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Tax Extenders Bill Passed by Congress & Signed into Law by President Obama

Taxpayers can rest easy this holiday season, knowing that the tax forecast for the 2016 filing season is now set in stone. Congress passed the “Protecting Americans from Tax Hikes (PATH) Act of 2015” on December 18th. The deal makes permanent several tax provisions, including the R&D credit and the enhanced Section 179 provisions, while extending other provisions for two to four years, such as the 50 percent bonus depreciation provision.
Here is a quick rundown of the key provisions extended, with notable items in bold:


Permanently extended:
  • The Research (R&D) Credit. In addition to being made permanent, the credit has also been expanded. Beginning with the 2016 tax year, businesses with less than $50 million in gross receipts will be able to use the credit to offset alternative minimum tax. Certain start-up businesses that may not have an income tax liability will be able to offset FICA taxes with the credit.
  • Exclusion of 100% of gain on qualified small business stock. This permanently allows a taxpayers who sells qualifying small business stock held for greater than 5 years to exclude the gain from sale (Subject to limitations).
  • Reduction in S corporation recognition period for built-in gains tax. Owners of C Corporations who elect to be taxed as an S Corporation will only be subject to corporate-level tax on the disposition of appreciated assets owned within 5 years of the conversion date, rather than the previous ten year rule.
  • 15-year straight-line cost recovery for qualified leasehold improvements, qualified restaurant buildings and its improvements, and qualified retail improvements. The shorter 15 year straight-line cost recovery life (compared to the previous 39 year life) for qualified leasehold, restaurant and retail improvements will be permanent.
  • Increased limitations for expensing and treatment of certain real property as Section 179 property. The $500,000 limit to immediately deduct qualifying asset acquisitions (with a phase-out starting at $2 million) has been permanently extended beginning January 1, 2015 and indexed for inflation thereafter. Section 179 will also continue to apply for purchases of computer software, and qualified leasehold improvements, qualified restaurant improvements, and qualified retail improvements.
  • The enhanced child tax credit.
  • The enhanced American Opportunity tax credit (post-secondary education).
  • The deduction for certain expenses of elementary and secondary school teachers.
  • Parity for exclusion from income for employer-provided mass transit and parking benefits.
  • The deduction of state and local general sales tax.
  • The special rule for contributions of real property made for conservation purpose.
  • Tax-free distributions from individual retirement plans for charitable purposes (up to $100,000 per year).
  • The charitable deduction for contributions of food inventory.
  • The tax treatment of certain payments to controlling exempt organizations.
  • Basis adjustment to stock of S corporations making charitable contributions of property.
  • The differential wage payment credit for employees who are active duty members of the uniformed services.
  • The treatment of certain dividends of regulated investment companies.
  • The Subpart F exception for active financing income.
  • The minimum low-income housing tax credit rates for non-Federally subsidized buildings.
Extended through 2019:
  • Bonus Depreciation on original use assets- 50% for 2015-2017, 40% for 2018 and 30% in 2019. Without additional legislation, bonus depreciation will not be available for tax year 2020 and beyond.
  • The Work Opportunity Tax Credit.
  • The New Markets Tax Credit.
  • Look through rule for payments between related controlled foreign corporations.
Extended through 2016:
  • Modification of the exclusion of mortgage debt discharge.
  • Mortgage insurance premiums treated as qualified residence interest.
  • The above-the-line deduction for qualified tuition and fees.
  • More than a dozen tax incentives related to energy production and conservation, including the Section 179D Energy Efficient Deduction of up to $1.80 per square foot.
  • Empowerment zone tax incentives.
The passing of this legislation provides millions of taxpayers some breathing room for year-end tax planning and certainty going into the 2016 tax filing season. The bill will also enable better tax planning as many provisions are now permanent or extended at least through the next tax year. Good news for taxpayers all around!
Please contact your Berntson Porter Tax Advisor at 425.454.7990 with any questions on the PATH Act of 2015.


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