginning after Dec. 31, 2014, the Act retroactively extends through 2016 the above-the-line deduction for qualified tuition and related expenses for higher education.

Educator Expenses - The Act permanently extends the educator expense deduction and, for tax years beginning after Dec. 31, 2015, modifies the deduction by (i) indexing the $250 amount for inflation, and (ii) treating professional development expenses as expenses eligible for the deduction.

Sales Tax Deduction - Effective for tax years beginning after 2014, the Act retroactively revives and makes permanent the option to claim an itemized deduction for State and local general sales taxes in lieu of an itemized deduction for State and local income taxes.

IRA Transfers to Charity - Effective for distributions made in tax years beginning after Dec. 31, 2014, the Act retroactively revives and permanently extends the ability of individuals at least 70½ years of age to exclude from gross income qualified charitable distributions from IRAs of up to $100,000 per year.

Discharged Home Mortgage Debt - The Act extends this exclusion for two years so that it applies to home mortgage debt discharged before Jan. 1, 2017. For discharges of debt after Dec. 31, 2015, the exclusion also applies to home mortgage debt that's discharged subject to a written arrangement that's entered into before Jan. 1, 2017.

Mortgage Insurance Premiums -  Effective for amounts paid or accrued after Dec. 31, 2014, the Act retroactively extends this provision for two years so that a taxpayer can deduct, as qualified residence interest, mortgage insurance premiums paid or accrued before Jan. 1, 2017. This deduction is subject to an income phase-out.

Employer Sponsored Mass Transit and Parking Benefits - For 2015, an employee could exclude from gross income up to: (1) $250 per month for qualified parking, and (2) $130 a month for transit passes and commuter transportation in a commuter highway vehicle. For months after Dec. 31, 2014, the Act permanently extends the maximum monthly exclusion amount for transit passes and van pool benefits so that these transportation benefits match the exclusion for qualified parking benefits. These fringe benefits are excluded from an employee's wages for payroll tax purposes and from gross income for income tax purposes.

Expenses of Business Assets Purchased (Code Section 179) - Under Code Section 179, a taxpayer, other than an estate, a trust, or certain non-corporate lessors, may elect to deduct as an expense, rather than to depreciate, up to a specified amount of the cost of new or used tangible personal property placed in service during the tax year in the taxpayer's trade or business. The $500,000 expensing limitation and $2 million phase-out amounts are retroactively extended and made permanent. For tax years beginning after December 31, 2015 the limits will be indexed for inflation.

Qualified Leasehold Improvements - Effective for property placed in service after Dec. 31, 2014, the Act retroactively extends and makes permanent the inclusion of qualified leasehold improvement property, qualified restaurant property and qualified retail improvement property in the 15-year MACRS class.

Bonus First Year Depreciation - The Act extends bonus depreciation for qualified property acquired and placed in service during 2015 through 2019 Eligible taxpayers will be able to claim a 50% bonus depreciation allowance for qualified property placed in service in 2015 through 2017

Tax provisions in the Consolidated Appropriations Act include: a delay of the 40% excise tax on high cost employer-sponsored health coverage (i.e., the so-called “Cadillac” tax), a one-year suspension of the annual fee on health insurance providers, and the extension and phase-out of credits for wind facilities, the election to treat qualified facilities as energy property, the solar energy credit, and qualified solar electric & water heating property credits.

These are some of the extenders signed into law.


Season’s Greetings.

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