On December 18th, Congress passed and the President signed into law the “Protecting Americans from Tax Hikes (PATH) Act of 2015”. Included in the law are a number of individual and business tax provisions which were extended or made permanent and will affect taxpayers for 2015. Below is a summary of some of the tax provisions in the law.
Business
- Enhanced Expensing Made Permanent – The Act makes permanent the Sec. 179 maximum expensing limit for the cost of new or used tangible personal property placed in service in the taxpayer’s trade or business during the year. Taxpayers can expense in the current year, up to a maximum of $500,000 of qualifying personal property purchased through-out the year. The $500,000 limit is reduced dollar for dollar by the amount of personal property placed in service during the year that exceeds $2,000,000. Therefore, if a trade of business purchases $2,100,000 of personal property, the taxpayer could immediately expense up to $400,000 = $500,000 – ($2,100,000 – $2,000,000). The remaining cost of the personal property must be capitalized and depreciated or amortized.
- Bonus First-Year Depreciation Extended Through 2019 – The Act extends the tax law that allows taxpayers to take an additional first-year depreciation deduction (also called bonus depreciation) equal to 50% of the adjusted basis of the qualifying property. The 50% limit will be allowed for 2015 through 2017. For 2018 the bonus depreciation amount will decrease to 40% and in 2019 it will decrease to 30%.
- Research Credit Permanently Extended and Made Creditable Against Other Taxes – Under the pre-Act law taxpayers were allowed to claim a credit against taxes for qualified research expenses paid or accrued prior to December 31, 2014. The Act retroactively and permanently extended the research credit. Therefore, an eligible taxpayer can take the credit for 2015 and going forward.
- Reduction in S Corp Recognition Period for Built-In Gains Tax Permanently Extended – An S corporation generally is not subject to tax, but instead passes through its income to its shareholders, who pay tax on their pro-rata shares of the S corporation’s income. Where a corporation that was formed as a C corporation elects to become an S corporation (or where an S corporation receives property from a C corporation in a nontaxable carryover basis transfer), the S corporation is taxed at the highest corporate rate (currently 35%) on all gains that were built-in at the time of the election if the gain is recognized during a recognition period. Under pre-Act law, for S corporation tax years beginning in 2012 and 2013, the recognition period was five years (instead of the generally applicable 10-year period). Thus, the recognition period was the 5-year period beginning with the first day of the first tax year for which the corporation was an S corporation (or beginning with the date of acquisition of assets if the rules applicable to assets acquired from a C corporation applied). If an S corporation disposed of such assets in a tax year beginning in 2012 or 2013 and the disposition occurred more than five years after the first day of the relevant recognition period, gain or loss on the disposition wasn’t taken into account in determining the net recognized built-in gain. New law. The Act retroactively and permanently provides that, for determining the net recognized built-in gain, the recognition period is a 5-year period—the same rule that applied to tax years beginning in 2014.
- Exclusion of 100% of Gain on Certain Small Business Stock Permanently Extended -A taxpayer may exclude all of the gain on the disposition of qualified small business stock acquired after Sept. 27, 2010 and before Jan. 1, 2015. None of the excluded gain is subject to the alternative minimum tax. Under pre-Act law, the exclusion was to be limited to 50% of gain for stock acquired after Dec. 31, 2014, and 7% of the excluded gain was to be an alternative minimum tax preference. New law. The Act retroactively and permanently extends the 100% exclusion and the exception from minimum tax preference treatment.
- Additional Law Changes –
- 15 Year write-off for qualified leasehold and retail improvements and restaurant property made permanent.
- Enhanced deduction for food inventory permanently extended and expanded.
- Work opportunity credit extended and expanded through 2019.
- Indian employer credit extended through 2016.
- New markets tax credit extended through 2016.
- The de-minims safe harbor amount for deducting materials and supplies was increased from $500 to $2,500 for business which do not have applicable financial statements.
- Extension of the Energy credits, including a 30% credit for solar and wind, even some credits for home installations.
- Oregon Law Changes – Oregon now requires all employers to accrue sick leave for all employees. Employees can earn 1 hour of sick leave for every 30 hours worked up to a max of 40 hours. If the employer has more than 10 employees then the employer must pay the employee for the sick time taken.
Individuals
- Above-the-Line Deduction for Educator Expenses Made Permanent -Under pre-Act law, eligible elementary and secondary school teachers could, for tax years beginning before Jan. 1, 2015, claim an above-the-line deduction for up to $250 per year of expenses paid or incurred for books, certain supplies, computer and other equipment, and supplementary materials used in the classroom. New law. 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.
- Enhanced American Opportunity Tax Credit Made Permanent – The Act made permanent the American Opportunity Tax Credit which allows for a credit up to $2,500 annually for four years of post-secondary education expenses.
- Nontaxable IRA Transfers to Eligible Charities Made Permanent – The Act make permanent and retroactively extends the ability for taxpayers who are age 70 ½ or older to made tax-free distributions to a charity from an IRA up to $100,000 per year.
These are just a few of the changes that were made under the new law. If you have questioned please contact Eric Bell at ebell@islercpa.com